Lightweight-metals specialist Alcoa (NYSE:AA) has seen plenty of ups and downs in recent years, as the raw aluminum market has struggled because of low commodity prices and weak primary demand even as orders for customized parts made of aluminum and other lightweight materials have climbed substantially. In order to give customers the specialized materials they need, Alcoa has moved aggressively toward building up its capacity in a new manufacturing process, and earlier this month, the company said that it would make a big investment toward taking full advantage of the opportunities to use additive manufacturing -- also known as 3-D printing -- in order to further its business prospects.
What Alcoa is doing
Alcoa announced last week that it would expand its research and development center near Pittsburgh, investing $60 million toward accelerating the development of advanced 3-D printing materials and processes. In particular, Alcoa hopes that it can custom-make materials for use in making complex high-performance parts for aircraft, automotive, medical, and construction applications.
Seeking to incorporate additive manufacturing into the production process for custom parts isn't a new idea, but Alcoa is putting its own unique spin on its strategy. Dubbing a new process it calls Ampliforge, Alcoa intends to use a combination of additive manufacturing and traditional processes in order to make high-quality parts. In essence, Ampliforge has two stages: first using a 3-D printing technique to come up with a part that's nearly complete, and then finishing the part using a regular manufacturing process in order to strengthen and enhance other important properties of the materials involved.
Alcoa sees elements that will go into its success with the Ampliforge process. First, Alcoa intends to produce metal powders that incorporate aluminum, titanium, and nickel for use in additive manufacturing processes, the goal of which is to ensure high-strength 3-D printed parts. Second, by integrating other manufacturing techniques, Alcoa expects to boost speeds, cut costs, and create an ability to build parts that wouldn't be possible without the use of 3-D printing during the production process. Finally, with its extensive experience in testing and quality control, Alcoa will maintain the ability to evaluate its production processes and find ways to improve on them over time.
Alcoa continues to grow
Alcoa's latest announcement is far from its first move into the 3-D printing realm. The company boasts over 20 years of experience in working with 3-D printed materials, and its recent acquisition of RTI International gave Alcoa even more capabilities in 3-D printing of titanium, plastics, and other specialty materials for aerospace as well as the medical and energy industries.
Of course, the Ampliforge process won't be able to overcome all of Alcoa's challenges. Making value-added parts for highly technical needs is only a portion of Alcoa's overall strategy, and in order to achieve a full turnaround, the lightweight-metals specialist will need to see improving macroeconomic conditions in industries that rely more on Alcoa for raw materials like alumina or intermediate-production goods like rolled metal. Yet increasingly, Alcoa has relied on its ability to provide state-of-the-art parts and components for industries that can afford to pay premium prices for well-made products, and the success of its multi-part strategy has helped bolster Alcoa's prospects even in a tough primary metal environment.
Emphasizing the high end of its business will also help Alcoa compete more effectively against its aluminum-producing peers. In particular, Chinese companies have focused on producing aluminum as a commodity, and that has put pricing pressure on Alcoa and other companies in the industry. By building out its capacity to produce goods that Chinese competitors can't, Alcoa is building itself a moat around the best part of its business.
Alcoa's latest initiative in the 3-D printing industry shows just how high the stakes are in trying to be as efficient as possible in producing high-quality parts and components. If Alcoa can ramp up its capacity to create parts on demand to satisfy its customers, then the $60 million it's investing to expand its research and development facilities will be money well spent.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.