Question of the Week: 3D Systems Futures
This week’s question is an interesting corporate enquiry.
Reader Pietro asks:
“I read the article regarding 3D Systems but I don't understand why the shares of the company are so low and could you explain me why they decided to close resellers, like in Italy where now only one master reseller sells with no competition.
We all know that when you don't have competition, the performance are never good as opposite.
Is this management capable to change the trend?”
The article Pietro refers to was published about a year ago after we had a sit-down chat with 3D Systems’ chief Vyomesh Joshi. In the interview, Joshi described his strategy of integrating hardware, software and materials together to form a seamless experience, which he believed would help move the company forward.
Whether that has succeeded or not is a question not yet answered.
However, I think there is some history to understand here, as I believe what we see today is the end-product of many factors playing out over a long period of time.
3D Systems is, in many ways, similar to Stratasys. Both companies got their start in the 1980s when their respective founders more or less simultaneously invented SLA and FDM 3D printing processes. These two processes were extensively patented and helped each of their companies grow tremendously over the next couple of decades.
Towards the end of their main patent periods, these two companies were the major players in the industry. They were (and mostly still are) the only two publicly traded dedicated 3D print companies.
But then the patents started expiring in and around 2009. This suddenly opened both companies up to considerable competition. At first it was smaller players with inexpensive — and far less capable — equipment such as from MakerBot and similar operations. In 2013 Stratasys eventually ended up buying MakerBot in a bid to keep hold of the shifting market.
3D Systems reacted to the competition in a legal way, striking lawsuits against those they felt were infringing on some of their remaining active patents.
These strategies were ultimately not particularly successful, as the competition continued to grow, and grow significantly in recent years.
Today we see the market riddled with multiple alternatives to systems offered by both companies, and this has significantly hurt their growth. This is reflected in their quarterly financial updates, as required due to their being publicly traded companies, and in their stock prices, which have been more or less stable for the past few years. This is after a massive rise — and subsequent fall — in stock prices due to the temporary 3D printing craze circa 2012-2015.
Now we see the two companies struggling to grow in the face of increasingly powerful competition. Even worse, we see new (freshly patented) technologies emerging that could scoop up market share from them. In the case of 3D Systems’ SLA system, new players like Carbon offer interesting alternatives, for example.
Both 3D Systems and Stratasys have some advantages in this colossal struggle: proprietary materials. They have a very large installed base of customers with leases on expensive equipment — all of which must use the proprietary materials from the manufacturer. Thus they both have a kind of captive market to sell large quantities of materials to for the foreseeable future, or at least until clients switch to alternative printers.
Stratasys has the additional advantage of having a captive sales force: their resellers are not permitted to sell any other suppliers’ equipment or materials. However, Stratasys did allow them to resell Desktop Metal products so they would not lose out on the increased interest in metal 3D printing.
In my view, there are two things they can do.
One is to leverage their current assets in the most optimum way possible. That seems to be what 3D Systems is doing through their integration strategy. The other approach would be to attempt to invent new 3D printing processes or tools that could grow a new market. That seems to be what Stratasys was doing with their interesting Demonstrator series, but for some unexplained reason we have not seen any further work on this. However, they have been working on metal 3D printing, too.
To answer the question more directly, both 3D Systems and Stratasys are facing increasing competition with only limited ways to react. That is ultimately why their share prices remain as they have been. And as competitive options heat up, resellers may suddenly switch partnerships to new companies, leaving holes in coverage in some regions. Will they be able to succeed? The 3D Systems strategy appears sound, but the situation is not great, and after a year, not much seems to have changed substantially for 3D Systems.