Barron's Bullish Stance on HP Inc.
Charles R. Goulding and Peter Favata of R&D Tax Savers discuss a bullish look at HP’s 3D printing activity.
The August 5th, 2019 issue of Barron's features a very bullish article on HP Inc. entitled "HP Inc. Is Still Printing Big Bucks and More," which we view as positive for the entire 3D printing industry.
Ideally, every industry wants Wall Street to view its entire business sector favorably. However, when it comes to publicly traded 3D printing companies, Wall Street is generally familiar with only a few big names. In addition to HP Inc. and GE (which is dealing with other business challenges), there are two long-standing pure players: 3D Systems and Stratasys. HP is a household name that people recognize; this is not something very common in the 3D printing industry yet. Established in 1939, HP has been a leader in the computer and printing industry for many years. It makes perfect sense that HP Inc. entered the 3D printing industry, being that their largest source of profit is from 2D printers, with 70% of profits coming from printing last quarter.
Good Things Come to Those Who Wait
HP has been developing groundbreaking 3D printer hardware that has the ability to print parts or entire products. They can print with plastics and are expanding to print with metals.
As the author of the Barron's article states, HP's 3D printing has taken longer to come to fruition than originally hoped. However, HP has the experience to develop a comprehensive ecosystem to expand this business segment on a larger scale. HP appears to be investing significant resources in 3D printing. Their new research and development facilities in Barcelona, Spain and their Innovation Center in Costa Rica, completed in 2019, are examples of their commitment to supporting the innovation process for their products and services. HP’s Barcelona 3D Printing and Digital Manufacturing Center of Excellence is one of the largest structures in the world, clocking in at over 150,000 square feet.
Individuals and companies who engage in 3D printing should be eligible for R&D Tax Credits, which are briefly described below
HPs Global Partnership Ecosystem
In addition to a culture of innovation, HP has manufacturing experts, a vast sales and marketing network, and a world-class partnership network.
These partnerships including BASF, the world's leading chemical and materials company that has invested heavily in prospective 3D printing opportunities. This is not the first alliance between these two companies. In the past, they created the most powerful R&D computer to date. Johnson & Johnson is another partner. HP and Johnson & Johnson are working together to bring 3D printing to the robust medical device industry. HP is also partnering with GKN, a multinational automotive and aerospace components manufacturer, developer, and supplier. GKN provides high-precision metal solutions for industrial applications. This makes them an ideal partner for HP because it allows for expansion into developing metal 3D printers. Furthermore, HP Inc. has partnered with leading auto brands, including BMW and Land Rover. This makes HP a major contributor to the 3D printing auto sector. BMW alone has 3D printed over one million parts so far. Partnering with HP can exponentially increase this number.
The Research & Development Tax Credit
Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
Must be technological in nature
Must be a component of the taxpayer’s business
Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
Must eliminate uncertainty through a process of experimentation that considers one or more alternatives
Eligible costs include US employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, US-based contractor research expenses, and certain costs associated with developing a patent.
On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax for companies with revenue below $50MM and, startup businesses can obtain up to $250,000 per year in payroll tax cash rebates.
It is vital that HP Inc. provides visible leadership in the 3D printing sector. This leadership will benefit the entire 3D printing industry while providing the world with high-quality, cost-effective products and parts.