Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation.
A major change to how goods are produced is on its way. The nascent 3D-printing industry is already worth over $1.3bn and soon printers in the home, the workplace or the factory that are able to produce explicitly customised and differentiated products will be commonplace. This is no less the realm of science fiction than the growing ubiquity of robots we discussed in the last edition of Helicon Thoughts. Put simply, manufacturing is becoming ‘smarter;’ businesses and individuals are beginning to understand the benefits of doing more with less. This has profound ramifications, not just for the renaissance of industry (without even contemplating the societal impact), but also for investors, who should be considering the most appropriate means of gaining exposure to this inexorable trend.
The concept is very simple. Imagine you need a new part for your washing machine. Rather than waiting for it to arrive from the manufacturer or worrying about whether it has been discontinued, this is what you do: first, you call up the image on your computer screen (accessed via the manufacturer’s website or some sort of other image library). If you wish, you have the ability to amend it, say, by changing the colour. Once done with this stage, just press print. The printing machine nearby activates and then the part gradually begins to be built. Typically, thin layers of material (plastic/ metal dust etc.) are deposited from a nozzle and then solidified via tiny amounts of glue (or another substance – sometimes laser, ultra violet or heat) from a tightly focused beam. The spare part is therefore created gradually, in several layers, hence why 3D-printing is often referred to as additive manufacturing. Small items such as this may be produced in the home; larger items in offices or factories. Companies including GE and Boeing have already incorporated the production technology into their businesses, while there is also growing popularity among dentists and doctors, for whose patients, the creation of a uniquely personalised replacement tooth or limb is logically appealing.
The significance of how 3D-printing will change industry should not be understated. Most importantly, it overcomes the challenge of how to make complicated and novel items accurately and in small quantities. In many ways, with 3D-printing humankind will have come a full circle. From at least 5,000BC, craft-based techniques have been deployed to make everything from weapons to cookware. This era was one of ‘low-volume customisation,’ where everything was made on a one-off basis. Wind the clock forward to the 19th Century and standardisation had become one of the cornerstones of the Industrial Revolution. 3D-printing has the potential to reconcile successfully both the speed and efficiency of mass production with the flexibility and variety of customisation. In theory, as printers grow in number, reliability and complexity, it should be as cheap to create single items as it is to produce thousands.
It is hard to get accurate data on the size of the industry. At present, the process only works with certain materials (typically, plastics, resins and metals) and has a precision of around a tenth of a millimetre (0.01cm). Nonetheless, Wohlers Associates, an American consultancy, estimates that there are around five million 3D-printers in existence, with the industry currently worth $1.3bn. By end-market, the consumer industry accounts for 24% of demand, followed by the automobile (17%) and healthcare markets (14%). Most items produced by such printers are currently used either as functional models or visual aids, although Wohlers estimates that around 15% of goods manufactured are used in direct part production.
Growth prospects look attractive and as with computing a generation ago, both the cost and the efficiency of 3D-printers should improve. According to various sources, the cost of a basic 3D-printer is now less than that of 2D-laser printer twenty years ago. Some basic models now retail for around only $1,000. Moreover, demand looks set to increase given the advantages that the technology can bring. Beyond the obvious democratisation (i.e. the customer gets to choose how the product looks, with only minimal compromises concerning cost and quality), there are clear efficiency benefits.
With 3D-printing, the timeline of new product development, from idea to manufacture is significantly reduced. Furthermore, it now becomes possible to bring new products to market where historically volume may not have been sufficient to establish a production line. Legerwood, another consultancy, calculates that with 3D-printing, there could be a 50-80% drop in the time it takes to bring a product from concept to manufacture. In addition, with additive manufacturing – by definition – there is zero raw material loss, since the product is built up gradually; by contrast, with traditional tooling, excess material is removed to create the end-product. Both capital and labour costs should therefore be lower in a world of 3D-printers and for companies, this could result in an acceleration of the trend towards on-shoring and closer customer proximity, something that is already occurring in the United States.
The automobile and aircraft industries have been embracing 3D manufacturing for some time. Boeing has been using 3D printers for over a decade to make parts at 10-30% less weight than previously, resulting in cost savings of 25-30%, according to the company. Lightness is crucial in making aircraft with a reduction in 1kg of weight saving the airliner around $3,000 of fuel annually (with the additional benefit of also reducing carbon dioxide emissions). Customised, printed parts are typically considerably lighter, but equally as sturdy as their machined alternative. This is just the potential tip of the iceberg: General Electric has said that it plans to use 3D-printers to make up to half of all parts used in its energy turbines and aircraft engines within ten years, while General Motors, believes that over the next decade, additive manufacturing could allow it to be producing its own car engines.
The healthcare industry is another field where significant progress is being made with regard to 3D production. The logic seems obvious given the unique biological features of individuals. EOS, a privately-owned German supplier of printers, says that just one of its 3D machines is currently able to produce up to 400 dental crowns, each tailored for an individual patient, in a period of only 24 hours. At a number of universities, developments are afoot to use 3D-printers for making human cells and hence organs. Scientists at MIT, for example, have worked to create a synthetic liver using cell structures and sugar to build a network in which blood vessels can grow.
Against this background, estimates that the 3D-printing industry may more than treble before the end of this decade do not look unreasonable. The projections of Wohlers suggest that the industry could be worth more than $3bn by 2015 and more than $5bn by 2020. While such growth prospects suggest that there should be numerous attractive investment opportunities, at least two issues need to be considered. First, there may be limitations to the rate at which the industry can develop. Time and cost are critical factors. At present, many products take as long as a day to manufacture at present, and while basic machines may retail at a not unreasonable price (c$1,000), those being used by the likes of Boeing or GE cost closer to $1m. Speed and price will inevitably improve, but for now, the technology still works best for producing small quantities of custom products. Moreover, the extent to which molecules can be manipulated by 3D-printers is still unclear. Even if a proto-liver, for example, can be produced, whether it functions properly (and in all people) will only be known over the medium-term.
The second important consideration is given the nascent nature of the industry, where the most lucrative investment prospects lie is still open to debate. Hardware manufacturers, software developers and component manufacturers (i.e. the chemical suppliers of the consumables) all have important roles to play in the value chain. Alternatively, if the benefits are as profound as those quantified by Boeing or GE, then the case for investing in businesses that are already embracing 3D-technology (additionally, EADS, BMW, Honda, Siemens and Rolls Royce to name but a few) is also compelling. Finally, do not discount the role that law firms may have to play in the future: potentially infinite customisation may bring clear gains, but also opens up multiple interpretations of what could constitute copyright infringement.
Within the 3D-printer market, two businesses dominate the industry: 3D Systems and Stratasys. Both have delivered at least 20% annualised returns for investors over the last five years and are still capitalised at less than $2.5bn. 3D Systems (3DS) is ranked market leader by revenues and retails machines from $1,300-950,000. Its customers include the likes of Ford, GE, Nike, Apple, Airbus, Mercedes and Samsung. Stratasys has been producing 3D-printers since 1988 and has sold over 20,000 units since then, ranging in price from $1,500-380,000. 3DS and Stratasys both continue to expand via acquisitions. On the software side, Dassault (15% annualised returns since 2007) is the global leader in 3D design software and digital mock-up. Recent results saw financial guidance raised on prospects for this business unit. Autodesk (US-listed) and Hexagon (based in Sweden) are also active in this field. Finally, within the area of non-ferrous metal powders and alloys used for 3D-printing, Swedish listed Hoganas has shown early initiative; divisions of many other speciality manufacturers (e.g. GKN and Sandvik) are also currently exploring opportunities here.
The printer that is able to make you a new part for your washing machine may not be in your house tomorrow, but there will almost certainly be some such devices already owned by the likes of Electrolux or Whirlpool. More likely, the aeroplane you next fly on will contain parts created by a 3D-printer and your next visit to the dentist or doctor may also be much more rewarding as a result of this technology. Given the benefits that additive manufacturing and 3D-printing can bring, the industry looks set only to burgeon from here. Put another way, in 1450, no-one could have foreseen the impact that the printing press would have and continues to have today. How companies are doing business is undoubtedly changing and current developments may well provide a robust platform for future, concentrated growth – a highly welcome development in such times of economic dislocation.
Alexander Gunz, Fund Manager
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