The 3 Biggest Challenges Facing Stratasys, Ltd.

Ssys Human Model

Image source: Stratasys.

Although the 3D printing industry offers attractive growth potential, Stratasys’ (NASDAQ:SSYS) performance has failed to impress investors over the last six quarters. Since the start of 2015, Stratasys has been hit with a notable slowdown in customer spending, and the stock reacted in kind:

SSYS Chart

SSYS data by YCharts.

When a stock loses a significant amount of its value, it often indicates that the company faces serious underlying challenges. Stratasys is no different. The company currently faces three major challenges that could undermine its turnaround efforts.

Falling printer sales

Due to the slowdown in customer spending, Stratasys has seen six straight quarters where its printer sales have fallen on a unit and revenue basis. Management’s prevailing theory is that customers have too much 3D printer capacity on hand and are opting to utilize their existing printers instead of purchasing new ones.

Ssys Annual Change

Data source: Stratasys. Graph by author.

Although the fall in 3D printer sales has had less of an impact on Stratasys’ overall revenue over the last two quarters, slowing printer sales threaten the long-term potential of its razor-and-blades model. After all, printer sales fuel the repeated sale of materials, which are consumed over a printer’s lifetime and typically carry a higher margin. With falling printer sales, the potential of this future revenue stream likely weakens.

Increased competition

Between the recent entrance of Carbon and the upcoming entrance of HP, Stratasys faces more competition than ever. Carbon’s M1 printer is anywhere from 25 to 100 times faster than technologies before it, while HP’s upcoming Multi Jet Fusion printers claims to be 10 times faster than leading extrusion and selective laser sintering-based printers. Overall, these new entrants threaten Stratasys’ competitive positioning, which could make it more difficult for the company to stand out.

While it’s too early to say conclusively, Stratasys’ management claims that it hasn’t been subjected to competitive pressures. However, the risk is if the market validates HP and Carbon with strong sales and Stratasys is slow to respond, it could come at the expense of the company’s market share.

Execution

In recent years, Stratasys’ execution has been a far cry from stellar. The company failed to realize the growth potential of previously made acquisitions, including its MakerBot unit, which suffered from ongoing performance and quality issues. Ultimately, these mishaps forced the company to write off a significant value of assets tied to acquisitions. Since the start of 2015, Stratasys goodwill and intangible assets have fallen over 68%:

SSYS Goodwill and Intangibles (Quarterly) Chart

SSYS Goodwill and Intangibles (Quarterly) data by YCharts.

Last month, Ilan Levin assumed the role of CEO and hopes to improve the company’s execution, efficiency, profitability, and overall strategy. Levin has been with the company in an executive role from 2000 to 2012. However, Levin’s leadership style, approach, and ability to stage turnarounds, are largely unknown to the market. The risk is that Stratasys chose a leader that’s too similar to his predecessor, David Reis, whose actions as CEO led to execution issues it faces today.

The bigger picture

Before investing in a stock, it’s important to understand the risks and challenges a business faces as it works to realize its full potential. For Stratasys, a large part of its future success hinges on management’s ability to navigate the challenges it currently faces. In other words, without solid execution on management’s part, the company’s other challenges may become more pronounced.

Steve Heller has no position in any stocks mentioned. The Motley Fool recommends Stratasys. 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.

Four big trends that will be everywhere at the biggest tech trade show

The CES 2013 prototype of True Player Gear's VR headset. What will be hot in consumer electronics and computing in 2015? Read VB’s full coverage of International CES 2015 to find out.

Four big trends are driving consumer electronics today, and they all involve how everyday objects
are becoming smarter and more connected.

Those trends include the digitization of our physical space, permeation of logic, the “Internet of me,” and fragmented innovation. We’ll explain each of these trends below. The top analyst of the Consumer Electronics Association, which puts on the 2015 International CES, predicts these trends will dominate the big tech trade show in Las Vegas this week.

“We are shifting from what something we could do technologically to what is technologically meaningful,” said Shawn Dubravac, chief economist at the Consumer Electronics Association in a press briefing at the start of CES.

“We see these things playing out at CES, like micro-customization,” Dubravac said.

We can, for instance, use a smart heating system to heat just one room in the house, he said.

“You can even micro-control the vents within each room,” he said.

3D printing is one of the areas benefiting from micro-customization trend. There are now 50 3D printing vendors at the show, and the sales in the space are rising rapidly, Dubravac said.

2014 will see 1.3 million units sold for 4K TVs in the U.S., up from 77,000 in 2013. The number is expected to grow to 4 million in 2015 and 10 million in 2016. That’s phenomenal growth, Dubravac said.

Revenues for drones are up 50 percent from last year, and units sold will hit 425,000 in 2015. Global revenue for drone sales in 2015 is expected to be $130 million. He said we could expect to see 100 different
types of drones debut at CES this year.

Smartwatches are expected to ship 10.8 million units in 2015, Dubravac said. The space dedicated to smartwatches is up four-fold from a year ago.

“It’s an area that continues to see growth and experimentation,” he said.

The trend for the permeation of logic is about one thing that logically flows from another.

One consequence is predictive customization, or redefining the recommendation as companies such as Netflix have done. The online entertainment service can recommend which movies you will enjoy based on your past viewing. Over time, that predictive engine improves, and it provides data that helps Netflix run its overall business.

Devices like the Dropcam security camera know how many people are in a room. Your smartwatch knows your
stress level. Netflix makes recommendations based on basic demographic data. But if Netflix knows you are stressed out, it might recommend a light comedy for you.

Twitter can make recommendations to you about what people of your gender like. But it doesn’t have to ask what your gender is because the data it collects helps it make that determination.

Dubravac said the Internet of Things, or making everyday objects smart and connected, will give way to the “Internet of me.” We’ll see 50 billion objects become connected in the next couple of decades. If you toothbrush is connected, then your dentist will want to see that data. Then he or she can make recommendations based on the data, like why you don’t brush your teeth as much during the weekdays.

Virtual reality technology, which Dubravac said is going to be a big theme at CES, will further drive the wearable and “Internet of me” trend by giving you something to do in your own world, just about anywhere.

The fourth trend is fragmented innovation, or a diversity of innovation within the tech space. In the past 10 years, the emphasis was on devices that were widely owned, like laptops, tablets, smartphones, TVs, and game consoles. Those categories are half the revenue in consumer electronics. We’ll see a greater array of innovations spread across a greater array of categories, Dubravac said.

“Where we are going now, what you will see at CES, is a fragmentation of that idea, where a product gets maybe 20 percent penetration,” Dubravac said.


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3D Printing News: The Biggest Takeaways From EuroMold 2014

In the following video, 3D printing specialist Steve Heller reports from the floor of EuroMold 2014, the world’s largest 3D printing conference, held in Frankfurt, Germany, to share his biggest takeaways from attending the event.

In Steve’s opinion, 3D printing as a technology appears to becoming more widely accepted, which is resulting in a more mature conversation among attendees. Additionally, metal 3D printers are becoming more capable and focused on direct manufacturing applications, academic research firms are driving new innovations, and the industry as a whole may face increased competition thanks to attractive growth rates.

Going forward, 3D printing investors and industry watchers should monitor developments that come from industry conferences like EuroMold because they may uncover insights that could be difficult to discern from only reading a press release.

A full transcript follows the video.

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Steve Heller: Steve Heller here, EuroMold day three; we’re doing the takeaways. I’ve had time to go through the event. This is the largest 3D printing conference in the world. We’re in Frankfurt, Germany. It’s Thanksgiving Day, but we’re not done yet!

Let’s get into it. Some of the biggest takeaways I’ve seen this year, talking with the vendors and the employees of various 3D printing companies, the conversation that they’re having is much different than it was a few years ago.

A few years ago at EuroMold, people were just awestruck by the technology. They just didn’t really know much about 3D printing, and they didn’t have much of an understanding of what the possibilities were. They didn’t have their expectations set.

Now it seems that there’s more of an acceptance of 3D printing. This EuroMold hall is packed with 3D printing providers, so it seems like it’s more of an accepted industry, technology, for manufacturing and prototyping.

Now, instead of the conversation just being, “What is 3D printing?” it’s about why and how. “How can this benefit my operations? Why should I implement 3D printing?”

One of the biggest reasons is — prototyping is the best way to explain this — rapid iteration. Bringing your products to market faster is one thing, but also let’s say you have a product deadline and you want to bring a product to market in eight months. Instead of sending out for prototypes, you could 3D-print a prototype multiple times, and by the time you actually reach your deadline you can have a finished product that could be better because you’ve had more rapid iterations at a much cheaper price because there’s no tooling required.

Moving on there… in terms of metals, definitely a very interesting showing there between EOS, a German-based company. They’re No. 1 in metal 3D printing. I got to go to their press event. It was very interesting to learn that they grew revenues by about 36% year over year. There’s about a 50/50 split between metal and plastic machines. Being No. 1 in metal, they sold about 150 units.

The other [company focusing o metals] is 3D Systems (NYSE: DDD  ) . Their ProX 400 is a massive 3D printer. It has the largest builder of any 3D printer. I believe it’s 500 mm x 500 mm x 500 mm build volume, and it has a dual laser system which increases throughput.

Getting back to EOS here for a moment, EOS has a single laser system today. Their relentless emphasis on quality is what has made them No. 1. They have about 1,500 units installed worldwide, between their nylon and plastics and metal 3D printers.

They expect the split to be — right now it’s about 60% plastic and nylons to 40% metal in terms of their install base — they expect that to grow significantly. Going forward in the next year or two, they’re going to come out with a four-laser system that’s going to be four times as fast. Obviously, that lowers operating cost, that increases throughput, and that overall makes a better product, so 3D Systems’ ProX 400 at the time this EOS machine comes out may actually be not as compelling a product.

Going forward, in terms of most exciting for me — what really stole the show for me — I got to speak with this academic research group called TNO. They’re based out of the Netherlands. They’re self-funded, but actually, there’s a law in Netherlands government that there should be independent research institutions.

What they do is bring proof of concepts to the market. Right now, one of their proof of concepts that I thought was really interesting was very similar to 3D Systems’ “racetrack” design for Project Ara, which is basically a 3D printing platform that’s [meant for] rapid manufacturing.

The way that it works is, instead of the print heads moving and creating layer by layer, the print beds actually go around on a track and they visit different print head stations. That makes a 90% increase in throughput [in terms of print heads being in use], and makes it just a faster [by a factor of 10], better product overall in the experience for the manufacturing floor.

Overall, in terms of what this means for 3D Systems and everything in between, I think that 3D Systems isn’t the only company out there that’s actually offering this “racetrack” solution in the future.

TNO is actually looking for collaborators to bring it to market. They have the proof of concepts. Now they’re looking for a partner to actually bring this product to market, so 3D Systems’ product may not actually be as differentiated as it’s claimed to be.

Then in terms of some of the least exciting things, we’re in Hall 11. This is additive manufacturing; it’s crowded, there’s definitely a buzz, there’s a lot of energy going on over here.

Hall 8 though, which is the traditional subtractive manufacturing, those big CNC milling machines, pretty quiet; a little bit more low-key. It’s more of a mature industry. Just seeing the dichotomy between the two, I think was very interesting.

In terms of another overall theme I think investors should watch out for, the 3D printing industry is inviting a lot of competition because its growth is expected to be tremendous. Wohlers Associates projects about 31% growth, compounded every year between 2013 through 2020.

It’s going to become about a $20 billion industry, according to their estimates. That’s a pretty big number, and that’s inviting some big competition. When you have increased competition, that tends to drive prices down for the customer, but that may be hard for the businesses to manage.

Thinking about pricing pressures going forward, I don’t think we’re at the point where we’re seeing pricing pressures, but I think that that is going to be a theme that will potentially play out over the next few years.

That’s it for our takeaways from EuroMold 2014. Thanks for watching.