Should 3D Systems and Stratasys Worry About General Electric's 3D Printing Ambitions?

By Markets Fool.com

Image source: SLM Solutions.

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Last week, General Electric (NYSE: GE) sent shockwaves through the 3D printing industry when it announced plans to acquire two European metal 3D printer companies for a combined $1.4 billion. As one of the largest users in 3D printing, GE has gained an unparalleled understanding of how the technology can be used for variety of complicated manufacturing purposes.

By acquiring Arcam, a Swedish-based electron beam melting 3D printer manufacturer, and SLM Solutions, a German-based direct metal laser sintering 3D printer company, GE can now combine the expertise it's gained as a customer and sell a complete hardware and service solution to the marketplace. In other words, GE plans to take the market by storm by using its extensive infrastructure, resources, and manufacturing expertise to drive metal 3D printer adoption to unprecedented levels.

Arcam generated $68 million in revenue in 2015, while SLM generated $74 million during the same period. But by 2020, GE aims to generate $1 billion in 3D printing revenue. With ambitions larger than what 3D Systems (NYSE: DDD) and Stratasys (NASDAQ: SSYS)-- currently the two largest 3D printing companies by revenue -- generate in full-year revenue today,it's clear that GE wants to play a leading role in the future of metal 3D printing.

For 3D Systems and Stratasys investors, it's a question of whether or not they should be concerned.

From customer to competitor

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Essentially, GE went from being a major 3D printing customer to a major competitor overnight. The threat that GE poses to 3D Systems and Stratasys varies, given their focus.

With seven distinct 3D printing technologies in its portfolio, 3D Systems is currently the most diversified 3D printing company in the world, and metal only represents a fraction of its total business. Unfortunately, 3D Systems doesn't break out its metal 3D printer sales, making it impossible to estimate the potential impact of GE's influencing the market.

Still, it's clear that 3D Systems will lose GE as a metal 3D printer customer because the industrial giant will soon have the ability to manufacture metal 3D printers specifically tailored to its manufacturing needs. As a customer, prior to its $1.4 billion bid to buy Arcam and SLM, GE invested about $1.5 billion in 3D printing and advanced manufacturing technologies over the last seven years.

Stratasys doesn't face the same risk as 3D Systems from GE's entering the 3D printing hardware business because its hardware business is solely focused on plastic-based 3D printers. However, Stratasys may face increased competition in the area of 3D printing services. To be clear, this is a risk that 3D Systems also faces. After all, both companies produce 3D metal-printed parts for customers through their network of service bureaus and offer a suite of services that a customer can purchase.

Since GE expects that about 40% of the $1 billion in 3D printing revenue it aims to generate in 2020 will be services-driven, 3D Systems' and Stratasys' respective service offerings will arguably be in direct competition with a company that's intimately familiar with generating services revenue from equipment sales. During the first half of 2016, GE's services revenue made up a greater percentage of its total revenue than 3D Systems' and Stratasys' services revenues.

Company

Services as a Percent of Total Revenue, First Half 2016

GE (industrial revenue)

46.4%

3D Systems

40.2%

Stratasys

28.7%

Data source: GE, 3D Systems, and Stratasys.

The bigger picture

GE's manufacturing credibility, expertise, and resources are likely to narrow the gap between 3D printing primarily being used a prototyping technology today and becoming a more viable manufacturing solution in the future.

For 3D Systems and Stratasys, the good news is that they have a solid understanding of Arcam's and SLM's current offerings and a general idea of where GE plans to take the technology and its service offerings. However, the difficulty they face is how to respond to GE, a company that has gained a reputation creating market-leading technologies and services that come together as a cohesive end-to-end solution for customers' needs.

In other words, like 3D Systems and Stratasys, GE is taking an end-to-end solution approach as a way to attract new customers and drive the industry toward manufacturing applications. Ultimately, whichever company can best meet a customer's needs will win the business. In this sense, the marketplace has become more competitive for 3D Systems and Stratasys.

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Steve Heller owns shares of 3D Systems. The Motley Fool owns shares of General Electric. The Motley Fool recommends 3D Systems and 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.