The 3D printing industry is undergoing a wave of consolidation with a focus on profitability and growth. In Lux’s recent research brief, “Consolidation in the 3D printing industry is reaching its peak (client-only),” we analyzed the merger and acquisition attempts of four publicly listed 3D printing companies: Desktop Metal, Nano Dimension, Stratasys, and 3D Systems. We argued that Nano Dimension’s bid to acquire Stratasys was unrealistic, and, even if the other mergers go through, the path to profitability is long. Indeed, none of the proposed mergers have materialized. The most plausible deal (between Stratasys and Desktop Metal) has been abandoned.
What does this tell us about the market? The 3D printing market is highly fragmented, with no company holding more than 5% of total market share. The combined portfolio of Desktop Metal and Stratasys may not have adequately served market needs and generated growth. Furthermore, the emergence of new, low-cost hardware and materials solutions has eroded the revenues of established players, namely Stratasys and 3D Systems. Their revenue growth has remained stagnant for the past five years, and they have failed to achieve profitability recently. In addition, smaller players face increasing competition and commoditization as different 3D printing processes target niche use-cases, thereby limiting the total addressable market size. While acquiring customers through mergers is a viable strategy, it cannot bring profitability for Desktop Metal, given the current high spending levels to generate growth: Profitability and growth are at odds for Desktop Metal.
What’s next? While Desktop Metal was fully supportive of the merger, Stratasys’ board did not see it as a viable option. Now, Stratasys is exploring “strategic alternatives,” but the path to profitability remains challenging, as the market fundamentals have not changed. Desktop Metal could seek other deals — especially with 3D Systems — but it is not going to solve the profitability and growth dilemma for the company. The struggles of these large players highlight the need for alternative business models, as relying on hardware and materials sales for growth has not proven effective. A more streamlined, application-focused, end-to-end service model can expand use-cases and, eventually, the customer base. In the process, the consolidation will continue as smaller players look for exits before valuations and capital decline much further.
To read more about alternative business models in manufacturing, download our Inspire Report Snapshot here.