June 09, 2016      

Steve Crowe and Tasha Keeney discuss 3D printing growth projections, cost-savings in impacted industries and anticipating HP’s next move in the market.

The 3D Printing industry is growing so rapidly that analysts are forced to revise their projections constantly. Want to understand what all the buzz is about and the logic behind those billion-dollar projections?

Tasha Keeney, Industrial Innovation thematic analyst at ARK Invest tells RBR’s Managing Editor, Steve Crowe, all about what makes 3D printing a winning be for investors, from market drivers to the new productivity that has stoked the fire within U.S. manufacturing.

Transcript

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Steve: Hello everyone. Welcome to today’s edition of Robo-briefings, I’m Steve Crowe, managing editor of Robotics Business Review. Today’s topic: 3D Printing. We’ll examine growth projections, cost savings for companies and HP’s entrance into the marketplace and how that will impact other companies. Joining us on the phone is Tasha Keeney, a thematic analyst at Ark Invest who specializes in Advanced Manufacturing. Tasha thanks for coming on our podcast.

Tasha: Thank you.

Steve: I want to start with taking a look at your research paper: “3D Printing: Analysts Are Underestimating the Future”, has a lot of interesting insights and projections that I’d like to share with our audience, and maybe you can comment on a few aspects of that research. First, let’s start off with this chart that you see on your screen here that forecasts a robust 3D Printing Industry for 2020. Most of the analysts forecast three to six times what the industry is today. That’s heavy growth in just five years, what do you think is driving that optimism, especially McKenzie’s 50 times growth?

Tasha: Sure, so McKenzie’s estimate is much larger than other analysts’ forecasts because they use a top down approach. Basically, they looked at the potential market and broke it out into the broad opportunity groups. So one of them, consumer products that might be 3D printed and another direct product manufacturing. So then they said okay, we think a portion of this market can be addressed by 3D printing and then they account for a bit of cost savings to the end consumer which ultimately decreases the market size. Based on those figures, we arrived at the estimate that you see in the chart, the 180 to 490 billion potential market size. Which is honestly a lot higher than the other analyst’s forecasted, say 12 to 20 billion. It looks like other analysts are basically using growth rates from today to draw out an estimated top line growth for the future, so they’re just really dragging that tacker. Using this, it can be a safe and conservative approach. I think what might be missing is future applications of 3D printing that might not be immediately obvious today. A good example of this is if you look the cell phone market. Originally, estimates for the future market of cell phones assumed something like 1 million units globally, and today we’re at 4 billion units, obviously a big change. And 3D printing matures. Product design is also going to change, it’s not necessarily going to be today’s products that are sent forward, but different kinds of products that were designed with this new knowledge of what manufacturing capabilities are available to us with 3D printing. You can already see that analysts are underestimating the market. If you look over the past year, a lot of people had to revise up their forecast upward by a factor of one and a half to two times. We think that they might just keep revising those forecasts until they get closer to the McKenzie estimate.

Steve: Yeah, I think it’s certainly changing fast in the 3D Printing industry. To your point, even Wohler’s estimate of 21 billion by 2020 was just one year ago half of that number, again things are quickly changing. We’re going to move on to this McKenzie chart that everybody hopefully sees on their screen. Could this chart be telling us part of the reason for 3D printings’ growth from 2015 to 2020 and will many more of the 40 percent suddenly and finally perceive the relevance of 3D printing to their business and take action?

Tasha: Yeah. I think that 40 percent is a high number. It’s a good example of how much room 3D printing has to grow. Through the 80s and 90s the way that manufacturing adapted and changed was by productivity improvements that helped cut costs. Since that time, China is now a huge player, manufacturers are backed in search of that productivity. I think 3D printing can help achieve those gains. I think that would help drive this perceived relevant force and drive growth. Another thing that I think will help with relevance is that 3D printing capabilities are still expanding. Today, it’s used mostly for prototyping and small batch, really customized orders but as the technology improves that with speed and with quality, you can use it for more production orders. There’s a company called FIT Group that has plans to come out with a system that can produce more end products or production orders. This is the same company that is working with HP on their 3D printing offerings. I also think that the portion of respondents in the chart that say 3D printing will not be relevant to them are probably still going to be affected by macro tail winds. US manufacturing costs are under pressure from driving wages in Chinese labor. There’s an increase in need for manufacturers to iterate with products, you see this with tech giants like Google that are big proponents of iteration. 3D printing can help produce products more cheaply and it can help you iterate quicker. It also helps bring production back from overseas, so, we are closer to the end customer and you shorten the supply chain. Really this is a major upheaval of older manufacturing processes and it will have really wide growth effects.

Steve: I want to read quote from part of your research it says, “While today’s 3D printing lacks the speed and precision of traditional manufacturing methods, it is improving along to 10-20 percent technology cost curve, depending on the industry.” Can you just explain to everybody what this technology cost curve is all about and what it could mean for 3D printings impact on traditional manufacturing?

Tasha: Sure. The technology cost curve comes from something called Wright’s Law which describes the effects of learning on production costs. Wright’s Law is actually the best way of forecasting cost declines for technology. There’s a really great paper from the Santa Fe Institute that demonstrates this, if you want to look it up. Basically we recognize, that the repetition of the same operation results in less time or effort expanded on that operation. So, for the right learning curve our underlying hypothesis is that the direct labor manufacturing hours necessary to complete one unit of production will decrease by a constant percentage every time there’s a cumulative doubling in production quantity. For 3D printing, we predict this is a 10 to 20 percent decline in costs for every cumulative doubling. We arrived at that by looking at related industries. If you look at manufacturing equipment, it also follows a similar cost curve but the difference is that that’s a more mature industry. Cost declines are smaller today because it basically has less cumulative doubling ahead of it but the 3D printing is still young. It should experience these rapid cost declines today, until it catches up to where the more traditional manufacturing equipment is today.

Steve: I want to ask you about savings and companies who turn to 3D printing, how much can it help them save? You have a little tidbit here about General Electric, saying that it currently uses 3D printing in some form for 10 percent of its manufacturing but projects that number to grow to roughly 20-25 percent in 10 years and to 50 percent within 20 years. Since GE’s cost of sales were about $80 billion in 2013, if 3D printing were to be used in more than 50 percent of its manufacturing processes, GE would save billions of dollars. I mean, that’s quite fascinating. Can you just comment on what the US industrial landscape would look like in terms of savings if we took that GE case and applied it to the entire country?

Tasha: Sure. First to clarify, GE says that 3D printing will touch up to 50 percent of its manufacturing in 20 years. What that means is, it doesn’t mean that 50 percent of its manufacturing is going to be 3D printed but rather the technology it can be involved, somewhere along process to the final product in some form, for 50 percent of production. We say that, GE will save billions because the company saves a portion of that 50 percent of the 80 billion. If we’re extrapolating back out to the entire economy, you can say that industrial production is roughly 10 percent of the US economy, so GDP is 16.7 trillion and 10 percent of that would be 1.7 trillion. If production is, $1.7 trillion a year, if 15 percent of that were to involve in 3D printing in some form we would save in the tens of billions of dollars.

Steve: Final question for you, Tasha, before we let you go. I want to read another part of some of your research here about HP: “HP may have an advantage with its well-known brand in the printer industry but its roots are not in the industrial sector. That’s said, it has the financial muscle with a market cap of $73 billion compared to Stratasys and 3D systems’ $2.8 billion and $3.2 billion market cap, respectively.” Do you see either Stratasys or 3D Systems as a potential acquisition for HP, especially making sense because HP roots aren’t in the industrial sector such as Stratasys and 3D Systems?

Tasha: HP partnered with Stratasys for two years, but ended up ending their relationship in 2012 when the company was going through restructuring. Since then, it seems like they’ve reconsidered the potential to be a player in the market. I think for now, it looks like HP is planning on a competing with its own offering. It’s working with partners like FIT Group, as I mentioned, but in the long-term sure it will probably look for an acquisition target.

Steve: Tasha Keeney, thematic analyst at Ark Invest. We appreciate you taking a time to join us again.

Tasha: Thanks, happy to be here.

Steve: To listen to other episodes of Robo-briefings please visit roboticsbusinessreview.com, plus check out all our additional industry coverage available to RBR members including in-depth reports, research, and expert interviews. If you’re not already a part of the RBR community, we encourage you to visit roboticsbusinessreview.com and become a member today. We’ll see you next time.

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