Disruptive Technology Stocks

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$DDD - 3D Systems at epicenter of disruptive technology

By Don Worthington

http://www.charlotteobserver.com/2013/09/23/4336021/3d-systems-at-epicenter-of-disruptive.html#.UmPO5-KiQlQ

DON WORTHINGTON - [e-mail]
Employees at 3D Systems in Rock HIll started with a three-dimensional computer representation to create a minature downtown Charlotte. The city was built one layer -- no bigger than the width of a human hair-- at a time.
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No matter where you turn these days, 3-D printing seems to be all over the news.

So much so that TheStreet.com reports the industry is at the peak of the “hype cycle,” a process used to determine how markets are adopting technology.

At the epicenter of the hype cycle is 3D Systems of Rock Hill.

3D Systems is one of the hottest companies in the country in an industry expected to triple its sales to $6.4 billion by 2019.

3D Systems is fourth on Forbes’ list of fastest-growing technology companies and fifth on Fortune’s list. Annual sales have topped $354 million and the company is worth $4 billion on the New York Stock Exchange. Sales have jumped 46 percent over the last three years.

The epicenter reference suits Avi Reichental, 3D Systems’ president and CEO, just fine.

“All the magic happens in Rock Hill,” he said. “We are an overnight success 30 years in the making.”

The epicenter is where an earthquake starts spreading disruption and 3D systems is the center of disruptive technology, he said.

Disruptive technology is defined as something new that changes the normal flow of how things are made. Reichental relishes that role. The result – the company holds more patents than employees.

Chuck Hull founded 3D Systems in 1986, calling the technology sterolithography. Others called it additive manufacturing because material is added rather than taken away to make something. The process starts with a 3-dimensional computer image. Printers slice the image into layers no thicker than a human hair, applying materials slowly to build the product.

One of Hull’s original machines is displayed at the headquarters, tucked into a corner of the Waterford Business Park east of the Galleria Mall. Hull is still with the company, but he stayed in California when 3D Systems moved east in September 2006.

Inside the Waterford building, large, computer-controlled 3-D printers precisely apply soft or hard plastics, or reinforced composite materials, to create objects.

The printers can create one-of-a-kind parts, or the same part over and over. That’s the beauty of 3-D printing, Reichental said. With a tweak of a computer program, a custom piece can be created. Creating prototypes for all kinds of industries is simpler, quicker and cheaper, he said.

The Rock Hill location, as well as other sites scattered across the country, offer content-to-print solutions for a variety of industries from aerospace to health care and transportation.

In the lobby are small consumer machines called the Cube, turning out smaller projects. The Cube sells for $1,299 at retailers such as Staples.

Throughout the building are examples of what’s possible, from sandals, an intricate lampshade, and a red-white-and-blue plastic electric guitar to automotive parts and car seat frames.

The building also has 3D Systems’ research and development offices.

What excites Reichental the most is the intellectual aspect of the process, how to make things different, better, more efficiently.

Doing things differently includes 3 D Systems’ recent purchase of The Sugar Lab, a small firm using sugar to make 3-D prints.

Others are using 3-D printing to take human tissue and make body parts. NASA recently issued a research-and-development contract to 3-D print food for outer space.

While 3D Systems is on the cutting edge of technology, its success comes the old-fashioned way.

“We have to know the spoken and unspoken needs of our customers,” Reichental said. Knowing what customers need now and anticipating what they’ll need ahead is one of Reichental’s strengths.

To that end, “nothing useful happens behind my desk,” he said.

Reichental describes his job as that of the “chief customer office and the chief intelligence officer.”

“I want to make sure I have my finger on the pulse of disruption, on the pulse of customers and on the pulse of opportunities,” he said in an interview with Investors Business Daily earlier this year.

But it wasn’t always this way. When Reichental came to 3-D Systems 10 years ago, he found a much different corporate culture.

The company had an innovative product, “but it was far too complex, far too expensive and took a rocket scientist to operate,” he said. The company’s culture was “we are so great, we know everything. Build it and they will come,” he said. The company was building printers – and debt.

Reichental knew he had to change things. He debated taking the job, but his wife, Dorit, convinced him he had to take what could be a once-in-a-lifetime chance in 2003.

If took a couple of years to make the changes. Colleagues call his management “creative innovative chaos.” When Reichental and 3D Systems were ready to make a splash, the economy tanked, but it had its coming-out party regardless: “We instinctively knew what to do.” It continues to refine its larger manufacturing printers and moved into the consumer market with the Cube. The primary focus remains with its high-end 3-D printers.

To stay on the cutting edge, 3D Systems has aggressively pursued others with great ideas. Since 1990 it has acquired 37 companies.

“It’s a fool’s errand to develop everything internally,” he said. To increase its capacity and market share, 3D Systems “wants entrepreneurs to hang with us,” Reichental said. “We want to get the first look at good ideas.”

Cathy Lewis, now 3D Systems’ vice president of global marketing, was among the first business owners acquired by 3D Systems. She was part of a company trying to build a small 3-D printer.

“I came to Rock Hill to see what 3D Systems was doing and I had to be part of this,” she said.

Some financial analysts have expressed concerns that the acquisitions could overextend 3D Systems, and others don’t share Reichental’s vision that 3-D printing will be an industry game changer. Yet Citigroup recently issued a buy recommendation for the company’s stocks.

Reichental said the acquisition strategy is designed to keep 3D Systems from being acquired by others. “We want to grow ... It’s good to be the 500-pound gorilla,” he said.

Mark Vitner, a managing director and senior economist at Wells Fargo, was at a recent conference in California about new technologies. The latest tech bubble – social media, cloud-based computing, apps and 3-D printing – have rescued California from the recession.

While no one mentioned 3D Systems by name at the conference, it was clear that’s who they were talking about, Vitner said.

“We need to grow this important sector locally, and we have a long way to go. But we already have one of the leaders, 3D Systems here,” Vitner said at Friday’s economic forecast breakfast at Winthrop University.

Looking ahead, Reichental is mindful that “this is just the beginning.”

“The audience is widening, we are maturing. It’s important that we not lose the passion, are not fooled by early success.”

To move forward, 3D Systems has a four-pronged approach: expand midmarket sales of 3D printers, boost health care sales, increase its parts business and increase consumer sales.

Reichental also is mindful that the future will not be one technology versus another. “We have to improve manufacturing in a more significant way with hybrid systems.”

Most of all, “if you’re not moving forward, you’re moving backward.”