HP Inc: HPQ Stock Building a Future with 3D Printing

After many years of laying the groundwork in 3D printing, HP Inc (HPQ) finally has something concrete to show for its troubles. HPQ will start selling its first 3D printer, dubbed Jet Fusion 3D 4200, in late 2016 while its peer, Jet Fusion 3D 3200, will hit the market sometime in 2017.

HP Inc: 3D Printing Could Buoy HPQ Stock

HP has set a $130,000 price tag for the 3200, but has no word yet for the 4200.

HPQ stock has reacted positively to the new 3D printers, and is still holding onto gains of 3% since the unveiling.

HPQ Revolutionizing 3D Printing

3D printing, also known as additive manufacturing, involves using machines to deposit successive layers of material, often molten plastic, using computer-aided designs to generate objects of various shapes and sizes.

Consumer-grade 3D printers, that typically cost a couple of hundred bucks and can be used at home, work more or less like glue guns by squirting out streams of plastic to produce one object at a time. Meanwhile, industrial 3D printing is used to produce highly customized parts that are needed in small quantities such as heart valves, dental and orthodontic parts, prosthetic limbs and aircraft parts.

But this is not the kind of 3D printing that HPQ has in mind. HP is looking to revolutionize the industry by manufacturing 3D printers that are capable of mass customization.

The company says that its 3D printers are capable of printing objects 10x faster than competing printers by the likes of 3D Systems Corporation (DDD), Stratasys, Ltd. (SSYS), Mcor Technologies, EOS and Envison TEC, which are the biggest manufacturers of industrial-grade 3D printers.

These 3D printing heavyweights price their printers in the $100,000 to $850,000 range. HP might be able to quickly gain traction in the market since it has not only priced its 3D printers in the lower range of the high-end market, but its printers can deliver a sucker punch performance to boot.

Throw in the fact that HP also claims that its 3D printers will accomplish the job at just half the cost, and the new printers might hit the ground running.

HPQ Looking for New Growth Avenues

HP has long been typecast as an unglamorous PC and printer manufacturer whose heyday is long gone. But the company is now trying to demonstrate that its innovation DNA remains alive and well.

But even more importantly, HP is looking for new growth avenues to breathe some life into its beleaguered PC/printing business.

After spending years trying to restructure its operations and turn its fortunes around, HPQ still remains a company deep in the throes of a severe revenue tailspin. During the last quarter, the company’s top line shrunk a jaw-dropping 11% to $11.59 billion.

The company’s high-margin Printing Division, where it derives more than three-quarters of its operating profits, posted a 16% revenue contraction to $4.6 billion while operating income fell 18.4% to $801M.

Just like the PC business, HP’s printing business has been badly hammered by the smartphone and tablet revolution. With the prevalence of mobile and other digital technologies, people just aren’t printing stuff as much as they used to. This has led to HPQ stock tanking more than 25% over the past five years.

The good part, though, is that HP has managed to remain the clear market leader in the printing industry. The company’s 40% printing market share is more than the combined market shares of its next two biggest rivals: Japanese manufacturers Canon Inc (ADR) (CAJ) and Epson (SEKEY).

HP will probably enjoy a nice head start in the business, since it has already managed to nab big names such as Nike Inc (NKE), BMW, Autodesk, Inc. (ADSK), Proto Labs Inc (PRLB), Johnson & Johnson (JNJ) and Materialise NV (ADR) (MTLS) for its new 3D printers.

HP can conceivably use its powerful brand recognition to muscle its way into the 3D printing business and steal significant market share from the likes of 3D Systems and Stratasys.

Are 3D Printers Enough for HP Inc?

But just how well can selling 3D printers fill the gaping hole left by a shrinking printing business?

Research firm Markets & Markets pegs the 3D printing market at just $6.7 billion in the current year, but says the market will expand at a healthy 28.5% CAGR over the next six years to hit $30.2 billion in 2022. Assuming HP is able to grab, say, 25% market share by 2022, that’s a nice $7.6 billion in incremental revenue, or about 17% of HP’s revenue base.

That might not be enough to offset the double-digit declines in the company’s printing business, but can give a nice boost to HPQ stock nevertheless.

But the real opportunity for HP lies in the long-term rather than the short-term or even medium-term. For all its technological wizardry, HP’s 3D printing growth will probably be dictated by how fast the industry expands and new applications for the technology are discovered.

Further, for HP to truly become a top player in the market, it has to have a complete end-to-end business that will encompass software, services and materials, and these take time to develop.

Indeed CEO Dion Weisler correctly noted that the company has “a very long road map” ahead before it can hit that goal. HPQ has a long-term goal to make 3D printers that are capable of embedding sensors as well as including embedded information such as codes or invisible traces.

Early indications are that HP has what it takes to dominate the 3D printing market over the long term, and that’s good for HPQ stock. For investors looking to buy HPQ stock, the mayhem created by the Brexit creates a nice window of opportunity since the stock has sold off over 5%.

As of this writing, Brian Wu did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/06/hpq-stock-hp-inc-3d/.

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