Why is Prodways Acquiring Stratasys Subsidiary Solidscape? And why is Stratasys Selling?

Stratasys has long held Solidscape a subsidiary specialized in 3D printing wax for lost wax casting. Solidscape’s printers are easy to work with. They print in wax and near wax materials. For casting companies, this means that they don’t have to retool their entire process in order to work with 3D printing. Its also generally considered to be more cost-effective to use wax instead of more expensive photopolymer materials.

A Rendering of a Prodways P4500 Sintering machine.

Solidscape long seemed the forlorn stepchild of Stratasys. It strengthened their business because it meant that its materials could be used to make metal parts. Meanwhile, it never seemed to be the centre of attention and never really seemed that Stratasys was pushing out the technology or lavishing a lot of attention on the unit.

Today French company Prodways bough Solidscape. Prodways has a MovingLight DLP based technology that also works with casting and is used to at scale make industrial parts. They also have a ceramics 3D printing technology and make powder bed fusion systems. Essentially it’s kind of like an EOS Voxeljet but French. Prodways is on the move having secured an IPO a few years ago and getting additional financing from French industrial groups including engine maker Safran. The company seems poised to be a quintessentially French alternative to EOS for laser sintering and ExOne/Voxeljet for casting. Why would they want to move into Solidscape? The company also has a service bureau side where they use a lot of different printers. This could indicate a preexisting cosy relationship with Stratasys. It does do dental but maybe it wanted to move more extensively into the jewelry business? This could be a factor since the Solidscape users seem to be happy with the systems. Perhaps the old Solidscape patents could give them patent cover? Or some other Stratasys IP could also give them patent cover?

The company itself says

“The MOVINGLight® technology, which is already available to the jewelry market, the burnout resins developed by Prodways Materials, and Solidscape’s proprietary technologies complement one another perfectly and will give the new Group a comprehensive, global and unmatched offer on the investment casting market, from mass manufacturing to high-precision manufacturing”

And

“Consolidated over 12 months, Solidscape should generate revenue greater than $10 million in 2019, of which nearly 50% from sales of materials and supplies. The expected synergies, and particularly the marketing of small MOVINGLight machines through the Solidscape network, should help the new subsidiary post a double-digit EBITDA by 2020. The brand name, management, and 66-person staff based in Merrimack, New Hampshire, United States, will be retained. This transaction will substantially expand Prodways Group’s presence in North America and increase its global geographic coverage through an international distribution network.”

So perhaps a perfectly sensible transaction for Prodways? The company gains a toehold in the US and the option to upsell the existing Solidscape customers Prodways machines. Typically Solidscapes are used by smaller companies for smaller scale applications but this could very well make sense for them. It also positions the publicly traded Prodways as the 3D printing company on the move in Europe. With the much larger EOS being a very grundlich firm that is entirely owned while Materialise also has a conservative “measure twice, cut once reputation” it is the brash French who can make their headlines. Surely the champagne was not still coursing through their veins from their world cup win? But a company with nice headlines and a lot of technologies buoyed by acquisitions is not going to make our bloodstream any faster in 3D printing. It seems like Prodways may be on its way to being a “Team France” for 3D printing. The Germans and Americans have developed a lead in the industrial space and Prodways are coming from behind to become a “Les Bleus” for 3D. So far a sensible group if they then manage to make the cut with the likes of Airbus and Thales.

But, why did Stratasys sell?

A Solidscape Pro machine.

The company has not been having a great year. At the end of May, its CEO Ilan Levin left after losing $13 million in Q1. Financial results have disappointed, with there being a decline in margins and revenues. The company has had issues fending off competition from lower end desktop 3D printing companies in some areas. In Q1 they said that they were suffering from “sluggish demand from government and other key vertical customers like aerospace and automotive.” With a lot of investments underway in precisely these segments this is a rather worrying statement to make. It seems that Stratasys’ proprietary model is under attack from both ends. On the low end increased capabilities of desktop systems is generating competition. This doesn’t even have to be in the general replacement of those systems in a head up decision. A company could opt to get a desktop system first to try for example. Meanwhile, with serious manufacturing on the cards, the aerospace and car companies simply may not want to get locked into the Stratasys’ materials and machines. New EOS growth and many more options in high-temperature printing also did them no favours. The people from the Objet side who took over Stratasys grafted a very expansionist aggressive organization on top of a conservative one. This culture shock could not have been easy and perhaps lead to unrealized and overly ambitious expansionist thinking. When this didn’t lead to investor optimism and expected growth, the company could have found itself in a bit of a bind. With an earnings conference call in August, I’m guessing that this sale was a stop-gap measure meant to even out dents in an uneven financial year. Let’s toss out the bathwater, and keep the baby.

Removing supports at Stratasys Direct Manufacturing.

Stratasys locks down its materials and machines. This is part of the reason why they still have the best FDM printers in the world, and one can still get the best results off a Stratasys machine. We live in an Innovator’s Dilemma world however where best is not good enough. To win in manufacturing, in my mind, Stratasys will have to open up its systems and let in third party materials. This will be a hit to the company short term but will ensure that in the long run tough dimensionally strong part will be manufactured at scale using Stratasys equipment. The company can also open up its FDM materials for manufacturing and still sell Objet materials that are closed. This could be an option because you’re never going to sell a car company $500 per kilo plastic. You may, however, sell an architect or a dental company $500 a kilo plastic if the product itself gives them much more in value. If it works in dental, is safe and productive and the spend on the material is but a small part of the total picture then they won’t care. The architect may know that the material is too expensive, but if his $100 3D print lets him win a three-year revenue contract, she could care less. Meanwhile, a car company will tell you in no uncertain words that this is not going to happen because they will end up using tonnes of the stuff and they only make a few hundred to a few thousand dollars per car anyway. They also buy a lot of polymers at far lower prices and know that now is their time to put their foot down. I think that it is precisely what is happening. Stratasys additionally has invested in Desktop Metal and is developing a new light-based technology that could eclipse Solidscape and DLP/SLA. I think that this is what’s happening. A new more careful course at Stratasys means that selling Solidscape now to focus on long-term financial health makes sense for them. Meanwhile to be the triumphant Les Bleus of 3D makes sense for Prodways.