3D printing pain will continue for 3D Systems, Stratasys

The two giants of 3D printing are struggling as they cite manufacturing declines and lengthening sales cycles.

But the elephant in the room no one will mention is HP Inc. and given the company won't have an enterprise 3D printing system until the middle of 2016 the market pain is likely to continue.

This week brought a duo of earnings disappointments and the conference calls for 3D Systems and Stratasys resembled a Dueling Banjos rendition. The Stratasys pain was already telegraphed, but the company had a massive write-down that led to a net loss pushing the $1 billion mark.

3D Systems management basically swore off mergers and acquisitions until it can become more efficient with the assets it has acquired through the years.

Andrew Johnson, interim CEO of 3D Systems, said:

We are finished with M&A, as we've known it, over the last five years. We are at the point where we are focused intently on executing and leveraging the assets that we acquired through our robust M&A program that started in the fall of 2009, until the first quarter of 2015.

When we look long term, from here on out, we are looking more at venture investments. And that is something that allows us the ongoing ability to keep a pulse on the market, and to get a look at emerging applications, and also to attract innovators into our ecosystem. So we'll continue to facilitate a ventures program but, at this point, we have no planned M&A activities.

The shift from being acquirers to being companies focused on operations is notable.

Stratasys and 3D Systems were built via acquisitions. The two companies acquired dozens of rivals to scale. When 3D printing demand was falling out of the sky that strategy made sense. Now the global economy is sputtering, capital spending is being cut and customers are weighing their options the 3D printing duo looks bloated.

3D Systems on Wednesday reported a third quarter net loss of 29 cents a share on revenue of $151.6 million, down 9 percent from a year ago. Non-GAAP earnings for the third quarter were a penny a share. Revenue and earnings were well below Wall Street estimates.

Johnson said the results were disappointing due to "challenging market conditions that extended customers' capital investment cycles and reduced demand across all geographies."

Stratasys management sang from the same song book.

Both companies will be cutting costs and restructuring operations. 3D Systems is focusing on markets where it can lead. Healthcare is a key vertical for 3D Systems.

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If you zoom out just a bit, you'll see two 3D printing players that need to get over acquisition indigestion and become lean and mean in a hurry to hold the fort before demand comes back. In the long run, 3D printing remains a promising market.

So why do I think HP is at least partly to blame for the spending pause?

Both 3D Systems and Stratasys say there is little pressure from customers to discount. Selling prices are holding up for 3D printing equipment. Sure, manufacturing has slowed down, but companies could step up 3D printing efforts to become more on demand.

Customers are definitely holding back on capital spending, but they're waiting for a catalyst. HP's entry to the market--even if it doesn't disrupt 3D Systems or Stratasys--will at least force discounting and better deals for enterprises. My guess is that demand will pick up mid-2016 and industry profit margins are going to fall.

In the meantime, 3D Systems and Stratasys will have to make their operations efficient so they can preserve the bottom line as margins inevitably come down.