The Envelope Please

Larger build envelopes are always better.  Or at least that seems to be what the platform makers currently think.  The vendors have a point.  Larger build envelopes mean larger parts.  They also mean bigger groups of smaller parts can be produced in one run.  But these points don't tell the whole story.  In RP, size matters all right, but so do other considerations.

While any RP system vendor's sales rep will undoubtedly tell you about the benefits of a larger build envelope, chances are you won't get all the other facts unless you ask.  Even after you've got your answers from every vendor with a suitable platform, you are probably going to have to do a little analysis on your own.

Suppose you are considering platforms with a build envelope big enough to make the largest part you believe you'll ever have to create, but also that you will rarely need to make such large parts.  Are you better off with a larger machine?  Maybe not, if a smaller system can produce most of your parts more economically and more quickly, too.

If you choose a platform with a smaller build envelope you might have to farm out some work or make some items from two or more smaller parts.  In return, you might get lower annual materials costs, lower capital costs, and faster turnaround, benefits that more than offset the disadvantages that crop up when you have a project that exceeds your maximum build size.

This kind of choice arises pretty often, because the latest RP platforms, which are usually the ones with the greatest capacity, are generally priced at a very substantial premium to their smaller cousins.  Moreover, once you start considering smaller platforms, you also might look at systems that are a generation old.

It's not always possible to find an older platform with the capacity and performance characteristics you need, but if you do locate one you may find that the system not only has a lower purchase price but also uses less costly consumables.  There are often alternative sources of powders and resins for older platforms, or at least for the most popular SLS and SLA systems.  Some of the newest platforms can use only the materials furnished by their vendors, and the vendors naturally take advantage of this.

At times it may seem as if the platform vendors introduce newer, larger machines while phasing out smaller models just to get a better and bigger grip on the materials market.

Well, there's some truth to this, but the vendors are not quite that cynical.  Their product development decisions are driven not by the RP user base as a whole, which is dominated, in platform count terms, by service bureaus, most of which are small businesses with tight budgets.  Instead, the vendors focus on the wealthiest industrial end user customers and, to a somewhat lesser extent, on the biggest service bureaus, the ones with several RP machines.

The vendors' thinking is pretty simple, actually.  They build new models for the customers that are most likely to buy new systems.

As it turns out, however, this process can only go so far.  As high end RP platforms get bigger and grow more expensive to acquire and to use, the vendors will encounter ever higher barriers to increased sales.  There will always be customers for the latest, biggest, fastest platform, but there may not always be quite as many unless the new systems provide compelling value.

There is solid evidence that a new and different kind of RP market is emerging, one that prefers less costly machines, even if the bargain boxes don't have the features or capacity of topflight systems.  Whether these machines should be called 3D printers or low-end RP systems is not a question anyone can answer with assurance.  Whatever you want to call these systems, they are no longer available only from maverick startup vendors.

The biggest names in RP, like 3D and Stratasys, offer platforms that cost much less than their flagship products.  Not only do they offer these midrange platforms, but if you look carefully at the offerings, you may find that some of the more recently announced models are not only less costly than their predecessors, they are a bit less capacious, too.  For example, the Stratasys Eden 260 is a more recent product than the Eden 330, but it is smaller, not larger.

In the price-sensitive midrange, the market seems to have its own set of rules.  The unit sales volumes are higher than at the high end, and the vendors see market size and market share as their primary goals.  If this means living with smaller profit margins for a while, the vendors seem willing to adjust.

As platforms with lower cost evolve, the vendors might have to rethink their strategies for every class of system, including even the most costly models with the largest build envelopes.  More customers will learn how to get better value from less costly equipment, much the way they have in the computing, medical instrumentation, and other high technology fields.

For now, there are significant distinctions between the midrange and high-end market segments.  But rapid prototyping is a dynamic field.  The vendors are watching the scene pretty carefully, because in RP platform manufacturing, even one slip can be fatal.  They can't count on one factor, such as increased build envelope size, however important, to carry their companies forward.  Users, particularly service bureaus that must remain price competitive, have to be equally vigilant.

Used Platforms:  When Maturity Means Value

The day you plug in that RP system, it's no longer new, which means it isn't worth as much anymore.  The hit it takes isn't as bad as the whack that SUV gets when it rolls off the dealer's lot, and you probably don't plan on selling the machine when you still aren't sure how it will work, but you know that if you had to trade it in or sell it off you would take a beating.  That first day paper loss might not mean anything in a few years, when the system has more than paid for itself, but when the shrink wrap is still on the software manual, it might well be a factor in your thinking.

The initial loss of value is particularly important to service bureaus and relatively small engineering firms where an RP platform looms large on the balance sheet.  If the system doesn't pay off as expected, and the user has to consider migrating, that first day whack can turn out to be painful.

So, it's probably a good idea to only acquire an RP system you can really afford.  It also might be a good idea to figure out the best way to pay for it.

The best way might be to just write a check, but that is practical only if there's no better way for your firm to put that capital to work.  For typical RP users, whose plans and needs are larger than their wallets, the best way (and possibly the only way) to pay for an RP system is to find a way to match the cash outflow for the system with cash inflow from the work the system does.  That means financing, either through a lease or by taking out a mortgage on the machine.

But even before that point, there's something else every prudent RP user, which undoubtedly means you, if you are reading this, should consider:  Is there a way to get a suitable RP system for less in the first place?  By this we mean:  Is there a used system that will fill the bill?

Whether you buy a used RP platform outright or finance it, one big difference between that system and a brand new one will be the rate at which it loses market value.  An RP system might remain economically and technologically viable for five, six, seven years or more.  But it might not suit your needs that long.  The rate at which it loses value compared to its acquisition cost won't be the same every year.

For the most part, a brand new system will lose value much faster during the first year it's installed than it will when it's a few years old.  A new system comes with a software license, a warranty, and, usually, installation; these are consumed the moment a system in plugged in.

The exceptions are systems that turn out to be financial lemons for reasons that are hard to guess when a platform is brand new.  For example, if a particular type of RP system turns out to have very high maintenance costs compared to its purchase price, it's a safe bet it will be hard to sell that machine.  By contrast, a platform the industry just loves, like an SLA 5000, will age very gently, in financial terms, and when you finally sell it the net cost of the box will turn out to be very reasonable indeed.  The market value characteristics of most RP systems lie somewhere between these extremes.

If you know all about the financial prospects of the system you plan to get, then you can decide how to pay for it purely on the basis of your means and the financing alternatives available to you at the time you want to acquire the machine.  If you can't guess what the future will bring to that system, or if you don't want to, then you might want to think about leasing rather than buying the box.  A lease locks in your monthly equipment costs.

At the end of the lease you can decide whether to buy the system you've been using, get a new one, or get a different used one.  If you started with a new system and want to keep it, and you also happen to be flush with cash, the odds are that you'll be able to buy it at the end of a lease for much less than it cost a few years earlier when you first installed it.  If you started with a used system, the price decline won't wow you as much, but along the way, if you did a good job shopping for financing, your payments probably weren't too painful, either.

About NCP Leasing, Inc.

NCP Leasing, Inc., is the leading independent provider of financing for rapid prototyping equipment and a significant source of financing for other high technology assets.

Founded in 1987, NCP provides a wide range of lease and rental structures to satisfy the needs of industrial and commercial companies.  We have participated in over 200 RP transactions since 1994.  We currently own RP systems at more than twenty Fortune 500 companies and a significant number of Service Bureaus.  This experience gives us an edge when it comes to making accurate assessments of residual values and it enables NCP to offer lessees excellent value, flexibility and strategic guidance.

NCP has considerable financial strength.  We remain principals in all transactions.  Our lessees benefit from dealing with their actual lessor rather than an agent or lease repackager.  This can be a great advantage to lessees when circumstances indicate that significant advantages might arise if a lease is restructured during its term.

Winter 2005-2006
Financial Dimensions is published by NCP Leasing, Inc.
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