Proto Labs Inc, which supplies custom-made prototypes to the medical and aerospace sectors, is planning to make its first acquisition in 14 years of existence to add manufacturing knowhow but does not intend to invest in 3D printing technology.
3D printing has been gaining popularity and while some investors and analysts believe the technology can dramatically change the way things are manufactured, Chief Executive Bradley Cleveland said it was slow and unsuitable for commercial needs.
An association with companies such as 3D Systems Corp and Stratasys Ltd has arguably helped Proto Labs' shares to follow the upward trajectory of the current Wall Street favorites.
Shares of Proto Labs have risen more than 90 percent since the company went public in February 2012.
Cleveland, however, drew a distinction between 3D printing and the prototypes that his company makes for customers such as Xerox Corp and Danaher Corp.
"We don't want to get into the world of selling printers," Cleveland said in an interview with Reuters.
3D printing creates solid objects from a digital model by laying down successive thin layers of material. Proto Labs' method involves chipping away at large blocks of material until the desired object is formed.
Some analysts have said the growing popularity of 3D printing and the availability of cheap 3D printers could hurt small-volume manufacturers, like Proto Labs, which specialize in making prototypes.
U.S. President Barack Obama mentioned the technology in his State of the Union address last month, terming it as having "the potential to revolutionize the way we make almost everything".(link.reuters.com/fuw85t)
But Cleveland said 3D printing was unsuitable for commercial needs.
"It is dramatically slower, and the choices of material you have are very few in number," he said. "They are not approved for any kind of production, the vast majority of them at least."
Proto Labs makes custom prototypes out of plastic and metal, among other materials, using a proprietary software that automates tasks such as analyzing designs and simulating the manufacturing process, helping it achieve quick turnaround time.
"Proto Labs can make you thousands of parts in a few days," said Brian Drab, analyst at William Blair & Co. "Good luck doing that from a 3D printer in a couple of days."
Cleveland declined to say how much the company would be willing to pay for an acquisition, or which assets it would be targeting.
But the chief executive, who co-founded laser 3D printing company AeroMet before joining Proto Labs, said he expected Proto Labs to be "significantly larger" within a couple of years.
"We plan to maintain at least 25 percent top-line growth," said Cleveland, who has been chief executive of the Maple Plain, Minnesota-based company since 2001.
Annual revenue at Proto Labs, founded as Protomold Company Inc, has grown almost threefold in the past five years. It has a market value of about $1.15 billion.
Revenue is estimated to grow by an average of 23.6 percent over the next two years, according to Thomson Reuters data.
(Additional reporting by Supantha Mukherjee in Bangalore; Editing by Supriya Kurane)