3D Systems Corporation (NYSE:DDD) has partnered with Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) for its Project Ara. Well, Ara is a modular phone which allows users to customize their smartphones by adding or changing hardware components. The search engine giant is relying on 3D printers to produce some of the modular components. Meanwhile, third-party businesses will supply other components. 3D Systems will supply Google with high quality, fully automated color 3D printers.
3D Systems investors shouldn’t expect much from Ara
Google is expected to launch Ara smartphones early next year. Many analysts believe that it represents a huge opportunity for 3D Systems. However, Imperial Capital analyst Ashok Kumar said in a research note that Ara is unlikely to have any material impact on 3D Systems in the near-term. Imperial Capital has an Outperform rating on 3D Systems with $60 price target.
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Ara will have slots and connectors to attach modular components for specific features. Today, smartphones are packed tightly to reduce weight and thickness. In contrast, adding modular components to Ara will increase its weight and thickness, which goes against characteristics preferred by modern users. Mr Kumar believes Ara is a “solution to a problem that doesn’t exist.” And there are reasons to believe so.
3D Systems to lean further toward inorganic growth
Apps already allow users to customize their smartphones without increasing the hardware components. Moreover, Ara’s battery has to be smaller to make room for modular components. That will reduce the usage time. Google has talked about innovative battery technologies that triple energy densities. However, such batteries are likely to be expensive for mainstream phones.
Google aims to offer a bare-bone $50 phone with a display, processor, battery, basic endoskeleton, and WiFi chip, with no cellular connection. So, modularity also fails to solve the cost issues. Markets are flooded with smartphones costing less than $50. Imperial Capital believes that 3D Systems will increasingly focus on inorganic growth. The company raised about $317 million in a secondary offering in May. Ashok Kumar says that 3D Systems should spend that money on M&A activities.