Taking a Wild Ride on the Hype Cycle

NEW YORK (TheStreet) -- Rock Hill, S.C., 40 miles south of Charlotte, N.C., along I-77, has a modern city hall, a cute, renovated downtown area and a place at the peak of the Hype Cycle, a Gartner graph describing the process of how markets adopt technology.

Rock Hill earned this honor by being home to a company called 3D Systems ( DDD), which makes a line of three-dimensional printers ranging from the $1,300 Cube to models that cut metal with lasers.

The company is presently selling $100 million worth of printers each quarter, but thanks to the hype cycle the company is worth $4 billion on the New York Stock Exchange.

The hype went into overdrive last week when its main rival, Stratasys ( SSYS), bought tiny MakerBot, which makes its Replicator printers in Brooklyn, N.Y., for $403 million.

As Crain's New York Business reports, MakerBot, founded in 2009, has made just 22,000 Replicators and Replicator 2s, which sell for a few thousand dollars each.

Under the deal Stratasys will issue approximately 4.76 million shares and exchange them for all MakerBot's stock. This gives MakerBot a 15.4% stake in Stratasys, despite estimated sales for the first quarter of $11.5 million.

Stratasys was willing to pay 10 times revenue for MakerBot because it needs a low-end printer, and because MakerBot also owns Thingiverse, a design market for 3-D printing files. CEO Bre Pettis is the cover boy of the space, speaking regularly at hacker congresses, appearing on the cover of Wired, and hanging out with people like MIT Media Lab head Joi Ito.

Chuck Hull, who founded 3D Systems, is more of a Rock Hill kind of guy. Now 74, he took out the first patent on stereolithograph , which is at the heart of the industry, in 1986. Hull is more comfortable talking with the international society for optics and photonics than he would be keynoting South by Southwest, as Pettis has done.

Stratasys itself is still in the process of becoming. It's based in Minneapolis, but actually emerged through a merger with Objet Ltd., an Israeli company, just last year. Most top management comes from the Israeli side. Acquiring Pettis gives Stratasys an attractive public face and a base in New York. The stock got a pop on the deal.

The hype cycle, however, is a harsh mistress. Both stocks hit highs in January, fell to lows in March, hit new highs in May and are now heading down again. That's because, while 3-D printers are useful, they're still in their infancy. IBISWorld figures the whole market currently has sales of just $2 billion, which should double in a few years.

But the rocket won't be easy to ride. The hype cycle could come to a screeching halt if one of these two companies is bought by, say, Hewlett-Packard ( HPQ), which once sold Stratasys units under the name DesignJet.

Or China could end up controlling the market, as Quartz reports. China is funding 10 "innovation centers" over the next few years and has formed a 40-member industry alliance.

Then, as Stratasys told the Minneapolis Star-Tribune last week, some unknown start-up might still take the prize, as happened in PCs 40 years ago, despite the presence of experienced hands at companies including IBM ( IBM).

But that's life on the hype cycle. You think Rock Hill is ready for it?

At the time of publication, the author was long IBM and DDD.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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