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Somewhat consistent with your comments is this I received from someone who also follows the industry:

"I was bothered by their comments on the 3D printers. With the extremely high margins on proprietary consumables, I thought the whole point was to aim toward the traditional printer model (razor / razorblade) - get the printers out there as fast as possible and then live rich off the consumables. This would work especially well with a clear leadership position in a sparse field, and with TDSC quite weak in recent times.

So what happened "over the past two years" as they said, where they jazzed up the lower end with higher-priced models? Either management messed up (by not continually driving down the price and increasing units sold), or the market messed up (i.e., it isn't as big or elastic as they continually have touted at the lower price points). Either conclusion doesn't bode well. And of course, this management has always been a bit shaky IMO.

I have a "feel" they are headed for a big miss in Q3 or Q4. Something just seems to smell that way to me. Their "initiatives" to improve the lower end will doubtlessly take a while to have effect, if they work. Also with the EPS cuts and very weak unit growth, I think there will likely be a gravity towards the five-year support band at $10-11. So me personally, I would probably wait to buy back until then (Q3 numbers or ~$10, whichever comes first)."


I would also repeat what I have said here or elsewhere. Unless the market opportunity really is not as has been advertised - 500,000 units I recall SSYS as having said - IMO focus on the high end may win a battle and lose the war. Addressograph-Multigraph and Xerox are examples of ultimate high end losers in the traditional printing space.

Admittedly, functional parts (expensive equipment) and protypes (cheaper equipment) can be viewed as two different markets. However, I suspect the long term winner may be the company that owns/builds market share in terms of number of units sold.


I strongly agree with your comments about growing pains and management relative to FARO's past. FARO has already moved beyond founder-engineer management and appears to have found a hidden gem (pun intended) in Jay Freeland. Considering that I think management is extremely important, that the transition from founder-engineer to professional management must eventually occur, and is a meaningful risk factor, this is a valuation plus for me - whereas FARO sells at a valuation minus to SSYS. If you subtract out net cash and short term investments from the two stock prices, FARO is selling at about 13 times what 2008 GAAP estimates will be lowered to by analysts (company gives no EPS guidance) and SSYS at 19 times company GAAP guidance. I am unable to justify this difference.
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