Nano Dimension: 3D Printing May Not Be Printed Circuit Boards' Future | Seeking Alpha

2022-05-30 09:29:12 By : Ms. Eva Zhou

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Nano Dimension (NASDAQ:NNDM ) is the Additive Manufacturing Electronics (AME) leader. AME uses additive manufacturing (also known as 3D printing) technology to create functional electronic circuits. AME removes many of the intensive traditional Printed Circuit Boards (PCB) manufacturing challenges, a 70+ step process while allowing completely new designs and more compact devices.

When both electronic and structural aspects are printed, we talk about "Fully Additive", which is the case of Nano Dimension's flagship product, DragonFly. This type of manufacturing allows great freedom because there are no constraints on how the conductive traces are distributed within the printed structural dielectric. One of the main problems related to traditional PCB manufacturing is that it requires designers to work with an orthogonal interconnect architecture with components placed on the surface layers aboard. That dramatically limits the creativity of designers.

Why would a company choose to produce its printed circuit boards instead of buying them from a traditional manufacturer?

The PCB market is now worth around $65 billion. The major companies are located in Southeast Asia, such as Unimicron Technology (3037. TW) and Zhen Ding Technology Holding Limited (4958. TW). At the same time, America has around 5% of the market.

These companies guarantee low production costs and production capable of satisfying the demand for printed circuit boards (which are used in units at home, TV, phones, cars, et cetera) but are subject to high geopolitical risks.

The machines' quality sold by Nano Dimension is such that although companies print one layer of the circuit board, Nano Dimension is the only company that prints circuit boards that can go from 1 layer to 2, 3 layers, five, 20, 50 layers. Furthermore, Nano Dimension prints with the accuracy of 3 microns in 1 dimension and 20 to 40, 50 microns in the other two dimensions.

Nano dimension currently sells two machines: DragonFly and Fabrica 2.0

Those machines are less cost-competitive than traditional PCB manufacturers but give the purchaser control over the entire process. Further, Nano Dimension can earn recurring revenue by selling the ink.

Talking about the overall additive manufacturing market can be confusing when analysing Nano Dimension because the machines the company currently sells are highly specialised. However, the total 3D printed electronics market was worth $150 million in 2017, and analysts expect it to grow to $2.5 billion in 2025, registering an incredible 42% YoY growth.

As NNDM itself reports, the primary purchasers of its machines are research institutes and companies operating in the defence sector, such as Lockheed Martin (LMT) or Tech companies such as Google (GOOG), which for safety and security reasons, prefer to internalise the production of specific sensitive components.

The market we are talking about is therefore not very large and is highly fragmented because the needs of the buying companies are very different.

Nano Dimension is an exciting company, which produces in a fast-growth sector, although not so big, the first in class product for quality and precision. However, the competition with big traditional Asian PCB manufacturers seems complicated to overcome, in particular for two reasons: the cost of Nano Dimension's machines, which only a few companies in the world can afford today, and the enormous demand for printed circuits which only the tradition manufacturers can satisfy.

Considering the geopolitical tensions worldwide, I can see Nano Dimension developing its business between big tech and defence companies in the coming years. To those companies, Nano Dimension can take high prices for its machines and maintains gross margins of 50% to 60%.

Today NNDM has an attractive valuation, particularly for the enormous amount of cash on the balance sheet. If we believe in the company's project and that the management will not destroy value, NNDM is a clear buy here with over $1.3B of cash and short term investments, almost zero debt, and below $800M market capitalisation.

The company has had enough cash to continue its business for many years. Also, it has demonstrated the propensity to expand through mergers and acquisitions, as for DeepCube, a deep learning software company, and Global inkjet system, a developer and supplier of ink system components. That, together with the tremendous amount of cash, might bring consolidation in the sector and a bright future to NNDM.

Anyway, the risks are there: in 2021, NNDM burnt over $40M in cash from operations. If the company needs to increase the expenses to grow, it will not take long to burn the negative enterprise value that we can see now.

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