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Stratasys stock soars on news of 3-D printer deal with Hewlett-Packard

Tuesday was a big day for Stratasys Inc. (Nasdaq: SSYS) after the company announced it had inked an exclusive distribution deal with Hewlett-Packard (NYSE:HPQ) to develop and manufacture an exclusive line of 3-D printers.

Stratasys’ stock shot up nearly 44 percent to reach a high of $25.60 on the news, with trading of 2.6 million shares, more than 25 times normal volume.

“We believe the time is right for 3-D printing to become mainstream,” said Stratasys Chairman and CEO Scott Crump, who described the announcement in a call with investors and analysts as “a defining moment for Stratasys and for our industry.”

He said the announcement signals HP’s endorsement of the 3-D printer marketplace opportunity and the Stratasys technology approach.   The company estimates it could sell as many as 50,000 units a year, up from 2,000 currently. Stratasys estimates the current market potential at half a million units.

Used by product engineers, designers and architects, Stratasys’ 3-D printers use the company’s patented Fused Deposition Modeling technology to create three-dimensional plastic models directly from 3-D digital designs.

Stratasys, based in Eden Prairie, employs 350 people worldwide, with 300 in Minnesota.

Crump cautioned analysts that because of the phased rollout, the agreement would not have a significant impact on revenue in 2010. The company projects that revenue could quadruple in five years to $500 million.

The current agreement, which runs through September 2011, covers only five countries: France, Germany, Italy, Spain and the United Kingdom with the right for HP to extend distribution globally.

Chief Financial Officer Bob Gallagher described HP as a newcomer to the 3-D market and said the phased rollout is a way for HP operations “to get down their marketing approach” before expanding the distribution agreement. Europe represents about 25 percent of Stratasys’ current revenue, the company said.

As part of the agreement, HP has a seven-year warrant to purchase 500,000 shares of stock at the 20-day average price before inking the deal. Crump described it as a vote of confidence by HP in the potential of the company and “as a way for HP to share in the growth and success of the relationship.” The stock has traded in a range of $17.33 to $18.89 a share over the 20 days before the announcement.

When asked about the run-up in the stock following the announcement, Gallagher said that “the No. 1 impediment” had been limited awareness of the company’s technology, which the announcement is helping overcome. “I’ve been doing this a long time, and I realize my job is to tell the market what we are doing. I leave it up to the market to figure out what the stock price should be.”

Citing HP’s “unmatched sales and distribution capabilities,” Crump said the two companies form “the right combination to achieve broader 3-D printer usage worldwide” by building on HP’s dominant position, with more than a 70 percent market share in large-format 2-D printers.

In a prepared release, HP Vice President and General Manager Santiago Morera said: “There are millions of 3-D designers using 2-D printers who are ready to bring their designs to life in 3-D.” He called Stratasys’ technology the ideal platform for HP to enter the 3-D printing market “and begin to capitalize on this untapped opportunity.”

  HP’s Graphic Solutions Business — part of the Silicon Valley giant’s $24 billion imaging and Printing Group — will execute the distribution agreement.

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