3D SYSTEMS RESHAPES ITSELF; VALENCIA FIRM REHIRES FOUNDER, CUTS WORK FORCE.

Byline: Jason Takenouchi Staff Writer

As the market leader in stereolithography, a laser process that turns digital schematics into hard plastic prototypes, Valencia-based 3D Systems Corp. is no stranger to product innovation.

But the 13-year-old company's management recently has undergone a bit of innovation itself. After three consecutive quarters of losses and the exodus of several top executives, the company has called on an executive management firm and company founder Chuck Hull for leadership.

The management firm, Regent Pacific Management Corp., has implemented a wide-ranging turnaround strategy, cutting staff and expenses and consolidating 3D's worldwide offices. The strategy has paid off thus far, with net losses narrowing to just $1 million last quarter from nearly $3.7 million in the previous quarter.

``It has been a pretty intensive period of evaluating the business,'' said Hull, who came out of retirement this year to help restructure 3D.

``The company was geared up for more growth than it saw,'' Hull said. ``Like almost any technology company, you're running predicated on a certain growth.''

The company remains the industry leader in solid imaging, a process used by industrial giants such as Ford Motor Co. to turn computer designs into solid plastic prototypes for testing and to streamline the production process.

But 3D, like others in the industry, has struggled in recent years.

Terry Wohlers, an analyst of the rapid product development market, said the industry began slowing in 1997, in large part because of contractors, or ``service bureaus,'' that use technology purchased from 3D and others.

Those service bureaus sell their prototyping services directly to industrial firms that would otherwise purchase 3D imaging systems on their own, Wohlers said.

``There have been so many service bureaus set up over the past few years that the supply is exceeding the demand,'' Wohlers said.

3D Systems responded by bringing in Regent Pacific.

The management firm has brought key interim executives to 3D, including an interim chief executive officer. The former CEO retired earlier this year after bringing Hull back into the fold.

Under Regent Pacific's leadership, 3D has also cut costs by laying off under 10 percent of its roughly 400-employee work force - Hull won't give a more detailed figure - and announcing plans to consolidate the company's European operations.

The company will also cut research and development spending from 10 percent of revenues to between 6 percent and 8 percent, a reduction of several million dollars a year. The reduced research will emphasize creating new applications for existing 3D hardware, not creating new hardware, Hull said.

Those applications - coupled with a renewed focus on customer service - should help 3D customers make better use of the technology, said 3D spokeswoman Mary Woods.

Wohlers, the industry analyst, said the move toward applications and away from new technology makes sense for 3D.

``Why look long-term, five or six years out there, if the company isn't doing well right now?'' Wohlers said.

The company's stock has rallied since the reorganization, rising from an all-time low of $4.25 a share in August to $7.46875 Monday.

But the company, and the overall industry, still face significant hurdles, according to Wohlers. Foremost among those is branching out to small and medium-size businesses, the ones that are likely to use service bureaus instead of expensive, in-house stereolithography machines.

``We're crossing a chasm at the moment,'' Wohlers said. ``Companies like 3D have picked the early fruit: the big companies and service bureaus. Now they need to reach the mainstream market.''

CAPTION(S):

2 photos, chart

Photo: (1 -- color) Chuck Hull, founder of 3D Systems, holds space suit gloves made using the firm's technology.

Tom Mendoza/Staff Photographer

(2 -- color) 3D Systems' Thermo Jet Solid Object Printer turns digital schematics into plastic prototypes, a process called stereolithography.

Phil McCarten/Staff Photographer

Chart: Rebound