When building a tech company, it goes without saying that the type of technology your company is based upon is key to your company’s success. But financials are also important. Without sales, revenues, and profits, there will be no funding for the development and expansion of said technology. Here we will take a look at two vastly different tech companies and see how each is funding its much larger future potential through smaller sales now.
From your phone to your garage
Most of the time, a comparison between electric car start-up, Tesla Motors Inc (NASDAQ:TSLA), and OLED component supplier, Universal Display Corporation (NASDAQ:PANL), would make as much sense as a comparison between Ford Motor Company (NYSE:F) and Apple Inc. (NASDAQ:AAPL). But both Tesla Motors Inc (NASDAQ:TSLA) and Universal Display Corporation (NASDAQ:PANL) have carved out a potentially gigantic future market and have both the technology and the funding to hopefully capitalize on each markets’ potential.
Tesla Motors Inc (NASDAQ:TSLA) is built on the idea of revolutionizing the car industry and its first mass production car is already collecting a lot of attention. After winning Motortrend’s Car of the Year award, the Tesla Motors Inc (NASDAQ:TSLA) Model S tied for the highest ever score given by Consumer Reports. Those who recall Consumer Reports’ review of the Fisker Karma will note that electric cars don’t get a free pass at the organization, the Karma only got a 57 out of 100. Even most Tesla Motors Inc (NASDAQ:TSLA) bears agree that the Model S a a good car itself, they instead tend to question Tesla Motors Inc (NASDAQ:TSLA)’s financials and ability to scale production.
Universal Display Corporation (NASDAQ:PANL) has not garnered the same attention that Tesla has, partially because it does not supply goods directly to the consumer. The company makes its money by supplying OLED components to manufacturers which in turn build the products we see on store shelves. If you’re one of the people carrying a Samsung Galaxy S4, then you get to experience the performance of Universal Display Corporation (NASDAQ:PANL)’s OLED components in your everyday life. As Samsung’s latest smartphone offering, the Galaxy S4 will be another test for how well Samsung and the Android platform are doing in the marketplace. Current indications are positive as sales have already blown past 10 million units with some analysts forecasting a total of 80 million sold units.
It’s not enough, yet
Both Tesla and Universal Display Corporation (NASDAQ:PANL) appear to be succeeding in their current endeavors. However the production of 5,000+ award winning sports sedans or the shipment of 10 million+ cutting edge smartphones is not enough for either company. Both companies are using current sales to build name recognition, improve technology, and ramp up production, the real money is set to come in other forms.
For 2013, Tesla is forecasting the production of 21,000 Model S electric sedans. This is a huge increase over last year and it beat analyst expectations contributing to the sharp rise in Tesla’s share price in the past month. But the big money for Tesla lies in the mass production of its Gen III sedan, a car to be produced in the hundreds of thousands of units. With the Model S, Tesla is treading water financially but building a brand name and ramping up production capabilities. Efficient production of the Gen III sedan is what should boost Tesla’s earnings to the point to justify a share price based on fundamentals and not future expectations. When the Gen III Tesla begins rolling off the production line is when Tesla should be able to begin recognizing the true potential of its technology.
At Universal Display Corporation (NASDAQ:PANL), the shipment of tens of millions of smartphones helps to increase earnings for the OLED supplier, but the largest profits lie in the television industry. TVs require a far greater amount of Universal Display’s components and thus will generate a far larger volume of sales for the company. LG is already selling a 55” OLED TV but with a price above $10,000, it is still a ways away from mass adoption. However, smartphone sales should allow Universal Display to grow its technology, increase earnings, and bide its time until the company’s potential in the TV industry can be realized. Until then, Samsung is expected to continue using components from Universal Display in its smartphones, including Samsung’s phablets which, having larger screens, will use more OLED components than comparable smartphones.
Funding future technology
Tesla and Universal Display both have the benefits of a potentially revolutionary technology and demand for the early iterations of the technology to drive growth and give the company’s time. Over the next few years, we will see how the futures of these companies and their technologies play out and we will be able to judge whether production has been successfully scaled. I personally hold shares of Tesla and Universal Display in my portfolio as a play on the mass adoption of technology that is already generating rave reviews among those who have put up the money to experience it.
The article The Two Growing Tech Companies Have More in Common Than You Think originally appeared on Fool.com.
Alexander MacLennan owns shares of Universal Display and Tesla Motors . The Motley Fool recommends Tesla Motors and Universal Display . The Motley Fool owns shares of Tesla Motors and Universal Display. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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