The search for a universal memory technology offering a combination of non-volatility and high-speed operation in the electronics industry paved the way for developing a new form of semiconductor memory concept known as MRAM (Magnetoresistive Random Access Memory). MRAM, which is called "the holy grail" of memory, is one of the forerunners of nanotechnology memories. MRAM uses magnetic fields to store data, making the memory permanent, unlike the conventional RAM technology that uses an electrical charge to store data. The conventional RAM computer chips will lose the stored information when power supply is cut off. However, in contrast, MRAM retains data even when the power is turned off. Since the RAM technology uses an electrical charge to store memory bits, there is also a possibility of loss of information if there is a leakage of electrical charge. According to industry experts, MRAM could be used to notably improve electronic products by storing greater amounts of data and providing faster access to it while consuming less battery power than existing electronic memory. Despite the many potential benefits, MRAM is yet to take off and cost factor is the major downside of the technology. That said, analysts are optimistic about the potential MRAM market. For investors looking to make a play on MRAM, NVE Corp. (NVEC: News ) may be worth a closer look, though it's not for the faint of heart. Read on to find out more about this Eden Prairie, Minnesota-based nanotechnology firm, which has doubled revenue and grown net income by 500% in the past five years. Founded in 1989, as Nonvolatile Electronics Inc., the company's name was changed to NVE Corp. in 2000. NVE's stock became publicly traded in 2000 through a reverse merger and became Nasdaq listed in 2003 with an initial price of $7.85 per share. The company develops devices, including sensors and couplers that use spintronics, a nanotechnology, to acquire, store and transmit data. The products are sold in more than 75 countries with international sales accounting for a sizable chunk.NVE generates revenue from product sales and through contracts for research and development. The R&D contracts are with various agencies of the U.S. government as well as with non-government entities. The company has also licensed certain of its MRAM intellectual property to several companies, including Honeywell International Inc. NVE's customers include Avago Technologies, Phonak AG, St. Jude Medical Inc., certain other medical device manufacturers, some distributors and the U.S. government. NVE's amended supplier partnering agreement with St. Jude Medical expires December 31, 2010 while its supply agreement with Phonak AG expires May 1, 2012. The term of the amended agreement with Avago Technologies, Inc., which expired June 26, 2010, has now been extended through June 27, 2013.The company's fiscal year ends March 31. A look at the company's financial metrics from fiscal 2006 through fiscal 2010 shows that net income has grown at a rapid compounded annual growth rate, or CAGR, of nearly 71%, while revenue increased at a CAGR of 23%. Despite a challenging economy, NVE achieved strong growth in fiscal 2010. Net income for fiscal 2010 was $11.99 million or $2.47 per share, compared to $9.78 million or $2.04 per share a year before. Revenue for fiscal 2010 rose to $28 million from $23 million in fiscal 2009. International sales accounted for approximately 49% of its revenue in fiscal 2010, up from 47% in fiscal 2009. Revenue increased 15% in the U.S, 14% in Europe and an impressive 79% in Asia in fiscal 2010. Product sales made up 80.5% of the total revenue in fiscal 2010 while contract research and development revenue accounted for 19.5%. In fiscal 2009, product sales accounted for 84.4% and contract research and development revenue made up 15.6% of the total revenue. Though sales of components for medical devices were strong in fiscal 2010, sales into other markets such as industry control and factory automation were weak due a worldwide manufacturing slowdown. In the past five years, product sales have more than doubled and the company is optimistic about the future as well, thanks to innovative new products, new equipment and productive research & development. Recently the company introduced new products targeting CAN, or controller area networks, a standardized network used in automobiles and other applications, including industrial automation and medical devices. The company's long-term product development programs include spintronic biosensors for clinical instruments, solid-state compasses for improved cellphone navigation system and anti-tamper MRAM, which is in demand for defense and commercial applications. Even though gross profit margin dropped a few basis points to 70.5% in fiscal 2010 from 71.2% in fiscal 2009, due to a shift in revenue mix toward contract R&D, which is generally less profitable than product sales, it is still much higher than the industry average of 40.24%.The company had an R&D backlog of about $1.53 million as of March 31, 2010 and 49% of the backlog was from non-government entities, the highest percentage in many years. The transition to more of non-government funding from historical governments support bodes well for future commercialization and product growth, according to NVE. As of March 31, 2010 NVE had more than 50 issued U.S. patents under its belt. According to the company, 2 patents titled "Spin Dependent Tunneling Memory", which cover MRAMs using arrays of Spin Dependent Tunnel Junctions, are very important. One of the patents expires in 2019 and the other in 2021. NVE should be able to profit handsomely if the technology becomes widely adopted. The company has a pristine balance sheet with zero debt and cash and cash equivalents of $49.5 million, almost 23% of its market cap. (as of March 31, 2010). As of June 9, 2010 the company had 4.7 million shares outstanding. NVE's growth has made it qualify for the latest fortune small business list of America's 100 fastest growing small public companies. Analysts are forecasting earnings per share growth of 18.20% this year and 13.1% for next year. Having extolled the virtues of NVE, let's take a look at some of the risks related to its business. The company relies on several large customers for a significant percentage of its revenue and any decreases in purchase quantities or purchase prices, or the loss of any of its large customers, could adversely affect the revenue and profitability. As the technology and markets mature, the competition is also increasing, which could mean more pricing pressure. In the sensors business, NVE faces competition from Hermetic Switch Inc., Meder Electronic AG (Engen/Welschingen, Germany), and Memscap SA (Grenoble, France). Optical coupler suppliers like Avago, Fairchild Semiconductor International, NEC Corporation, Sharp Corporation, Toshiba Corporation, and Vishay Intertechnology are some of the companies competing with NVE in the coupler space. Even though NVE's revenue from U.S. governmental agencies was less than 10% of its total revenue in each of the past three fiscal years, the company would suffer declines in revenue if government contract funding is reduced or eliminated.Stock Performance NVEC, which rallied sharply in 2003 following its listing on the Nasdaq stock market, hitting a closing high of $56 in early 2004, unwound almost all of its gains over the next one year. After consolidating between $11.70 and $19.70 in the second half of 2005 and in the first half of 2006, the stock advanced throughout the second half of 2006. Subsequently, NVEC was once again range bound, this time in a broad range between $19.67 and $39.81.After breaking above the upper bound of this range in mid-2009, the stock rose pretty sharply, peaking in September, with the rally's momentum inadequate to take it past its previous high. The stock pulled back in a normalization attempt and is now trading in the $39-$50 range.
