Release Date: January 22, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• NVE Corp (NASDAQ:NVEC) reported a strong gross margin of 84%, an increase from the previous year's 80%, due to a more profitable product mix and higher direct sales.
• The company has significantly increased its investment in R&D, spending 17% of revenue in the past quarter, leading to the introduction of new wafer-level chip scale products.
• NVE Corp (NASDAQ:NVEC) has extended its building lease through May 2031, with a $100,000 improvement allowance to cover expansion, indicating long-term growth plans.
• The company is optimistic about future demand, with direct sales holding up well and positive outlooks from both customers and distributors.
• NVE Corp (NASDAQ:NVEC) is actively expanding its sales and marketing efforts, including adding sales staff and increasing direct sales activities, which could drive future growth.

Negative Points

• Total revenue for the quarter decreased by 25% compared to the same quarter last year, driven by a 22% decrease in product sales and a 74% decrease in contract R&D revenue.
• Net income for the quarter decreased by 27% due to the decline in revenue, despite maintaining strong margins.
• The semiconductor industry continues to face challenges, impacting NVE Corp (NASDAQ:NVEC)'s sales and revenue.
• Total expenses increased by 40% for the third quarter, with a significant 61% rise in R&D expenses and a 12% increase in SG&A expenses.
• Interest income decreased by 4% due to a decrease in marketable securities and lower yields on recently purchased securities.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Sign with NVEC.

Q: Can you provide more details about the direct business and how it's performing compared to distribution channels? A: Our direct sales have remained relatively strong, as these customers typically do not purchase through distribution channels. This has resulted in higher margins due to the absence of distributor discounts. Despite the downturn in revenue, our profitability metrics remain robust. (Respondent: CEO)

Q: How are bookings and demand from direct customers looking? A: The outlook is positive, with both customers and distributors seeing improvements in industry conditions. Although recovery is slower than desired, we remain optimistic about the future, supported by strong business fundamentals. (Respondent: CEO)

Q: Are distributors currently selling more than they are purchasing? A: Yes, distributors are focused on reducing their inventories, which means they are selling but not purchasing until inventory levels return to normal. (Respondent: CEO)

Q: What role do your sensors play in the new hearing aid platforms with AI chips? A: We provide sensors that offer inputs for AI, improving the "speech in noise" problem in hearing aids. Our sensors deliver better environmental data, enhancing AI performance and potentially increasing hearing aid adoption. (Respondent: CEO)

Q: Can you elaborate on the potential for NVE's spintronic sensors to replace Hall effect sensors? A: Our GM R (giant magneto resistance) sensors are more precise, accurate, and power-efficient than Hall effect sensors. While Hall effect sensors are cheaper, our focus is on providing the best sensors, and we see significant opportunities for our spintronic sensors to replace older technologies in various applications. (Respondent: CEO)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.