MinnesotaBusiness  Magazine   *  October, 2001

EMERGING
COMPANIES

NVE Corp.'s founder and CTO, Jim Daughton, and CEO Daniel Baker
(left} are finally seeing significant growth thanks to contracts from the
military and a recent reverse merger to go public.

PHOTO BY david neiman

The Virtue of Patience
After 12 years in business, NVE Corp. is now starting to hit full stride

By Maura Keller

Imagine sitting down at your computer each morning, turning it on, and immediately having access to data and programs. No booting time, no tapping of fingers waiting for applications to load. With vertical giant magnetoresistance memory (MRAM), a new type of magnetic computer memory, your programs will stay loaded and your data will remain accessible at all times.

Sounds nice, doesn’t it? To Jim Daughton, chief technology officer of Eden Prairie-based Nonvolatile Electronics Corporation (NVE) (www.nve.com), it is like music to his ears--not because he necessarily wants his computer to operate at blazing speeds, but because NVE, a company he founded in 1989, recently received a contract from the Office of Naval Research, to produce a prototype based on that technology. Innovations like these are helping to put NVE on the map.

Revolutionary Speed
A practiced hand in technology development, Daughton had a long history of innovation at IBM and Honeywell, before founding NVE. After Honeywell sold off much if its semiconductor business in 1987, Daughton decided to license Honeywell’s MRAM technology for non-Honeywell applications.

"I had no money, no people, and no place to conduct business--except my home," Daughton says. But following a series of contract wins, Daughton secured $2.3 million in funding from Norwest Venture Capital in Minneapolis, to officially launch his business.

"My initial intent was to license the technology for MRAM, to license what Honeywell did, but I got involved in these innovative research contracts and found better ways to make memory and other kinds of products," Daughton says. "So we ended up actually doing a lot of R&D work and then developing our own intellectual property."

What began in the mind of one Honeywell researcher has blossomed into a million-dollar publicly traded business (OTCBB: NVEC). Today, NVE Corporation has 65 employees and develops, produces, and markets electronics components, specifically in the combination of magnetically-sensitive materials with integrated circuits. The isolator and sensor components, which NVE produces, allow networks to run at high speeds, which has the potential to dramatically improve data transfer. The company also has developed patents for ways to make MRAM components and have licensed those patents to major memory manufacturers, including Motorola.

"Right now our markets are primarily industrial, process control, and government based, but we also see great potential in telecommunications." --Daniel Baker, CEO, NVE Corp.

"The company makes some of the fastest data-transfer devices in the world. Our sensors are based on magnetics as opposed to optical technology--making them truly unique," says Dan Baker, NVE’s president and chief executive officer. Some common applications include data-transfer devices used among factories transmitting information in industrial control: automotive applications; and also in robotics and positioning devices where NVE’s sensors are used to precisely sense the position of a placement device or an industrial control device.

Two Heads Are Better Than One
In November of last year, NVE merged with Plymouth-based Premis Corporation. At the time, Premis made point-of-sale software, a completely unrelated business to NVE. "They had shut down their business and were looking for a good investment in an exciting technology," Baker says. As a result, Premis shareholders became NVE shareholders and the merged company adopted NVE’s board of directors as its own.

Daughton sees several significant outcomes of the merger--first and foremost being the $1 million in cash from Premis that NVE gained immediate access to. "The merger gave NVE some visibility and improved our capital structure. The initial funding after the merger has really helped further develop our product base and our research initiatives," Daughton says. In addition to the extra funding, Daughton says the merger has provided a basis for valuing the company and has provided employees with a means of cashing in on their hard work.

Partnering with Uncle Sam
Through the years, NVE has frequently partnered with U.S. government agencies. For example, in March, NVE received two contracts in the area of magnetic field sensing from the U.S. Army, totaling $1.46 million. The Army uses a large number of magnetic sensors and is partnering with NVE to conduct research on the development and use of small, highly-sensitive, low-cost sensors.

"Right now our markets are primarily industrial, process control, and government based, but we also see great potential in telecommunications," Baker says. "We have devices we feel can dramatically increase the ability of copper networks." For example, NVE has recently demonstrated a device that allows DSL to work up to ten miles from the central switching station. DSL (Digital Subscriber Line) technology supplies the necessary bandwidth for numerous applications, including high-speed access to the Internet, dedicated Internet connectivity, and video conferencing. This digital broadband line directly connects your premises to the Internet, via existing copper telephone lines. Typically DSL is limited to a mile or so from the central switching station, so people living in certain areas cannot receive DSL service until a closer switching station is in place.

"We are really excited about the potential of this particular product," Baker says. "Especially with the increasing number of Internet users."

In addition to the telecommunications industry, NVE hopes to expand further into the automotive industry. NVE sensors have some unique abilities in automotive braking systems and in next-generation ABS systems and active suspension control systems. "If you do a panic stop while driving," says Baker, " not only will our sensors modulate the brakes, but they will allow the suspension to be turned to keep the car handling well in a sudden stop."

Just as NVE expands into consumer markets, they also continue to make progress in their core business efforts. In a recent contract, awarded in June of this year, NVE was selected by the Defense Advanced Research Products Agency (DARPA) to take part in a new magneto-electronics effort called the Spins In Semiconductors (SPINS) Program. The program’s goal will be to develop devices that use electron spin to store, process, and transmit information. As Daughton explains: electrons have two basic properties; one is electric charge and the other is spin. The spin gives rise to the magnetism of the electron. Existing microelectronic devices currently rely on electron charges, while the SPINS program seeks to make use of the spin property, or the magnetic property, in semiconductors.

"This is a very exciting program to take part in," Daughton says. "It reflects on NVE’s innovative technology. We’re thrilled to be part of the program because the outcome will be revolutionary electronic devices that are going to be smaller, faster, and more powerful that we anything we have on the market today." According to information on DARPA’s Web site (www.darpa.mil), the program can lead to creation of very fast devices that operate at low power and will serve as the foundation for the creation of a so-called quantum computer.

Future Potential
So far, NVE’s growth strategies have included commercializing the intellectual property that has been developed from government contracts. "Most of our revenue comes from R&D, primarily government R&D," Baker says. "We have grants with most of the major government research organizations and we try to gear them towards devices or research lines that have commercial potential. Our growth strategy is to commercialize those products and the government, likewise, would like to get a return on their investment through tax dollars."

The company’s expanded efforts in commercializing its technology have paid off. NVE’s commercial product sales increased 148 percent in first quarter 2001, from $149,000 to $369,000. The company’s revenues for first quarter 2001 increased 9 percent, from $1.52 million last year to $1.66 million at the end of June.

As a result of the commercial growth of its product base, NVE has invested in sales and marketing and is in the process of expanding their global distribution efforts by adding manufacturer’s representatives throughout the world.

"My hope is that we will grow to a much larger company based on commercial sales," Daughton says. "This is an exciting opportunity in the company’s history. And as the recent quarter’s results have shown, we are well on our way."

BIZ BRIEFING

Maura Keller is a Twin Cities-based freelance writer. Ms. Keller also writes about recent changes in commercial property taxes.