Neal St. Anthony/On Business: Investors betting on Minnesota memory maker
Neal St. Anthony, Star Tribune

Investors believe little NVE Corp. is at the commercial doorstep of The Next Big Thing.

They've bid up the stock by 350 percent this summer, making NVE the hottest publicly traded stock in Minnesota over the last month. That's even after the shares fell by more than a fifth to a $32.15 close on Wednesday on a volume of more than 3.2 million shares as short sellers moved on what they believe is an overpriced stock.

The shares had risen 4.7 percent Tuesday to a record $40.20 per share close on 20 times normal volume of nearly 2 million shares.

The company, which lost money last year, made 7 cents per share on revenue of $2.82 million in the first fiscal quarter ended June 30.

The original investors, including Norwest Venture Partners, Motorola and Cypress Semiconductor, put up most of $12 million in the mid-1990s for a company that now boasts a market value of $135 million.

NVE is a leader in the development of magnetic random access memory, or MRAM, which promises to be faster than current computing technology, use less energy and retain what's on your PC screen or your cell phone even if the power cuts out.

That makes MRAM potentially worth billions to the semiconductor manufacturing industry, and tens of millions for NVE, which has a lock on a lot of the early-stage technology and applications.

"These guys have a significant amount of intellectual property surrounding the MRAM space and they have licensed partnerships with all the leaders: Motorola, Honeywell International and Cypress Semiconductor," said Chad Bennett, a technology analyst at Miller Johnson Steichen Kinnard. "Investors are looking for a play on MRAM through NVE. There's a huge difference between the concept and economically manufacturing the chip. But from a patent portfolio standpoint, NVE is the leader and MRAM technology is moving toward commercialization over the next year-plus."

NVE stock has surged amid several recent developments, including:

• A statement by a Cypress Semiconductor executive in August that the company will begin prototype manufacturing later this year and full-scale production in 2004. Production will be guided by an NVE-patented design.

• Last month, Tobin Smith, editor of ChangeWave Investing, told his readers that NVE is the leader in MRAM through its nanotechnology-based technique that uses an electron's spin rather than its charge to store data. MRAM has the potential to combine the speed of turbocharged semiconductor memory with the nonvolatility of magnetic disk drives to eventually replace current memory technology.

"It's 100 times faster, 100 times denser and it's not volatile," Smith said. "That means it's always on and you don't have to boot up anything."

Boosters contend that nanotechnology, the use of building materials much smaller than today's micro-materials, will enable high-technology manufacturers within a few years to manipulate atoms in a way that will make possible the production of semiconductors and other materials that are many times faster and stronger at a fraction of today's size.

• The federal government just made the latest of several grants that now total several million dollars to NVE to further its development of "spintronics."

NVE was founded as a private research company, Nonvolatile Electronics, in 1989 by James Daughton in 1989. Daughton, 66, is a former senior researcher and executive at Honeywell and IBM.

Daughton served as chairman and chief executive until January 2001, and is still a NVE technical adviser and director. Last week the company announced that he had sold about half his 430,000-share stake in August in planned sales at prices that ranged from $18 to $22, for a total of about $4.5 million.

Daughton was succeeded as CEO in 2001 by Daniel Baker, an electrical engineer and MBA out of the University of Minnesota. Baker, 45, formerly worked in executive positions with the former Minntech Corp. and Percom Data Corp.

In an interview this week, Baker said MRAM is still several times more expensive to produce than conventional semiconductor memory, but it won't require battery backup power, as is necessary now in many applications.

That makes the comparisons much better.

"We have two major manufacturing partnerships -- with Cypress, which will make the memory chips in their Bloomington facility, and we've licensed our intellectual property to Motorola," Baker said. "They've both produced prototypes. Neither has sampled commercial devices yet. Cypress has said they are very close to sampling the first MRAM devices."

NVE, which employs 82 people, went public through the back door by merging in late 2000 with a publicly traded shell company, Premis Corp.

The move was a low-cost way to gain visibility, create a market for existing shareholders, and position the company to raise capital in future offerings. NVE recently switched from the over-the-counter market to the larger Nasdaq market, further raising its profile.

Norwest Venture Partners of Minneapolis, an affiliate of Wells Fargo & Co., owns 36 percent of NVE; Cypress owns 24 percent and Motorola owns 8 percent. Daughton owned 12 percent prior to halving his stake.

Terry Glarner, a veteran venture capitalist, has served as a director since 1999, representing the interests of Norwest Venture, which he serves as a consultant.

Neal St. Anthony can be reached at 612-673-7144 or nstanthony@startribune.com.