NVE Corporation (NVEC) reported a revenue decrease of 25% year-over-year (YoY) for Q3 2025, primarily driven by substantial reductions in product and contract research revenue amidst ongoing inventory glut challenges across the semiconductor industry. Despite this decline, NVE sustained an impressive gross margin of 84%, a reflection of a more profitable product mix and reduced distributor sales. Management emphasizes significant investments in research and development (R&D), allocating 17% of revenue to new product innovations, indicating a strong commitment to future growth.
Net income also fell by 27%, totaling $3.05 million for the quarter, but the focus on profitable direct sales has maintained robust operating and net margins of 58% and 60%, respectively. This performance underscores NVE's operational durability even in a contracting sector, setting a foundation for potential recovery as market conditions improve.
Key Performance Indicators
Revenue
5.06M
QoQ: -25.09% | YoY:-25.06%
Gross Profit
4.27M
84.25% margin
QoQ: -26.60% | YoY:-21.03%
Operating Income
2.96M
QoQ: -32.64% | YoY:-33.77%
Net Income
3.05M
QoQ: -24.28% | YoY:-27.15%
EPS
0.63
QoQ: -24.10% | YoY:-27.59%
Revenue Trend
Margin Analysis
Key Insights
**Revenue:** $5.06 million (down 25% YoY, down 25% QoQ)
**Net Income:** $3.05 million, Net Margin: 60% (down 27% YoY)
**Earnings Per Share (EPS):** $0.63 (down 27.59% YoY)
Financial Highlights
### Key Financial Metrics
- Revenue: $5.06 million (down 25% YoY, down 25% QoQ)
- Gross Profit: $4.27 million, Gross Margin: 84% (compared to 80% YoY)
- Operating Income: $2.96 million, Operating Margin: 58%
- Net Income: $3.05 million, Net Margin: 60% (down 27% YoY)
- Earnings Per Share (EPS): $0.63 (down 27.59% YoY)
The decline in revenue is attributed mainly to a 22% drop in product sales and a staggering 74% decrease in contract R&D revenue, as noted by CFO Daniel Nelson during the earnings call. This trend reflects deeper issues across the semiconductor market with decreased chip demand impacting sales significantly.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
5.06M
-25.06%
-25.09%
Gross Profit
4.27M
-21.03%
-26.60%
Operating Income
2.96M
-33.77%
-32.64%
Net Income
3.05M
-27.15%
-24.28%
EPS
0.63
-27.59%
-24.10%
Key Financial Ratios
currentRatio
40.3
grossProfitMargin
84.2%
operatingProfitMargin
58.5%
netProfitMargin
60.2%
returnOnAssets
4.72%
returnOnEquity
4.84%
debtEquityRatio
0.02
operatingCashFlowPerShare
$0.8
freeCashFlowPerShare
$0.79
dividendPayoutRatio
158.6%
priceToBookRatio
6.25
priceEarningsRatio
32.29
Net Income vs. Revenue
Expense Breakdown
Management Commentary
### Management Commentary Insights
- Revenue Declines: CFO Daniel Nelson stated, "Total revenue for the quarter ended December 31, 2024, decreased 25%... due to a 22% decrease in product sales and a 74% decrease in contract R&D revenue."
- Focus on R&D Investments: CEO Dan Baker elaborated, "As Daniel mentioned, we've significantly increased our investment in R&D. We spent 17% of revenue in the past quarter on R&D."
- Positive Outlook for Demand: Baker noted, "The outlook has been positive... when we talk to our customers... they see industry conditions improving."
The executives' focus on R&D and managing direct sales efficiently illustrates a strategic pivot towards sustaining growth in challenging circumstances.
"We’re pleased to report strong earnings despite continued challenges in the semiconductor industry."
— Dan Baker
"We see excellent opportunities for spintronic sensors replacing older types of sensors."
— Dan Baker
Forward Guidance
Management's optimistic outlook stems from their strong commitment to R&D and the introduction of innovative products, such as wafer-level chip scale devices targeting the medical device and robotics markets. With 40% of total expenses attributed to R&D investments, NVE appears well-positioned to capitalize on emerging trends in these sectors. Investors should closely monitor inventory levels in distributor channels and the ongoing demand recovery in semiconductor markets, which will be critical in assessing future revenue potential.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
NVEC Focus
84.25%
58.50%
4.84%
32.29%
SLAB
54.30%
-17.90%
-2.64%
-33.02%
POWI
54.50%
10.00%
1.91%
63.73%
DIOD
33.70%
6.25%
0.76%
54.01%
MXL
54.40%
-82.30%
-13.60%
-4.02%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
NVE Corporation's strategic positioning for growth through innovation in the semiconductor sector, coupled with solid financial health metrics, renders it a promising investment amidst ongoing challenges. Investors should view the short-term revenue decline against the backdrop of increasing investments in R&D and product capabilities, foreseeing potential demand recovery as inventory issues dissipate and market conditions improve. Monitoring for indicators of recovery in the semiconductor market will be essential for evaluating the sustainability of NVE's performance in future quarters.
Key Investment Factors
Growth Potential
The commitment to R&D and product innovation places NVE in a favorable position to capture emerging market demands in the semiconductor and medical device sectors. The introduction of smaller, less intrusive devices can greatly enhance applications in growing industries like AI for hearing aids.
Profitability Risk
Risks include diminished product sales due to persistent inventory issues and reduced overall demand from key sectors, which could impact short-term revenue and profit margins. The ongoing semiconductor market turmoil adds another layer of external risk.
Financial Position
With a net income of $3.05 million and a gross margin of 84%, NVE maintains strong profitability metrics despite revenue pressures. The current ratio remains robust at 40.30, indicating excellent liquidity to meet short-term obligations.
SWOT Analysis
Strengths
High gross and operating margins demonstrating strong profitability
Significant R&D investment indicating commitment to innovation
Strong balance sheet with low debt levels
Ability to generate cash flow and maintain liquidity
Weaknesses
Decreasing revenue due to industry-wide challenges
Dependency on the semiconductor market's cyclical nature
Limited diversification of product offerings
Opportunities
Expansion into high-growth sectors like medical devices and AI-enabled products
Continued development of innovative, smaller devices for various applications
Potential recovery in semiconductor market improving demand
Threats
Ongoing supply chain disruptions in the semiconductor industry
Intense competition from established market players
Volatility in customer demand leading to unpredictable revenue streams