Shares of NVE Corporation NVEC have declined 20.4% since reporting earnings for the first quarter of fiscal 2026. This compares with the S&P 500 index’s 0.9% growth over the same time frame. Over the past month, the stock has declined 14.2% against the S&P 500’s 3.9% rally.
For the first quarter ended June 30, 2025, NVE Corp reported total revenues of $6.10 million, a 10% decline from $6.78 million in the same period last year. This decrease was primarily led by an 11% year-over-year drop in product sales, slightly offset by a 17% rise in contract research and development revenues.
Net income fell 13% to $3.58 million, or 74 cents per diluted share, from $4.10 million, or 85 cents per share, in the year-ago quarter.
NVE Corporation Price, Consensus and EPS Surprise
NVE Corporation price-consensus-eps-surprise-chart | NVE Corporation Quote
Other Key Business Metrics
Gross profit for the quarter stood at $4.92 million, down from $5.81 million in the prior-year period, reflecting a gross margin decline to 81% from 86%. The reduced margin was attributed to a less favorable product mix and increased distributor sales, which generally carry lower margins than direct sales.
Total operating expenses dropped 20% year over year to $1.14 million, driven by an 18% decrease in research and development (R&D) expenses, and a 23% reduction in selling, general and administrative (SG&A) costs. The decline in R&D expenses stemmed from the completion of certain wafer-level chip-scale packaging projects and the reallocation of some R&D resources to manufacturing. Similarly, SG&A expenses were reduced due to the timing of sales and marketing activities, as well as the reassignment of administrative roles to production functions.
Operating income was $3.78 million for the quarter, with an operating margin of 62%. Interest income contributed $498,208, and other income added a minor $811, resulting in a pretax income of $4.28 million. After taxes, the net margin was a robust 59%. Comprehensive income, which includes approximately $75,000 in unrealized gains from marketable securities, totaled $3.65 million.
Management Commentary
CEO Daniel Baker acknowledged the earnings decline but emphasized the company’s strong profitability and cost control. He noted that non-defense product sales were stabilizing and industry conditions were improving. Distribution channel sales showed early signs of recovery, which the company views as an encouraging indicator of a broader market rebound.
Defense-related product sales, particularly in the physical unclonable function segment, were cited as a source of revenue variability due to the cyclical nature of government procurement. However, Baker expressed optimism about sequential growth in defense orders in the coming quarters and a return to historical demand levels in fiscal 2027.
Factors Influencing the Results
The revenue and earnings declines were largely due to lower defense product sales, which are known to be lumpy and dependent on the timing of government contracts. The gross margin also narrowed because of the higher mix of distributor sales. However, the company partially mitigated these pressures through disciplined expense management.
Capital expenditure in the quarter totaled $1.06 million, mostly allocated to wafer fabrication equipment. The acquisition of this equipment was strategically timed ahead of the expiration of a reciprocal tariff exemption in early July. This investment supports NVE’s two-year expansion plan and will also qualify for a 25% advanced manufacturing investment tax credit under a recently extended tax bill, translating into a benefit of $700,000-$800,000 this fiscal year.
Additionally, changes to the U.S. Internal Revenue Code now permit the immediate expensing of previously amortized R&D costs, improving near-term cash flow though not materially affecting net income.
Guidance
Management signaled expectations for quarter-over-quarter growth in defense product sales throughout the remainder of the fiscal year. Additionally, encouraging trends in distributor sales and ongoing product innovation efforts are expected to contribute positively to future performance.
Product development initiatives included the launch of ultra-miniature wafer-level chip-scale sensors and expanded promotion of rare-earth-free ferrite magnet sensors, targeting markets where geopolitical risks pose supply-chain threats. These initiatives were showcased at major trade events — SENSOR+TEST in Germany and Sensors Converge in California — which generated promising customer leads.
Other Developments
In the quarter, NVE continued its investment in wafer-level packaging technology aimed at serving the medical device and industrial automation markets. The company has begun sampling these miniaturized components, which offer increased spatial precision, to potential customers in both sectors. Initial feedback has been favorable, and NVE expects to move toward higher-volume production later this fiscal year.
The company also maintained its shareholder return policy, declaring another quarterly dividend of $1.00 per share, payable August 29, 2025. The company’s ongoing capital investments and IP development activities continue to support its long-term strategic growth initiatives. Management reaffirmed its commitment to balancing R&D, operational efficiency and shareholder returns in an evolving macroeconomic environment.
#1 Semiconductor Stock to Buy (Not NVDA)
The incredible demand for data is fueling the market’s next digital gold rush. As data centers continue to be built and constantly upgraded, the companies that provide the hardware for these behemoths will become the NVIDIAs of tomorrow.
One under-the-radar chipmaker is uniquely positioned to take advantage of the next growth stage of this market. It specializes in semiconductor products that titans like NVIDIA don’t build. It’s just beginning to enter the spotlight, which is exactly where you want to be.
See This Stock Now for Free >>
NVE Corporation (NVEC) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).