A May 20 Barron's article (subscription required) on the disruptive potential of small-cap tech stocks Impinj and Everspin Technologies, Inc. (NASDAQ: MRAM) sparked a 12% jump in the stock price of the latter on the first trading day after the article appeared. The stock has continued to rise since then and closed on July 17 up 150% from where it closed on May 19. Even after the big move, the company is still tiny, with a market cap of only $300 million.
What's all the fuss about? Well, Everspin has a leading position in a technology called magnetoresistive random access memory (MRAM). Currently, Everspin is the only commercial provider of MRAM technologies.
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MRAM is currently limited to only a few use cases, which is why Everspin only generated $28.77 million in revenue in the year ending in March, up less than 1% from the year before. However, next-generation MRAM products could achieve greater density, which could disrupt very large markets -- namely, the markets for both non-volatile flash memory as well as DRAM (dynamic random access memory). These technologies are the backbone for enterprise storage and embedded memory on chips, which, needless to say, are very large markets.
While DRAM and flash are core memory and storage technologies, each have their drawbacks. Flash is non-volatile, which means it retains information even when power is shut off. However, its "write" function is much slower than DRAM. Moreover, non-volatile memory must be erased before new information can be written, which causes flash chips to degrade over time. This means backup storage is often required.
DRAM, on the other hand, is much faster than flash, but will lose memory if power is shut off. That necessitates backup batteries and capacitors, which can get expensive.
MRAM technology, as its name indicates, uses magnetic fields to read and write memory, rather than the electrical signals of flash and DRAM. That means it can offer the reliability of flash while also being as durable and fast as DRAM. That is potentially disruptive and could save end customers money.
The traditional drawback to MRAM is that it did not have the density to be useful outside of a few applications. First-generation MRAM solutions were only 128 KB to 16 MB, which limited its uses to niche industrial, automotive, and aerospace customers. However, next-generation MRAM technology is expected to achieve densities up to 1 GB, which could open enterprise storage and server markets, as well as system-on-chip (SOC) embedded memory applications. High-density third-generation MRAM technology is still in development and may not hit the market until 2018, however, so it is somewhat unproven.
Is the hype justified?
While Everspin may seem like a great opportunity, investors should keep in mind it is a speculative investment, especially after the incredible recent run. The stock trades at 10.5 times revenue, so it's not exactly cheap.
What's more, the company had a net loss of $16 million last year, with less than $24.5 million on its balance sheet and $8.5 million in short- and long-term debt as of March 31, and that is after the company raised $34 million in its October IPO.
And while Everspin is the only commercial manufacturer of MRAM solutions right now, it is not obvious exactly what competitive advantage it has. According to its annual report, the company owns 341 patents and has applied for 157 more, but, as the company notes, "there can be no assurance that our pending patent applications or any future applications will be approved, that any issued patents will provide us with competitive advantages or will not be challenged by third parties, or that the patents or applications of others will not have an adverse effect on our ability to do business."
Moreover, the company says other companies are working on MRAM technologies, from small venture-backed companies such as Avalanche and Spin Transfer Technologies, to huge chip companies such as Korean tech behemoth Samsung (NASDAQOTH: SSNLF).
Everspin is very small, its IP advantage is unknown, and competition is surely coming. That being said, Everspin is currently the only commercial provider of MRAM, so it has likely garnered some trust with end customers. That first-mover advantage could mean something, and means Everspin's development and MRAM disruption are two things to watch closely this year and beyond.
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