NVE Corp (NVEC) 2008 Q4 法說會逐字稿

Good day and welcome to the NVE Conference Call on Fourth Quarter and Fiscal Year Results. Today's conference is being recorded. At this time, I would like to turn the conference over to President and Chief Executive Officer, Mr. Daniel Baker. Please go ahead, sir.

Good afternoon. This is Dan Baker. Welcome to our quarterly conference call. With me on the call is Curt Reynders, our CFO. This call is being webcast live and being recorded. A replay will be able through nve.com.

Our press release with financial results was furnished in a current report with the SEC in the past hour and is available through our website.

After my opening comments, Curt will present a financial review of the quarter and fiscal year, I'll highlight some business items and then we'll open the call to questions.

Comments we may make that relate to future plans, events, financial results or performance are forward-looking statements that are subject to certain risks and uncertainties, including, among others, such factors as risks and continued revenue growth and continued profitability; risks associated with our reliance on several large customers; risks of quarter-to-quarter variations in revenue and income; uncertainties related to the awarding of future government contracts; uncertainties in the possible issuance of patent applications or allowed patents; as well as the risk factors listed from time to time in our filings with the SEC, including our annual report on Form 10-K as updated in our subsequent quarterly reports on Form 10-Q. The company undertakes no obligation to update forward-looking statements we may make, and performance in the past quarter and fiscal year may not be indicative of future performance.

I'm pleased to report an extraordinary quarter and fiscal year. For the quarter, net income increased 45% to $0.47 per diluted share on a revenue increase of 33% to over $6 million. For the full fiscal year, earnings per share increased 51% to $1.51 per diluted share on a revenue increase of 25% to well over $20 million, and strong cash flow helped increase our cash plus short and long-term marketable securities to nearly $25 million.

Now I'll turn the call over to Curt to discuss details of our financial results.

Thanks, Dan, and good afternoon.

As Dan said, we had an extraordinary quarter and strong finish for the fiscal year.

Total revenue for the fourth quarter of fiscal 2008 increased 33% to $6.05 million, our first quarter over $6 million, on the strength of our first $5-million quarter for product sales. We report revenue in two categories -- product sales, which is primarily spintronic devices we make and sell, and contract R&D revenue, which consists mostly of U.S. government contracts.

Product sales were $5.67 million, an increase of 35% from $4.19 million in the prior year quarter. The increase was due to increased sales of both spintronic centers and spintronic couplers due to both the addition of new customers and increased purchases by existing customers.

Moving down the income statement, our other revenue component, contract R&D, was $375,000, about the same as the prior year quarter.

Gross margin in the quarter increased to 69% of revenue from 66% in the prior year quarter, due primarily to a more favorable mix consisting of a higher percentage of product sales and higher product margins. Research and development expense decreased 40%, compared to the fourth quarter of fiscal 2007. The decrease was due to the completion of certain R&D projects in the past year. Dan will discuss some of the new products that have resulted from our R&D efforts.

Operating income increased 72% to $3.33 million in the quarter due to increased product sales and increased operating margin. Net interest and other income increased 17% to $237,000 for the fourth quarter of fiscal 2008. An increase in interest-bearing marketable securities more than offset a decrease in the average interest rate. The decrease in average interest rates was due to lower prevailing rates and a shift toward federally tax-free investments.

Income before taxes for the quarter increased 67% to $3.56 million, compared to $2.14 million for the fourth quarter of fiscal 2007. Our effective tax rate increased to 36.8% of pre-tax income for the fourth quarter of fiscal 2008, compared to 27.4% for the prior year quarter. The tax rate in the most recent quarter was higher than the prior year because of changes in certain deferred tax assets and because the prior year quarter included the effect of a reversal of a valuation allowance referred to deferred tax assets.

Despite the higher tax rate, net income for the most recent quarter increased 45% to $2.25 million, or $0.47 per diluted share, compared to $0.33 last year. This was our twenty-fourth consecutive profitable quarter and our fifth consecutive quarter of record earnings.

Quarterly profitability metrics continue to be very strong. As I mentioned, gross margin increased to 69% of revenue. In addition, operating margin increased to 55%, pre-tax margin to 59% and net margin to 37% for the quarter.

Looking at the full fiscal year, we had our third consecutive year of record revenue and net income. Total revenue increased 25% to $20.5 million on the strength of a 28% increase in product sales. This was our eighth consecutive year of record product sales since becoming publicly traded in the year 2000.

Revenue was especially strong in Europe, up 68%. For the year, gross margin was 67%, operating margin 49%, pre-tax margin 54% and net margin 35%. Income before taxes for the year went into eight digits for the first time, increasing 54% to $11.1 million, compared to $7.19 million for fiscal 2007. Our effective tax rate increased to 35.1% of pre-tax income for fiscal 2008, compared to 33.5% for the prior year. As I mentioned before, the prior year tax provision included a valuation allowance reversal. We currently expect our tax rate for this fiscal year -- fiscal 2009 -- to be roughly similar to fiscal 2008. Diluted net income per share increased 51% to $1.51, compared to an even $1.00 last fiscal year. Fully-diluted shares decreased to 4.763 million shares from 4.771 million shares for the prior year. The decrease was because a slight increase in basic shares was more than offset by a reduction in the dilutive effect of options. We have been judicious in issuing options to avoid diluting our shareholders and we have not increased authorized options since 2001.

Net operating cash flow was nearly $7 million for the year and our balance sheet is solid. We ended the fiscal year with total assets of $32.8 million. Our cash and marketable securities increased $6.4 million for the fiscal year to $24.7 million.

Capital expenditures of approximately $818,000 for fiscal 2008, compared to $322,000 for the prior fiscal year, were primarily to ensure that our production capacity will support continued growth. In addition to the expenditures, we had a capital commitment of $138,000 as of March 31 for machinery to help expand our production capacity. The largest capital commitment is for a highly-automated, custom-built sputtering machine. Sputtering machines deposit the very thin layers used in our products. The new machine will increase our capacity and will also further our goal of continually improving our efficiency as evidenced by our increases in revenue per employee over the years.

Looking at some other balance sheet lines, inventories increased approximately 22% in fiscal 2008, primarily to support increased product sales. The increase was less than the 25% increase in product sales as we increased inventory turns. Receivables increased $1.2 million due to the large increase in revenue and a weighting of the increase toward late in the fiscal year. Deferred revenue increased approximately $158,000 due to a prepayment by Avago related to the renewal of our agreement for Avago to distribute versions of our couplers.

Our annual report on Form 10-K is required to be filed by June 16, but we have filed in late May in recent years. The SEC has a new RSS, Really Simple Syndication service, for filings. You can subscribe via the Investor Events page of our website.

I'd like to preview some items we expect to include in our 10-K. Our productivity improved. We had 50 employees as of March 31, 2008, compared to 48, including contract employees, as of March 31, 2007. Our revenue per average employee in fiscal 2008 increased to approximately $419,000 per employee from $336,000 in fiscal 2007 and $214,000 in fiscal 2006. So our revenue per average employee has nearly doubled in two years. The increases were primarily due to increased manufacturing productivity and a shift in revenue mix toward product sales.

We are globalizing. Sales outside the U.S. accounted for approximately 47% of our revenue in fiscal 2008, compared to 40% in fiscal 2007 and 32% in fiscal 2006.

We are diversifying. For the first time in our history, U.S. government agencies accounted for less than 10% of our total revenue in fiscal 2008. 27% of our revenue in fiscal 2008 was from customers who each made up more than 10% of our total revenue. That's down from 44% in fiscal 2007.

We are minimizing taxes. 58% of our total marketable securities at March 31, 2008 were federally tax-exempt municipal bonds. All of those were new investments in the past fiscal year as part of our strategy to minimize taxes since we began paying significant cash taxes in fiscal 2008.

We'll provide detailed financials for fiscal years 2006 through 2008 in our upcoming 10-K. In just that two-year period, our product sales more than doubled, gross profit margin increased 18 percentage points to 67% from 49% of revenue, and earnings per share more than tripled, a compounded annual growth rate of 97%.

With that, I'll turn it back to Dan for his perspective on our business.

Thanks, Curt.

My comments will highlight our quarterly achievements in product development and patents. Our products can provide the eyes and nerves of electronic systems, and they're smaller and more precise than conventional electronics. Our product growth strategy has been new products and broader distribution and, longer-term, to expand into larger markets, such as consumer or automotive electronics.

We're continuing to miniaturize our products. We recently began sampling sensor systems barely 1 millimeter square, smaller than the head of a pin. These parts contain a complete sensor system, including multiple sensor elements, signal processing and power management electronics. The new ultra-miniature ultra-low-power parts are targeted at medical applications. Our smallest package sensor systems had been 2.5 millimeters, about a tenth of an inch square, so the new system is less than one-fifth the size of a system that was quite small to begin with.

In addition to medical devices, the new ultra-miniature technology may also be applicable to space-sensitive consumer applications, such as cell phones. The new sensors are being introduced at the 2008 Sensor Test Exhibition, which is going on now in Nuremberg, Germany.

We're fortunate to have a pipeline of revolutionary technology. Some of it is in the products like the ones I just talked about; some of it applies to emerging technologies, such as MRAM; and some is for future products. Last month, we were granted our 46th U.S. patent. The new patent, titled Superparamagnetic Field Sensing Device, relates to the use of the superparamagnetic effect. Superparamagnetism is the magnetic state of a material between the highly-ordered parallel spins, known as ferromagnetism, and randomly-ordered spins, known as paramagnetism. Superparamagnetic devices could be especially suitable for low-field, low-power devices. The patent notes that one particularly suitable application is a solid state compass, which could be used as a navigation device in cell phones.

We also received notice of the allowance of two patents last quarter. Notice of allowance is a written notification that a patent application has cleared a patent office review and is nearing issuance. The first allowed patent is titled Spin-Dependent Tunneling Devices, having reduced topological coupling, and relates to inventions to improve tunnel junctions, MRAM and other spintronic devices. The second allowed patent is titled Magnetic Particle Flow Detector and is related to spintronic biosensor technology.

Also noteworthy, the U.S. Patent and Trademark Office published a patent application in the past quarter titled "Enclosure Tamper Detection and Protection" by Drs. Jim Daughton and Jim Deak, relating to MRAM and anti-tamper applications. Once published, applications form prior art for other patent applications. As we have said before, we see anti-tamper as a promising application for MRAM.

Before we open the call to questions, I'd like to review some highlights from a remarkable year. We renewed key agreements with St. Jude Medical, Avago Technologies and our building lease. We expanded distribution with the addition of Braemac and SFO Takumi. We introduced new world-class products. We increased our production capacity. We were granted four U.S. patents, including patents relating to next-generation MRAM and laboratory-on-a-chip technology. And we reported record net income each quarter of the fiscal year.

We were honored to receive several awards and accolades the past year. For example, in the 2008 St. Paul Pioneer Press rankings of Minnesota's largest publicly-held companies, NVE was in the 90th percentile for 5-year and 1-year shareholder return, and fourth out of 100 companies in net income growth.

We were pleased with the past year. We continue to believe in the strength of our people, our products and our technology, and we look forward to a bright future for spintronics and for NVE in fiscal 2009 and beyond.

Now I'd like to open the call for questions. Jimmy?

Certainly. (OPERATOR INSTRUCTIONS). And we'll hear first from Steven Crowley with Craig-Hallum Capital.

Good afternoon, gentlemen.

Good afternoon, Steve.

Congratulations on the exceptional performance. Kudos.

Thank you very much.

In terms of -- one of the things that jumped out of the prepared commentary. International sales, and in particular, Europe -- Curt, I think you mentioned that European sales were up -- did I hear 68% for the year versus fiscal 2007?

That is correct.

Can you help us understand a bit what's going on there and what's driving that strength? Is it both the medical and the industrial, scientific and measurement segments? Is it new customers? Is it existing customers? Maybe some color there, given the remarkable performance.

Sure. Steve, it's really a combination of new customers, as well as existing customers, increasing sales. We've got excellent distributors in Europe. We've had -- we've seen increases in both medical as well as industrial customers. So it's really across the board.

And your discussion of customers accounting for at least 10% of your sales. How many customers comprise that 27%? Was it 2 or 3?

I don't have the exact number right here with me, but we'll have that in our 10-K which we'll be filing shortly -- by middle of June.

Okay. It's obviously clear that your thoughts coming out of last quarter that the inventory correction that you were facing at one of your large customers was definitively behind you. I think we can put an exclamation point on that commentary. Is there anything exotic going on in that situation?

Yes. Steve, I don't think there's anything I can comment on. Our quarterly sales can vary, although the long-term trend has been growth in product sales. Also, the long-term demographics of our medical products are especially favorable as population ages and medical technology advances.

Maybe a question for Dan. In terms of your success with new customers, Dan, would you characterize the success financially with new customers in the last quarter as being driven by a couple three new large customers or is it a broader swath of customers in aggregate?

Steve, it's a fairly broad swath of customers. Obviously, they tend to be concentrated in our core markets, which are medical, industrial, scientific applications, but in addition to new customers, we had some new design wins which we're very pleased to see. We had a design win from a large industrial customer, a customer -- or potential customer -- who does high-end -- very high-end -- audio equipment, which is similar to scientific equipment. So I think we're pleased that customers are seeing the advantages of our products -- the higher precision, the higher speed, the smaller size -- in a world that's demanding more of that. So in general, I think we've seen very positive signs.

One follow-up and then I'll hop back in the queue. Is it fair for me to assume that, given the strength of your results, that you've had success expanding your customer footprint in life support medical?

I don't know if we'd want to get terribly specific, just because customers have an expectation of confidentiality, and our first priority is to make sure that we respect that. But I think we've noted before that we think we have an excellent benefit proposition in life support medical, as well as non-life support medical, and looking at it as a whole, I think we've seen very good performance in the medical segment as medical device companies want to make devices that are smaller, takes up less body space and less risk of complications, less intrusive devices, such as hearing aids. Those are some of the advantages and we certainly think we have a very strong benefit proposition in medical)

Great. Thanks for taking my questions. Congrats again and I'll hop back in the queue with some financial questions.

Thanks, Steve.

Thanks, Steve.

And we'll go ahead and take our next question from Nick Tishchenko with Global Crown.

(Inaudible) then could you please talk a little bit about the growth drivers for NVE in the next year -- fiscal year 2009 -- both in terms of applications and geographical regions?

Nick, good afternoon. I'm sorry. I missed the last part of your question.

I was talking about geographical distribution and growth drivers by applications in fiscal year 2009.

Okay. Well, without getting into specific fiscal years, in general, our legacy markets -- our core markets -- have been industrial, scientific and medical, and we continue to see -- we're continuing to work towards growth in those areas. We've also talked about consumer or automotive electronics as potential growth drivers, and it's difficult to predict whether that will happen in 2009 to a significant extent -- in fiscal 2009 -- but our goal is to open up larger markets, and those are markets that, while they might not have quite the margins that our legacy markets have, they open up such large potential for our products that we've identified them as strategic. As far as geographically, the trend is generally, as Curt alluded to -- the general trend has been the globalizing of our business, so we were at nearly half -- 47% -- of our revenue in fiscal 2008 was from outside except -- outside the U.S. So it's hard to say whether that'll continue or not because we're trying to build our business in the U.S. as well, but certainly, we've seen strength in industrial markets in companies that are -- countries that are strong in manufacturing. So Germany, for example, Japan, China come to mind as major markets for our devices in industrial controls.

And Dan, do you believe that, given current slowdown in economical activity will create favorable conditions for your design wins, given the level of your technology? Usually people have time to play with the new designs and implement research and development into (inaudible) manufacturing during the slowdown. When industry is ramping up, usually the implementation is pushed out. You need to ramp, not to play with the new designs.

Yes. That's a good observation, Nick, is that providers, for example, of industrial automation look forward -- typically look forward several years. They're not necessarily looking at their current needs. So there can be investment in factories and automation even when the end-user demand is depressed. The other point is that medical markets tend to be less susceptible to economic cycles. People are unlikely to forego needed medical procedures because of a weak economy. So we have market diversification. We serve industrial, scientific and medical markets. So hopefully, we can weather any downturns in the macroeconomic environment.

Thank you, Dan. The last question -- what is your quantitative expectation for government R&D contracts for fiscal year 2009? Up? Down? Flat?

Hi, Nick. This is Curt. Our contract R&D revenue is -- it's mostly related to government contracts and that depends -- and can depend on a number of factors beyond our control. As you know, our strategy has been to reduce our dependence on contract R&D for a future of products and licensing as our principal revenue sources. Nevertheless, contract R&D was stable in fiscal 2008, and we hope that that stability continues.

Thank you very much and congratulations with wonderful results. Thank you.

Thanks, Nick.

Thanks, Nick.

(OPERATOR INSTRUCTIONS). And we'll go back to Steven Crowley with Craig-Hallum.

Great. Back with some of those financial questions. In terms of the interest rate environment, we know that short-term rates have come down rather dramatically. What's the practical impact on the rates you're able to generate? How should we think about modeling interest income -- whatever way you want to characterize that for us?

Yes. I think interest rates have been down for the last few months and we have been -- we've used a strategy of going out longer term to pick up a little bit higher rate. We've also moved into municipal bonds, which are lower -- tend to be lower rates. We've been able to lock in higher interest rates and make a profit on some bonds in the past year as interest rates have fallen.

I guess maybe a way to answer this would be do you think you'll be able to blend out over the relative short-term here at around 3% rates or is that too high? I just don't want to have too high an interest income item in our model, not that that's very significant. I'd just like to get it right.

Yes. I guess that's something we really can't comment on. As you -- I think if you look at overall interest rates, they have been going down, and with our strategy of going to municipal bonds, we could see not a real significant change in interest income as we've see in the last couple years.

Yes. I'm even tempted to model it down given what's happening in rates, even though your cash is going up, but it's a bit of a tug-of-war between those two factors.

Right.

But I don't want to take up too much time on that. Maybe back to Dan. In terms of some of the developing consumer and automotive applications for your products. Can we talk about some of the products that you're in a position to displace with better solutions, whether types of products or from which kind of companies? You've talked about some applications historically, and if any of those applications are getting mature enough to give us more details, that'd be great also.

Sure. Well, as you know, consumer electronics is one of our long-term thrusts to open up larger markets, and one example is that sensor system which we began sampling and that we introduced at the show going on now in Germany, and it could be used, for example, for cell phones, for what's called haptics, which is the user interface, or for position sensing through compassing. Our devices are sensitive enough to pick up the magnetic field from the earth and to tell which direction the device is pointing, and that has a number of applications in advanced cell phones. So those are examples of the consumer technology. Often we're replacing less precise sensors, such as semiconductor sensors or older types of sensors that are not nearly as precise. So if you looked at, for example, the compassing sensors that are typically in a car, they're accurate enough to say whether you're going north or northeast but not much more accurate than that, so they really aren't used for navigation. And also, we replace electromechanical magnetic switches or sensors which are used in a lot of consumer devices. They're used in everything from cell phones to consumer devices like toothbrushes and electric razors and things like that. So it's a very -- the consumer electronics market is a very large market. We believe we have a convincing benefit proposition because our devices are very small and very precise and accurate, and they -- in many cases, they use less power, which is another one of those global trends that's our devices help to reduce power in an increasingly greening environment. And in terms of the last part of your question, I don't know that we have anything specific to share at this point, other than it's a goal of ours. We have products. We've been talking to customers. The sensor show in Germany is a great opportunity for us. It's one of the largest sensor shows in the world and we have an excellent distributor there, as Curt alluded to. So we're optimistic that that's going to become a significant market for us. Obviously, it's hard to predict timing and exactly where, but our guys are working hard on that.

It sounds like this ultra-miniature compass sensor picks up on the conversation we had coming out of last quarter in the conference call about potentially having a great companion to GPS in this directional sensor. Is this a contiguous conversation or is this a different arena?

No, that's certainly one of the applications, Steve, for compassing sensors is, as you say, and for the listeners who may not recall the last conference call, what we talked about was that in cell phones, there's a need to have a directional indicator to augment GPS. GPS is expected to show up in cell phones. It's showing up in some cell phones, particularly overseas, now. But it's expected to show up in cell phones, and to really have an effective navigation system, one needs a directional indicator, and our sensors can pick up the earth's magnetic field. They're sensitive enough to pick up the earth's magnetic field and tell very precisely which way you're walking or driving with the phone. So you're exactly right. That's one of the applications that we've identified in the consumer space.

So would you likely sell to the same end customer as those who provide GPS components, or would you partner with a GPS component supplier for a married solution?

Well, exactly who we would sell to, we don't have that defined, but we would probably not be selling directly to the cell phone manufacturers -- the cell phone providers. I think the way we see that going in both consumer and automotive would be to be a component supplier to a next-level supplier who might create a subassembly that might, say, include a GPS and other navigation -- say, accelerometers -- other navigation components integrated into an assembly. A lot of large companies are looking to reduce their suppliers and to get turnkey solutions. So we know what our strengths are and we don't see ourselves providing things like GPS or accelerometers, but we see ourselves providing superb magnetic sensors which could go into an assembly -- say, a navigation assembly -- that would be sold to a cell phone manufacturer.

Great. One final question from me and it relates to R&D expense and the related topic of contract research and development. I thought I heard that your expectation was that contract research and development could be relatively similar to 2008 level. Now should I think about it as the run rate level in Q4 or the roughly $2 million it's been the last two years? We're talking about contract R&D.

Right. Yes, I think what Curt said that we hope that it'll be stable, but it's important to remember that the contracts can depend on a lot of factors that are beyond our control. It's -- a lot of it is government contracts, so it depends on other government priorities, particularly in the DOD. It depends on who's in charge of the budgets. So it's difficult for us to predict it with a great deal of precision, and the other thing to keep in mind is, as we've been diversifying, it's less than 10%, or was less than 10%, of our revenue in the past fiscal year. So it's becoming less important for us to try to predict exactly what contract R&D will be. The other point I'd make there is that we have the luxury of being selective in which contracts we pursue and which contracts we receive, so we're looking for contracts that provide us with intellectual property or know-how or technology that we might be able to use down the road in order to make products or to license. So we're not looking at it purely as a revenue source. We're looking at it as a way to advance our intellectual property to build our technology, and we're fortunate that, to the extent it's supported by the government or other entities, it doesn't hit our -- of course doesn't hit our bottom line.

No. And a related topic is obviously R&D expense, which, in listening to what you said about Q4, you explain why it was lower versus some prior periods, but it didn't sound like there was something anomalous to the run rate of R&D in dollars in Q4. But how should we think about your investment in 2009? Should we think about it as a similar percentage of sales as it ran in 2008 or a linear progression of your investment in R&D off of Q4 levels? How are you viewing that investment category?

Well, the way we view it -- and I think we've probably talked about it before -- is we would tend to see -- we think R&D is going to tend to go up with revenue -- in other words, grow as our company grows. Now it's hard to say exactly what the percentage will be, and projects can end or begin, we can add people, and in a company our size, that can make a significant effect in the percentage. But in general, I think we see ourselves growing R&D in absolute dollars as the company grows, and I think what we've said before is that the percentage that we ran at in the third quarter and perhaps the percentage in the fourth quarter might be on the low side if you look at a very long-term -- a longer-term trend, but it can bounce around quarter to quarter, and we don't want to have to worry about hitting a number that would keep us from doing a project that we think has a good return or hiring an individual who we think can add value to our company. But I think what we've said about the R&D is that the expenses went down because certain projects were completed, and so sometimes the timing of projects -- [get it] into a little bit of a lull.

Okay. That's helpful. Thank you very much.

(OPERATOR INSTRUCTIONS). We'll go back to Nick Tishchenko with Global Crown.

Thank you very much. Dan, I have the last question. During last, let's say, four, five months, there was a meaningful and quite notable pick-up in (inaudible) activities, not in magnetic RAM, but in spintronics and applications related to sensors. What do you see happening right now around your technology -- how you would evaluate the competition and how you want to fight them back if they will try to get into your markets?

Yes. Well, we, of course, have competition, and large markets that provide excellent benefits do tend to attract competition. We believe that we have certain advantages compared to other technologies and other companies' products. The advantages generally fall into the categories of being -- of size, miniaturization, sensitivity and then the general category of ruggedness, depending on the technology that we're talking about. So -- and in general, our philosophy is that we want to continue to be leaders. We continue to improve our products. Even if there's not direct competition, we want to continue to innovate as if there is. So in the miniaturization, the product that I talked about in the -- in our prepared remarks, the low-power sensor that we're introducing is a complete system that's barely a millimeter square -- approximately 1.1 millimeters square -- about a fifth the size of our existing product. So we're continuing to push these advantages to miniaturize our products, to increase the sensitivity, which makes the products more and more precise. That allows them to detect position more precisely. So for example, we have products that detect -- the figure of merit is in oersteds, which is a measure of the magnetic field strength. We have products now that are 10 oersteds. We're working on products that are 7 oersteds. These are digital -- these would be digital switch-type products. And we're working to make that figure of merit even better. So we're working to continuously improve our products, and our goal is to continue to be leaders in the markets that we serve for a very long time.

Okay. I have some more specific questions and probably I should bring them offline. Thank you.

We'll go ahead and take our next question from [Don McKiernan] with [Landalt Security].

Good afternoon and congratulations on a great quarter and year. I have a question about the automotive implications you've talked about for a few quarters now. Can you provide some specific examples of where your sensors or couplers might be used?

Yes, we've mentioned automotive as a potential growth market, and our sensors primarily detect position or rotation, and there are many applications for that in a car. There are many things -- there are many sensors for parts that are moving or for things that are turning. One possible application is for wheel speed sensors which can be used for feedback to anti-lock brake systems or active suspension control systems, and the advantage that our sensors provide is, because they're so sensitive, they can be used to detect the wheel speed down to very low speed and also within wide magnetic tolerances, which is very important in the automotive market. Obviously, cars take a lot of abuse. We run over curbs and things like that. Things get bent and moved out of position. And our devices, because of their sensitivity, allow a great deal of forgiveness. So that's on the sensor side.

And then on the coupler side, we're seeing the possibility of networks making their way into cars. Traditionally, cars have been wired with thick harnesses that go back and forth between the various electronic systems, and the way that is going is towards network, much as we have in our homes and offices, where the data is multiplexed over a network. And our couplers provide connections between different nodes and electronic subsystems that are very immune to noise, very rugged, and that's something that we see coming in cars as well. The general trend that we're looking at, then, is more electronics in cars where we provide couplers, more sensing systems where we provide sensors, and in general, better sensors and more electronics will allow cars to be more efficient, to get better mileage, which is obviously a push, and to be safer as we get better braking systems and suspension control systems.

And you've been working on this for some time. Is that correct? On the automotive side?

Yes.

A couple years? Three years? I'm not sure.

Well, it's hard to say what one's working on. We're always working on better sensors, and automotive has been identified as a market, and we do see it as an excellent long-term market, but we haven't given any time frame. We know that it -- the automotive market is very demanding and it's large -- it can be large volumes, but we want to be very sure that we have a great product that's well-qualified and that it meets the needs of the customers that we're trying to serve.

What about on the MRAM side? Can you give us an update on the overall MRAM opportunity and how you're positioned and how you're going to pursue things?

Well, on MRAM, which is spintronic memory -- just to put it in perspective, we're fortunate to have a pipeline of revolutionary technology. Some of it's in the products that we've been talking about and some of it applies to emerging technologies, such as MRAM.

Right.

The general landscape is that MRAM continues to be recognized as revolutionary technology. The Daniel Noble Award, which was presented just this month in May, recognized MRAM technology and recognized our founder, Dr. Jim Daughton. We expanded our MRAM intellectual property portfolio with several patents last year, including patents related to magnetothermal MRAM, spin momentum MRAM and vertical MRAM, and just last month, as we mentioned in the prepared remarks, we received a patent for improved tunnel junctions. So our goal is to continue to expand our technology portfolio and to license our MRAM technology, and there are many companies that share our vision of a very bright future for MRAM.

Thanks a lot.

Thank you.

And at this time, we have no further questions coming in. Mr. Baker, I'll hand the conference back to you for any closing comments.

Well, thank you. We were pleased to report record revenue and earnings for the quarter and year, with EPS up 51% for the year. We look forward to our next call in July when we'll discuss results for the first quarter of fiscal 2009. Thank you again for participating.

And that does conclude our conference. Again, we would like to thank you all for your participation and we hope you enjoy the rest of your day.