Tuesday, May 20, 2008

Ron Paul revolution sees second wind
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Ron Paul
Can the Ron Paul movement make a difference in the Republican Party, especially in its current weakened state?
Photo: AP

As an author, Ron Paul has accomplished something he failed to do as a Republican presidential candidate: finish first. His new book, “The Revolution: A Manifesto,” has topped The New York Times best-seller list and the Amazon sales chart. It has also helped rally his grass-roots following long after John McCain clinched the GOP presidential nomination.

Paul’s supporters began the campaign full of hope. The libertarian Texas congressman smashed online fundraising records and led the Republican field in the fourth-quarter money primary. Polls, and more than a few pundits, suggested that Paul was within striking distance of a third-place finish in both Iowa and New Hampshire.

Instead, Paul finished a disappointing fifth place in both states, though he did beat Rudy Giuliani in Iowa and Fred Thompson in New Hampshire. He finished second in a few caucus states, including Nevada, Montana and Louisiana, but mostly began to register single-digit showings in subsequent primaries.

Paul’s campaign organization seemed unable to make good use of the millions it raised, and many of the candidate’s enthusiastic grass-roots followers were becoming dispirited.

Now the Ron Paul revolution, as his supporters call it, is experiencing a second wind. Paul took 16 percent of the vote in Pennsylvania, his best primary showing yet, and has surpassed 1 million votes in the GOP contest. Ron Paul Republicans have started roiling local party organizations, taking control of state conventions and running for public office, all without much coordination from their leader.

One of the Ron Paul Republicans who actually has the congressman’s endorsement is B.J. Lawson, a fellow Duke Medical School alumni running for the House of Representatives from North Carolina’s 4th Congressional District. Lawson won his May 6 congressional primary with more than 70 percent of the vote, despite his opposition to the Iraq war and criticism of the Bush administration’s free-spending ways.

In the neighboring 3rd District, Paul endorsed incumbent Republican Rep. Walter B. Jones Jr. in his primary fight against Onslow County Commissioner Joe McLaughlin. McLaughlin decided to challenge Jones after the freedom-fries crusader became one of the country’s most vocal anti-war Republicans.

Jones easily outraised McLaughlin and won the primary by nearly 20 percentage points.

Another Paul endorsee, Murray Sabrin, is running for the Republican senatorial nomination in New Jersey. Paul traveled to the Garden State on April 28 to help Sabrin raise campaign funds. In Virginia, Amit Singh is the Paul-backed Republican primary candidate running for a chance to take on Democratic Rep. Jim Moran.

In other cases, Paul isn’t involved in his supporters’ efforts at all. Four Ron Paul Republicans in Maryland won their primaries without the congressman’s endorsement. Paul backers amended the Alaska Republican Party platform to reflect their stances on civil liberties, the Patriot Act, repealing the 16th Amendment and abolishing the Department of Education.

At GOP district meetings in Minnesota, Paul supporters captured seven Republican National Convention delegate slots; one delegate was selected by the Maine Republican convention. The Nevada GOP convention adjourned early after the initial balloting showed Ron Paul Republicans winning at least half the delegates for the national convention.

Even the revived Paul juggernaut isn’t without problems. One of them is that Paul himself is too much a believer in decentralization to provide his movement with much direction. At a recent book event in Washington, he was asked what his supporters should do in the general election if he did not run as a third-party candidate. Paul reaffirmed that he wasn’t going to run as a third-party candidate and replied that it was up to his supporters to decide what to do.

Paul had to retract his endorsement of a Ron Paul Republican who was improperly vetted and turned out to be a white supremacist. Another candidate, Jim Forsythe in New Hampshire, has already dropped out. Other than in Pennsylvania, Paul, as the last active candidate running against McCain, hasn’t done as well as Alan Keyes did in the same position against George W. Bush in 2000 — largely because his disorganized campaign has sent out mixed messages about the status of his candidacy and has not corrected inaccurate reporting on the matter.

Can the Ron Paul movement make a difference in the Republican Party, especially in its current weakened state? A similar insurrection strategy helped Barry Goldwater’s supporters take over and transform the GOP during the 1960s.

But the Ron Paul Republicans — many of them running in predominantly Democratic areas where they have little chance of success, even if they win their primaries — are nowhere near that point yet. Whether they ever get their way will determine whether Paul is remembered as a consequential figure within the party’s history or just another also-ran.

W. James Antle III is associate editor of The American Spectator.

Sunday, May 18, 2008

NVE's Nanotrap Only Snares Speculators

By Jeff Young November 22, 2004 Comments (0)

1 Recommendation

NVE Corporation (Nasdaq: NVEC) is a small Minnesota company whose stock has shot up 400% over the past year and a half to trade for 13 times revenue. The reason: It says it holds key patents on Magnetoresistive Random Access Memory (MRAM).

The supposed Holy Grail of computing memory, MRAM is a "gee whiz" technology that could combine the speed of SRAM (Static Random Access Memory), the density of DRAM (Dynamic Random Access Memory), and the stability of flash memory. MRAM could allow your computer to turn on as fast as your TV and improve battery life for cell phones and PDAs.

Large tech outfits such as Motorola (NYSE: MOT) and Cypress Semiconductor (NYSE: CY) have signed license agreements with NVE. Proponents think Motorola will pay NVE a royalty on every MRAM chip it makes and that NVE will be able to resell some MRAM chips once Cypress starts production. Ergo, NVE must hold the keys to the Grail.

As in the legend, though, only the pure of heart get to see the Grail. MRAM could eventually become a major semiconductor business, but NVE will be lucky to see a nano-nickel from it. The real work on MRAM had been conducted independently by technology giants such as IBM (NYSE: IBM), Motorola, Infineon (NYSE: IFX), Toshiba, and Micron (NYSE: MU).

The highlight of what NVE calls its "watershed" MRAM patents is something known as a "one-transistor-per-bit read addressing scheme." This invention relates to the electrical circuitry supporting a memory cell, but has nothing specific to do with MRAM. Further, the claim is based on so much prior art that it's meaningless and unenforceable. The DRAM in your PC has relied on this approach for decades. Motorola did license technology from NVE in 1995, but this was before NVE even had these patents. Motorola pays NVE no fees today and has no reason to pay NVE royalties in the future. Meanwhile, Cypress Semi appears no closer than it has been to producing a commercially viable MRAM-based product. No other company with a major MRAM development program has licensed NVE's patents.

Although NVE has product sales today, none pertain to MRAM. The company generates $12 million a year in revenue, mostly from "work-for-hire" contract R&D. Its scant product revenues come from selling sensors and couplers. These products employ giant magnetoresistor (GMR) devices, a form of magnetic memory. However, you cannot make commercially viable MRAM using GMR. Instead, you have to use magnetic tunnel junctions (MTJ), an entirely different memory cell technology.

Motorola walks away
Consider this: When Motorola signed the license with NVE in 1995, Herb Goronkin, director of Motorola's Physical Research Laboratories, joined NVE's board. Goronkin oversaw Motorola's MRAM development program for the next eight years until his retirement in June 2003. Curiously, when Goronkin resigned from NVE's board in July 2002, Motorola opted not to install another representative. Between June 2003 and January 2004, Motorola sold its entire 8.4% stake in NVE. If NVE's technology had value to Motorola, surely it would maintain its board position and hold on to its shares.

Motorola apparently ditched NVE. In June 2003, Goronkin told the Forbes/Wolfe Nanotech Weekly that NVE's technology process was transferred to his lab in 1995 to "kick-start" Motorola's MRAM efforts. "We saved a year in learning the technology," he said. But Motorola "had a number of problems and had to make numerous discoveries along the way." Luckily, Goronkin explained, "someone at MIT and Japan discovered magnetic tunneling junctions and I went over to Japan and we decided we are going to switch horses and get on magnetic tunnel junctions." On its own, Motorola discovered the toggle (US patent 6,545,906), which solved the "soft error" problem caused by the fact that magnets flip each other randomly when crammed in close proximity.

NVE had long insisted it would be due royalties if Motorola commercialized the MRAM device described in its technical papers, but NVE recently backed away from this claim. Last summer, Motorola spun out part of its Freescale Semiconductor (NYSE: FSL) business, the unit that would produce the MRAM chips. On September 9th, at the Smith Barney technology conference, Freescale's president Scott Anderson told investors he had never heard of NVE. In its November SEC filing, NVE claimed it is trying to work out a new license with the soon-to-be-independent Freescale, but admitted there "can be no assurance...that NVE would receive any value under the existing Patent License Option Agreement [with Motorola] or any value under any such further agreement with Freescale." So much for those royalties!

What about Cypress?
Next we have Cypress Semi, which signed a royalty-free license with NVE in April 2002 in conjunction with a $6.2 million purchase of stock and warrants amounting to 24% of NVE. Cypress CEO T. J. Rodgers had said in May 2002 that Cypress would be sampling its MRAM chips by August, with chips in production by year-end. That didn't happen. In September 2003, Cypress announced its MRAM product would be delayed again. The chipmaker also disclosed it had sold all of its 686,849 shares of NVE, retaining only its stock purchase warrants.

This past August, Rodgers predicted that Cypress would sample its 256Kbit chip by year-end and generate revenues by the first quarter of 2005. But the specs show Cypress still doesn't have a commercially viable product. Contrary to the norms of semiconductor development, Cypress' MRAM memory cell has now doubled in size to a non-nano 24 microns. This chip is many times larger and more expensive to make than the higher capacity Motorola/Freescale 1.55-micron chip or 1.42-micron chip under development by Infineon and IBM. Cypress continues to experience "soft error" issues that cause data to be lost or corrupted, forcing it to add massive amounts of redundant circuitry. But even that hasn't solved the problem. Manufacturing yields also remain terrible. Even worse, the Cypress chip uses 5 volts, whereas most current memory chips and competitors' MRAM chips use 3.6 volts or less. Cypress also employs a 3-transitor-per-bit design that doesn't even appear to use the alleged invention in NVE's "watershed" patents. Cypress looks poised to produce a chip so big, expensive, and electronically unsuitable, relative to current standards, that its product will have an extremely limited commercial market, if any.

So NVE's key MRAM patents seem irrelevant, its potential royalty-paying licensee appears not to be using NVE's intellectual property, and its other licensee can't produce a commercially viable chip. NVE's MRAM efforts are worthless today, and they seem to have no demonstrable future value.

What NVE does have is a CEO with an alarming history. Prior to joining NVE in January 2001, Dan Baker had spent more than 10 years as CEO of Printware Inc. (Pink Sheets: PRTWZ.PK), a company that missed earnings targets the second quarter after its July 1996 IPO and spent the next five years failing to match Baker's optimistic forecasts. Baker's reign at Printware ended with angry shareholders voting him out. Baker has expressed his own confidence in NVE's future by selling nearly all of his then current shares last January, pocketing $4 million. He even exercised options that didn't expire until 2011. NVE's management now owns just 8% of the stock.

NVE has also enjoyed the sponsorship of a number of stock promoters, including most prominently the Forbes/Josh Wolfe nanotech newsletter, which first mentioned the stock in June 2003. Wolfe subsequently anointed it a "Nanosphere" play and the stock took off. Wolfe has shown panache as a self-promoter. Before he had made a single nanotech investment, he modestly heralded himself as one of the "true business visionaries of the nanotechnology sector."

Blind them with science
This is the model of how a former penny stock like NVE becomes a darling of speculators. Take allegedly important patents and big name licensees who may never use the technology or produce a marketable product. Add a promotional CEO and mix in a self-styled "visionary" with a wide readership of speculators.

But dubious penny stocks have a habit of returning from whence they came. The truth is that everyone best positioned to understand NVE's technology and future business prospects -- Motorola or Cypress or even Baker -- has cashed out already. Investors who get caught in this trap have simply ignored the evidence before them.

Fool contributor Jeff Young is neither long nor short any of the companies mentioned in this story. The Motley Fool has a disclosure policy.