NVE Corporation (NVEC), an electronics component manufacturer, designs and manufactures complex sensors used in medical devices. The company’s suppliers uniquely package the sensors into integrated circuits.

In its latest 10-Q, NVE Corp. added new language that may be cause for concern:

“Leadtimes for packaging services have increased... and there have been shortages of raw materials our packaging vendors need for their process.”

The complexity NVE Corp. describes means it’s unlikely that the company can quickly find another vendor with the same packaging capabilities. In it’s 2020 10-K, NVE Corp. warns:

“The unique tooling required to make product makes it too expensive, time-consuming, or impractical to convert to another vendor in the event of a supply interruption.”

The new disclosure may seemingly be of little consequence— NVE Corp. has a market cap of just $310 million— but it’s the second order consequences that may cause investors to take notice.

Abbott Laboratories (ABT) and Sonova AG (SONVY) are major customers of NVE Corp., according to the company’s last 10-K:

“We rely on several large customers for a significant percentage of our revenue, including Abbott Laboratories, Sonova AG,...”

Abbott, by way of acquisitions, has relied on NVE Corp. for medical device components for 15-years. The Supplier Agreement between the parties suggests a just-in-time manufacturing arrangement with little slack:

“Delivery to be 100% on time (up to seven days early and zero days late).”

The Supplier Agreement was set to expire but was extended through May 1, 2021. It may suggest NVEC needs additional time to fulfill its contractual inventory obligations to ABT due to the circumstances noted in the latest 10-Q. If so, ABT may not have the GMR sensors— used in implantable medical devices— necessary to immediately meet post-pandemic demand.