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Slump Gives Trio-Tech Most Severe Testing Yet

September 08, 1987|JAMES F. PELTZ | Times Staff Writer

A. Charles Wilson, president of Trio-Tech International, walks into his office in San Fernando and finds an envelope on his desk. He picks up the envelope, shows it to a visitor, and says, "See, things aren't so bad, I got paid this week."

Things aren't so good at Trio-Tech. The company makes testing equipment for the semiconductor industry, and the industry's severe slump in the past three years dragged Trio-Tech down with it.

But Wilson's quip about his paycheck underlines his belief that Trio-Tech's prospects are improving. Some recent statistics indicate that a rebound is coming in the semiconductor business.

"I think we'll be profitable in our quarter ending in December," Wilson said.

This is not another high-tech start-up company going through its first whipsawing by unexpected market forces. Trio-Tech opened its doors in 1956, starting out as an electronics dealer before getting into the testing field.

Founder Is Chairman

Its founder, John C. Guy, 61, remains chairman of Trio-Tech and its biggest stockholder, with a 25% stake. Wilson, 63, was named president and chief executive in 1981 and has been a Trio-Tech director for 21 years. They already had pulled Trio-Tech out of one near-disaster in 1981. But, their experience wasn't enough to shield Trio-Tech from losses in the latest slump.

Trio-Tech has plenty of company, of course. Big semiconductor makers, including Intel, Advanced Micro Devices and Texas Instruments, together lost hundreds of millions of dollars in 1985-86.

Some semiconductor-related firms did not survive at all. Six weeks ago, for example, GenRad closed its semiconductor-testing division in Milpitas, Calif., because of continued losses.

Before this slump, Trio-Tech was flourishing. In its fiscal year ended June 29, 1984, the company earned $2.2 million on sales of $12.8 million, and the next year net income rose to $2.8 million, a healthy 13% profit margin on record sales of $22 million.

Semiconductors are the fingernail-size electronic chips that power computers. Trio-Tech's semiconductor equipment tests a chip's durability and reliability.

Trio-Tech offers three main products--ranging in price from $30,000 to $150,000--that are geared to test specialized chips encased in hermetic, or airtight, seals.

One product tests a seal for leaks by submerging it in a fluid or trying to shoot gas through it; another is a "burn-in" device that subjects the chip to extreme temperatures, and the third is a centrifuge that puts tremendous pressure on the chip by spinning it at high speeds.

The company's 600 customers include most of the major semiconductor makers, as well as big technology companies such as Rockwell, TRW, RCA and AT&T, which test chips before installing them in their products.

But the big customer list didn't help when the slump came. Trio-Tech lost $541,000 in fiscal 1986, and it is doing even worse this year, losing $828,000 in the nine months ended March 27 on sales of $11.3 million.

Work Force Pared

The company pared its work force by 30% to 300 people, and merged its office and manufacturing facilities--formerly in separate sites in Burbank--into a single plant in San Fernando.

Trio-Tech also tried last year to diversify away from semiconductors, but Trio-Tech's stock collapse killed the deal.

Trio-Tech announced plans to buy MQS Inspection, a profitable metal-testing concern, for $14 million. It planned to raise the money from institutional investors by selling them debt convertible into Trio-Tech common stock. But as Trio-Tech's losses mounted, its stock fell. And the institutional investors didn't want to buy the debt because they didn't want to end up owning the stock. Trio-Tech then considered borrowing from banks, but the terms were too costly. So it called off the deal.

Trio-Tech's stock went public at $6.50 a share in December, 1984, climbed to a high of $17.75 in early 1985, and then crashed. It finished 1986 at $2.38 a share, and last week was trading at $2 a share over the counter.

Trio-Tech doesn't appear to be in any immediate financial danger. Its current assets (cash and receivables due within the year) outpace its current liabilities (bills due within a year) by a 1.3-to-1 ratio, and the company has about $2 million available on a $5.7-million line of credit with Sanwa Bank.

Given the short history of the electronics business, Trio-Tech ranks as one of its pioneers. When the company was founded 31 years ago by Guy, it was called Tech Ser, and it sold transistors, tubes and other electric components. In 1966, it bought a company called Trio-Tech, a small maker of industrial centrifuges, and adopted the name.

In the late 1960s, with the semiconductor boom under way, Trio-Tech began building centrifuges designed specifically for testing semiconductors. Until then, chip testing was done on reconfigured medical

or industrial centrifuges, Wilson said.

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