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Trio-Tech Drills Into Oil, Natural Gas Business Lines

Trio-Tech International is pushing beyond its core business of producing semi-conductor test equipment to make parts used on oil and natural gas drilling rigs. The Van Nuys-based company, which had a market value of $7.74 million as of Nov. 29, this summer landed its first significant contract valued at $2.9 million to supply production units and living quarters used in offshore oil rigs in Indonesia. While the test equipment business will remain a primary source of Trio-Tech’s business, company executives recognize there is limited growth. The test side of the semiconductor industry has undergone consolidation in recent years. Oil and natural gas rigs need electronic components and that is where Trio-Tech will find its place in the energy industry, said Charles Wilson, chairman of the board of the publicly-traded company. Providing those components isn’t far too different than the test equipment the company already makes. “A lot of people can build the big stuff,” Wilson said. “We can complement that.” Most of Trio-Tech’s business is done overseas and about 450 employees are based in various countries including China, Indonesia, Malaysia, Singapore and Thailand; the Van Nuys headquarters employs 10 workers. While its largest customer is an American company, responsible for 67 percent of net revenue in fiscal 2011, that revenue was generated from facilities in foreign countries, according to the company’s annual report. Diversifying its business model to do work for oil and natural gas companies may usher the company even further into the global marketplace. According to an oil and gas industry report, released in January 2001 from technical service provider GL Noble Denton, Asia is the place to do business. The report was based on a survey of nearly 200 senior executives and was supplemented by interviews with chief executives, lobbyists and policy makers. It showed that 32 percent of respondents considered Southeast Asia as the area of the world offering the most opportunity. Add in the Far East, which includes China, and the percentage rises to 58 percent. “Strong Asian demand underpins confidence,” the report found. The company’s fabrication business centers on PT SHI Indonesia and the 500,000-square foot manufacturing facility the company leases there. PT SHI is fully-owned by subsidiary SHI International Pte. Ltd. Trio-Tech has a majority stake in the subsidiary. In the first quarter of the 2012 fiscal year ending Sept. 30, the fabrication business brought in revenues of $2.3 million, a 1,294 percent increase from the $165,000 from the same period a year earlier. Trio-Tech has been prospecting for other fabrication work, although the bidding process can be time consuming and take from a year to 18 months, said Jon Easterson, the company’s business development manager. Even with the push into the energy market and dabbling in real estate, semiconductor testing remains the core business of Trio-Tech, much as it has for the company’s more than 50 year history. That business, however, is not producing the financial results it once did. “One of our key customers had significant problems and could not contribute the income we were used to,” Easterson said. The semiconductor industry has streamlined its product testing process, making it more efficient, and that in turn, is affecting product sales. In the past, testing was done at two separate locations. Now it’s taking place at a single location, said Jim Walker, an analyst with Gartner, a technology research and advisory firm. The result is that less equipment is needed and sales go soft. “Since they have only one piece of equipment they can lower the cost for each test process,” Walker said. “It basically is using the efficiency of using the same equipment for the front and back end.” Trio-Tech’s real estate investments also have taken a hit. While a small portion of the Trio-Tech’s total revenues come from a real estate investment in Chongqing, the largest city in China, revenues from this investment have dropped. This property generated $47,000 in revenues in the first quarter of fiscal 2012, down 75 percent from the $187,000 for the first quarter in fiscal 2011. “We have a tradition of making money on real estate,” Wilson said. “We are pretty adept at that.” In 2005, the company sold a testing facility it operated in Ireland for about 20 years. The sale netted nearly $10 million, Wilson said. The Ireland property sale resulted from changes in the industry as more semiconductor testing work shifted to Asia. That was also the reason why Trio-Tech shuttered a facility in Sunnyvale, in Northern California, leaving the Van Nuys headquarters as the only U.S. presence. “We’d like to do more business but our customers are not here,” Wilson said.

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