Can Samsung Usher Ast To A Front Row Seat?Larry Armstrong
Just 18 months ago, it looked as if AST Research Inc. was poised to leap to the top tier of personal-computer companies. While Compaq, Dell, and Apple were still recovering from earlier fumbles, AST was purchasing Tandy Corp.'s computer-making operations at fire-sale prices. The new factories and access to more than 6,500 Radio Shack and Computer City stores would surely push AST from No.6 to No.4 in the U.S., the company bragged.
It never happened. Instead, AST took its eye off its core business for a split second, and the fast-moving PC industry passed it by. Now, AST is mired in the second tier, behind such mail-order companies as Dell Computer Corp. and Gateway 2000. For its first six months ended Dec. 31, AST piled up losses of $62 million. Worse, while the rest of the industry was racking up double-digit sales growth, AST's revenues shrank by 5%, to $1.1 billion. And for the third quarter, which ended Apr. 1, the company is predicting further losses. "We were trying to do too many things at the same time," admits Safi U. Qureshey, chairman and chief executive of the Irvine (Calif.) company. "We couldn't execute new products on time, we couldn't take them into manufacturing on time, and we couldn't deliver them on time."
AST has stumbled before and recovered. But this time, a cash-strapped Qureshey--AST was down to $69 million at yearend--was forced to take a drastic step: In addition to the usual cutbacks and restructuring, including closing two plants and laying off 10% of the 6,500-member workforce, the 44-year-old executive has acquired a rich partner to see AST through. On Feb. 27, he persuaded Korea's Samsung Electronics Co. to pay $378 million for a 40% stake and six seats on AST's expanded 13-member board.
AST nets $250 million in new capital. More important, Samsung's leading-edge screens and its memory-chip technology could give a badly needed boost to AST's PC lineup. "We'll be able to influence their design," says Qureshey.
For now, AST is a player that is trimming its ambitions. The company has dropped out of the education and government markets and, even though it had started advertising a line of subnotebook PCs, it will not produce them. Also scrapped: a Tandy line of handheld personal digital assistants and a confusing array of brand names, such as Victor, PowerExec, and GRiD. The result: AST's price sheets list just 79 systems, compared with 225 last fall.
NEW NICHE. In home computers, which now make up one-third of AST's sales, the company will no longer pursue bargain-hunting first-time buyers. Instead, it will focus on the more knowledgeable consumer who wants a high-performance PC but doesn't want to pay a premium for the Compaq brand. "We think we can own the position between Packard Bell and Compaq," says James T. Schraith, AST's president.
So what does Samsung get for its 40% stake? For one thing, more of AST's business--including more than 1 million computer monitors a year that AST now buys in Taiwan. And the AST link will give Samsung an entree into the worldwide PC business. Samsung is the top PC maker in South Korea, but it has been unsuccessful in overseas markets.
Also, both companies are now in a better position to play a role in the convergence of the computer and consumer-electronics industries. Samsung is already a world power in TVs and VCRs, and Qureshey envisions televisions and videocassette recorders that have a built-in connection to the Information Superhighway. The two companies have also discussed a "home network" of appliances controlled by PCs.
Qureshey's biggest challenge, however, may be to maintain AST as an independent company. The A and T of AST stand for the first names of two of the company's three founders, Albert C. Wong and Thomas C.K. Yuen, both long departed from the company. Says Yuen: "When the honeymoon is over, we'll see a lot more decisions being made by Samsung executives." If Safi Qureshey isn't careful, the S could soon stand for Samsung.