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AST Doing Some Crowing Over PC Success, but Still Faces Fight

January 13, 1988|DAVID OLMOS | Times Staff Writer

AST Research officials have been a bit touchy about the criticism heaped on the Irvine company a year ago when it plunged into the crowded IBM-compatible personal computer market.

As one Wall Street analyst pronounced at the time: "It's a little late."

Today, after selling 75,000 personal computers in a single year, AST thinks it may have the last laugh.

"Our objective is to be a recognized, major player in the PC market," said AST President Safi Qureshey. He predicts that AST will some day join the ranks of the leading personal computer makers.

But the skeptics aren't convinced. They say questions persist about AST's ability to shore up its sagging profits, persuade more computer stores to sell its machines and continue its reputation for technical innovation.

Although AST predicts that personal computer sales will propel its fiscal 1988 revenue to $350 million, a 70% gain, its profits have fallen sharply.

The stock price also is in a tailspin, having fallen from a high of $32 a share in 1986 to around $9 recently.

Image-Building Campaign

AST officials, nevertheless, speak proudly of their first year in the PC business. And they are planning to spread the word of what they regard as their success.

"They said it couldn't be done," crows a full-page advertisement for AST in today's Wall Street Journal. The ad compares AST's first year of business in the personal computer field with that of rival Compaq Computer, which has been called one of the most successful start-ups in American business history.

AST is embarking on an image-building campaign to tell its story to Wall Street and the computer world. The company hopes to win the respect of computer buyers by positioning itself as one of the major makers of high-powered IBM-compatible machines.

"We'll be answering what we consider the negative news on AST," said Robert Maples, AST's director of investor relations. "We'll be saying that we have definitely made the transition, we are successful and we have all our ducks in the row."

"A lot of people were bad-mouthing us," Maples added. "But now they're starting to come back to our side."

Already, AST has won some grudging respect from previous skeptics, such as newsletter editor Richard A. Shaffer, who once called AST's personal computer strategy "a mistake."

"The fact they've been able to sell (75,000) machines is testimony to my misjudgment," conceded Shaffer, editor of New York-based Technologic Computer Letter. "I didn't think they could sell 20% of that. They've proven me wrong."

Until getting into computer manufacturing, AST specialized in making add-on circuit boards for personal computers. The company has sold 2.8 million boards in the past six years.

But when growth in the board business began to slow, AST decided on a risky plan to build its own personal computer, with the hope of distinguishing itself among dozens of domestic and foreign competitors.

"In a sense, we were betting the company" on the success of the strategy, Qureshey said.

Won Rave Reviews

In its Wall Street Journal ad, AST cites a market research study that ranks the Irvine firm third, behind IBM and Compaq, among manufacturers of computers of IBM's PC-AT style. But the ranking may be misleading in that it doesn't include such major manufacturers as Tandy, Wyse Technology and Hyundai.

In any case, AST's equipment has won rave technical reviews. Stewart Alsop, editor of PC Letter, a Redwood City, Calif., newsletter, called AST's machines "technically brilliant."

He is particularly impressed with AST's latest computer, the Premium/386, which uses Intel's powerful 80386 microprocessor.

But AST's first year in the personal computer business has taken a financial toll. The company's net income for the first quarter ended last September was only $70,000, down from $3.1 million a year earlier.

Company officials attribute the lower profits to high start-up costs for entering the PC market as well as a pricing strategy that emphasized market share instead of large margins.

"You can't go into a major market expecting to make a profit the first year," asserted Jerry N. Ulrich, vice president of finance. "We were sacrificing profits and going after market share."

AST has raised prices on its first model, the Premium/286, and has priced its Premium/386 with a goal of boosting its profit margins to 40%.

On Tuesday, AST said it expects to report earnings per share of from 10 cents to 15 cents for the second quarter ended Dec. 31. That's an improvement from per-share earnings of 1 cent for the first quarter, but well below the 32 cents the company earned in the 1986 second quarter.

Ulrich said company officials believe that "we've turned the corner on the profitability issue."

All the same, analysts remain skeptical.

"Even if AST's machines are slightly better than Compaq's, they still don't have the brand recognition, the size or the resources" of Compaq or IBM, Shaffer said. Much larger companies such as AT&T, Digital Equipment and Tandon have tried, but failed, to become major forces in the PC market.

"Better men have died on the battlefield," Shaffer said. "Do I think they'll be one of the top three or four PC companies? No, I don't."

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