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AST Reports Big Loss, Lays Off 70 Workers in Orange County

January 25, 1989|GREGORY CROUCH | Times Staff Writer

AST Research Inc. in Irvine, buffeted by increasing competition in the personal computer industry, laid off 70 Orange County workers Tuesday and reported an $8.9-million loss for the quarter ended Dec. 30.

The company said it handed out pink slips Monday night and Tuesday morning to 70 management, marketing and assembly employees in Irvine. The terminations took effect immediately.

Another 20 Orange County positions that were vacated last month through attrition will not be filled, the company said.

In addition, AST said it is eliminating 30 positions in other areas of the United States and overseas through a combination of layoffs and attrition, bringing the total work force reduction to 120.

As of Dec. 30, AST had 1,234 employees in Orange County and 2,025 workers worldwide. The company said the dismissed employees would receive severance pay.

Several employees contacted Tuesday said they had expected the layoffs after AST announced earlier this month that it would report a sizable loss for its fiscal 1989 second quarter, which ended Dec. 30.

"There have been rumors for the last 3 weeks to a month about layoffs," said Lloyd Allsopp, a worker at AST's Irvine manufacturing facility. Allsopp was not laid off.

AST said it lost $8.9 million on revenue of $110.9 million for the 3 months. The company earned $2 million on revenue of $92.6 million in the same quarter a year earlier.

AST's announcement did not surprise Wall Street. Several high-technology companies have announced personnel cutbacks in the last few weeks, including Western Digital Corp. in Irvine and Wyse Technology in San Jose.

Western Digital, Orange County's largest technology company, said 2 weeks ago that it will lay off 200 permanent employees and 90 contract workers in Irvine by the end of March.

'Company Has Problems'

"AST's action doesn't come as a surprise," said Lawrence Harris, an analyst with the Los Angeles brokerage of Bateman Eichler, Hill Richards. "The company has some problems."

AST President Safi Qureshey was unavailable for comment Tuesday.

Founded in 1980, AST got its start making printed circuit boards that increased the memory and other features of IBM-compatible personal computers. Then, in 1987, AST started selling its own line of personal computers.

About a third of AST's second-quarter loss stems from a write-down of the recorded value of assets of the company's Camintonn division, which makes products for systems compatible with Digital Equipment Corp. computers.

AST has said it would like to sell Camintonn. The company took the write-down, said Finance Vice President Jerry Ulrich because AST believes that the price it eventually receives for Camintonn will be about $3 million below the stated value of the division's assets.

Another $2.6-million loss reserve was booked in the second quarter to account for the cost of employee severance packages and a drop in the value of some of AST's inventory.

"Given current market conditions, we believe some of the inventory (will sell) at a lower price than originally believed," said Ulrich.

The remainder of the loss was attributed to costly marketing strategies adopted by AST to try to keep its customers.

Protecting Market Share

For example, the company began offering bulk discounts in the second quarter to dealers who carry AST personal computers.

"We are still relatively new in the marketplace, and we are trying to protect our market share," said Ulrich. "We believe in the long run that these price incentives will pay dividends as we come into the marketplace with new products."

Personal computer manufacturers other than the Big 3--IBM, Apple and Compaq--have suffered in the last 6 months as new technology has made some of their products outdated. IBM recently started selling a type of personal computer similar to those marketed by AST and other secondary computer makers, touching off a price war.

AST's marketing strategy has been to underprice its bigger competitors. That strategy allowed the company to capture a 13.4% of the personal computer market, but its bottom line is beginning to be affected, analysts said.

"They have a good product, but there is a lot of other good product out there," said Jay Vleeschhouwer, an analyst with the New York brokerage of Bear Stearns. "So the AST way to win customers was to cut prices, but it's hurt them."

Several analysts said AST should return to profitability in about 6 months as some of its newer products infiltrate the marketplace.

AST announced the layoffs and second-quarter loss after the end of trading on Tuesday. The company's stock closed at $8 a share, up 12.5 cents.

Times staff writer Lucille Renwick contributed to this report.

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