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Out-of-Shape AST Posts a $39.9-Million Loss : Computers: The first-quarter figures are causing analysts to wonder if the company is falling behind.

October 28, 1994|ROSS KERBER | TIMES STAFF WRITER

IRVINE — The difficulties AST Research Inc. has had in matching its strategy with its continual growth were apparent Thursday as the personal-computer maker posted $39.9 million in first-quarter losses on revenues of $495.4 million.

The loss, equal to $1.23 a share, contrasts with a profit of $8.2 million, 26 cents per share, on revenues of $514.4 million during the similar period last fiscal year. The results were in line with predictions AST had made earlier.

Company officers blamed the losses on production delays and competitive pricing by rivals Compaq Computer Co. and IBM.

Along with an ongoing management restructuring, Chief Executive Safi Qureshey said Wednesday that the company will decrease the number of PC models it sells by half to help it cut production costs and streamline its marketing. For example, AST now sells computers with 10 types of hard disk drives, but by February that will be reduced to three, he said.

Qureshey also defended AST's decision to buy Tandy Corp.'s manufacturing operations in Fort Worth, Tex., last year, despite criticism that the company hasn't integrated the plant into the rest of its operations.

"The Tandy decision was a very bold move, and there are always these sorts of (integration) issues that you have to go through after you buy a new plant," Qureshey said. AST gained engineers, patents and a significant amount of sales from the purchase, he said. "We believed it was the right move, and we still believe so."

But two weeks ago, AST announced plans to terminate about 500 Orange County workers, shut its Fountain Valley manufacturing facility and transfer the work to Taiwan. Also, the Irvine-based company has had three key vice presidents resign since June.

The company's poor financial performance has left industry analysts and former employees worried whether Qureshey has fumbled the company's expansion strategy.

Instead, they allege, senior managers and the company's board are now just reacting to competitors' price cuts instead of fighting back with innovative products of their own.

"They're looking at a lot of bread and butter issues, just getting more products out and coordinating their marketing," said Mike McGuire, an analyst at Dataquest, a research firm in San Jose. "I'm still uncertain as to 'what is AST?'

"Clearly they need to get their manufacturing and forecasting and production cycles in much better shape than they are now."

Alex Chu, AST's managing director for Asia until joining rival Dell Computer Corp. three months ago, said that AST suffers from a lack of managerial coordination among its engineers, production managers and marketers. "The different departments weren't moving at the same pace," he said. "It wasn't just a single department, it was throughout the company."

Chu and others said the loss of the three top executives and other senior managers will only make President Jim Schraith's job more difficult. He and Qureshey now face pressure from investors to demonstrate that AST's acquisition of Tandy's plant in Texas will help company profits by mid-1995.

"The key is that this business has been growing rapidly in the last two to three years, and AST is losing momentum while others have been gaining," said Stephen Dube, an analyst at Wasserstein Parella Securities Inc. in New York. "If AST doesn't click into gear," he said, "they'll lose out at an accelerating rate" as distributors seek more reliable suppliers.

AST's news wasn't all bad--its international revenues increased 7% during the quarter, with its strongest gains in Europe. Overall, AST said it shipped 309,000 computers during the three-month period, and company officials have been meeting with vendors and suppliers to ensure smoother deliveries during the current quarter, traditionally one of the busiest sales periods.

AST's strategy since the late 1980s has resembled that of Japanese auto makers the decade before--concentrating on product quality and customer service without sinking much money and effort into the development of expensive technological advances. The decision to buy the Tandy plant and others was meant to be an extension of that strategy.

At the time, analysts hailed the Tandy acquisition as a step that would enhance AST's ability to grow. For its part, AST was making rosy predictions about its 316,000-square-foot plant as recently as August. A month later, the company began to suggest its financial weakness.

The trio of vice presidents who left AST had been hired over the previous 18 months. They were brought in specifically to help AST integrate its far-flung operations, officials said at the time.

The most recent departure was that of James Forquer, vice president of worldwide operations, who left last week. Forquer had formerly been at Apple Computer. Another Apple vet, Gerald Devlin, former AST vice president of sales in the Americas, left in June. And Howard Elias, who joined AST in June, 1993, after 17 years at Tandy Corp., left for Digital Equipment Corp. three months ago.

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