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Samsung Buys 40% Stake in Troubled AST : Computers: Korean firm's injection of $450 million into money-losing Irvine PC maker gives it access to U.S. market.

February 28, 1995|ROSS KERBER | TIMES STAFF WRITER

In the biggest Korean investment in a U.S. computer company, Samsung Electronics Co. agreed Monday to pay $450 million for a 40% stake in troubled AST Research Inc.

Irvine-based AST, the world's sixth-largest maker of personal computers, has been hurt by fierce competition and has had difficulty integrating its 1993 acquisition of Tandy Corp.'s PC manufacturing arm in Dallas. The Samsung deal, which includes a purchase of $375 million worth of AST stock, will give it a sorely needed cash infusion.

In return, Samsung will gain access to AST's strong network of worldwide dealers and computer resellers for its own PCs and for the electronic components such as memory chips and display screens that it makes.

"As hot as things are getting in the computer industry, it's not such a bad thing for AST," said Mike McGuire, an analyst at market research firm Dataquest in San Jose. "There's no question they were looking for cash."

The investment will help AST, which has suffered two consecutive losing quarters and faced a possible downgrade of its credit rating, upgrade the Texas plant it acquired from Tandy. Samsung will also provide a letter of credit to support AST's existing $96.7-million debt to Tandy.

AST confirmed earlier this month that it was negotiating with Samsung but would not give details of the talks. Analysts predicted at the time that the South Korean company would invest $100 million in return for 20% of AST.

The agreement, which far surpassed that projection, sets up "a very strong relationship, just what we were looking for to help us prepare for the next several years down the road," said Jim Schraith, AST's president. "Our strengths are still in areas where we won't diminish our efforts."

The company was hurt by a number of delays in new-product introductions, which AST blamed on component shortages. It also found itself short of PCs during the crucial holiday buying season.

In a move to cut costs, the company closed its manufacturing plant in Fountain Valley this month, laying off the facility's 440 employees and moving production to Taiwan.

"AST's problems say something about the importance of execution," market analyst Richard Zweichkenbaum of International Data Corp. said earlier this month. "Product life cycles are shorter and, as a result, you need to have rapid-fire reflexes. To do that, you have to go juggle a lot of balls in the air, and not everyone can do it."

AST and Samsung have long had business dealings with each other. Samsung supplies AST with components such as semiconductor chips and video displays for its computers.

Samsung Electronics, which had 1994 revenue of $14 billion, has made big investments in computer technology but has not been able to get into the U.S. market. The AST deal, analysts said, may give the company the break it needs.

AST was founded in 1980 by three emigres: Hong Kong-born Albert Wong and Tom Yuen and Pakistan-born Safi Qureshey, the company's chairman and only remaining founder. AST, which sold nearly $2.5 billion worth of PCs last year, has 6,000 employees worldwide.

Samsung Electronics, with 60,000 employees worldwide, is a wholly owned subsidiary of the Samsung Group. Both are based in Seoul, South Korea, and Samsung Electronics has a U.S. division based in Ridgefield Park, N.J.

The two companies announced the deal at a joint news conference in Seoul. AST's seven-member board approved the deal Monday, subject to the approval of AST shareholders at a meeting tentatively scheduled for May.

*

Times staff writer Julie Pitta and correspondent Hope Hamashige contributed to this report.

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