AST Research Ties Itself to Apple as Well as IBM
Four years ago, and just days after IBM released its new desk-top business computer, three young fellows tracked down one of the few available machines and ordered it air-freighted to Irvine. After dismantling it and tracing its circuitry, the three determined what additional gadgetry the machine required to make it more useful to the average business.
A quick 10 weeks later, AST Research Inc. unveiled its first “add-on” products--the equivalents of such essential extras as a radio, clock and air conditioning in a new car--for a machine destined to be the most popular business computer in the world. The company had hitched itself to a star.
“Our philosophy was to try to become synonymous with IBM,” explains Thomas Yuen, AST’s 33-year-old executive vice president for marketing.
Although AST’s rise to the top in the estimated $700-million-per-year market for computer extras has been due to its extensive IBM-compatible product line, star-hitching can only go so far.
So Thursday, even as the company announced its best-ever performance, President Safi Qureshey and other AST executives were in Cupertino, Calif., talking to Apple Computer President John Sculley about AST’s opportunities with future products made by the No. 2 manufacturer of desk-top computers.
The meeting, although the first involving the companies’ top executives, is one of a series of discussions that have been held over the last year to explore potential links. Thursday’s session came in the wake of Sculley’s public pronouncements that Apple will actively seek to open its Macintosh, which has sold below expectations, to outside “add-on” manufacturers.
The issue of accessibility of the Macintosh to accessory makers is said to have been a major source of friction between Sculley and Steven Jobs, Apple’s co-founder and chairman, and one of the reasons for Jobs’ ouster in June as head of the Macintosh product line.
Unlike the IBM Personal Computer, which has enjoyed total sales of about 6 million, the Macintosh has no space to be filled with outside manufacturers’ accessories to, for example, expand the computer’s memory or turbocharge its mathematical processing capability.
Jobs is said to have wanted to keep the Macintosh “closed,” whereas Sculley argued that sales, estimated at about 400,000 since its introduction in January, 1984, would increase if other companies could get inside the machine and customize its operations for a wider range of business applications.
An alliance between Apple and AST, expected to be announced later this year for an as-yet-unnamed product, is viewed as a winning relationship for both parties.
“It’s important for businesses to see that we have the confidence of AST,” says Guy Kawasaki, Apple’s manager of software products, who has been guiding the negotiations. “AST delivers us credibility.”
If a deal with Apple is forged, AST stands to win a new multimillion-dollar market for its products. Although other add-on manufacturers, particularly Quadram near Atlanta and Tecmar in Chicago, also stand to gain from Apple’s new open-door policy, perhaps none are as poised as AST to jump into the market.
On Thursday, AST announced earnings of $19 million for its 1985 fiscal year ended June 30--more than three times the $5.7 million earned the year before. Revenue for the year was $138.5 million, more than twice the $63.8 million recorded in the previous year. In the fourth quarter, profits jumped four times to $6.7 million from $1.67 million last year. Sales were $42.4 million, a 78% increase from a year ago.
AST executives say they have been looking to Apple as a potential source of new sales since July, 1984, when they named a special staff of 10 within the 600-employee company to develop the new relationship and products.
“We knew that sooner or later Apple would realize that, to be successful in the business environment, they would have to open the Macintosh,” says Ash Jain, manager of AST’s Apple unit. “They couldn’t continue the way they were.”
Analysts say AST’s move into the Apple market is well timed. At the very least, notes John Dean of Montgomery Securities in San Francisco, Apple offers AST the potential of at least 18 more months of torrid growth.
And, if IBM decides to appropriate some of AST’s turf by packaging similar products with its computers--as Kenneth Lim of Dataquest, a San Jose marketing research company, expects--the Apple market could buffer the loss in market share.
Despite IBM’s current dominance, Apple executive Kawasaki argues that it’s “still a two-horse race” in the desk-top market. “And it behooves a company to be on both horses,” he adds. “It’s too risky otherwise.”
