Computer Add-ons : AST Announces Layoffs After IBM Enters Market
Hit hard by IBM’s move onto its turf earlier this year, AST Research Inc. laid off 65 workers Thursday and is preparing to report lower quarterly earnings and sales for the first time in its history.
The nation’s largest maker of turbo-charging “add-ons” for personal computers said nearly all the job cuts were made at its Irvine headquarters and manufacturing plant Thursday afternoon. About 7% of AST’s 890 employees are being laid off.
In an interview, Jerry Ulrich, AST’s controller and acting vice president for finance, said he has no quarrel with analysts’ projections of lower fourth-quarter sales and profit.
Analysts have forecast that the company will report profit between $3.5 million and $5.8 million and revenue between $38 million and $42 million for the fiscal fourth quarter, which ended June 30. Last year, final-quarter profit was $6.7 million on sales of $42.5 million.
“The years of rapid growth are over for the company,” said Thomas Galvin, an analyst with Shearson Lehman American Express in New York. “They are in a transition phase.”
The cuts and a recent reorganization come three months after IBM muscled into AST’s market by introducing an upgraded version of its AT and XT personal computer models.
The new machines offer many of the same features that AST had made a huge business and fortune on, by providing in its popular “SixPak” multi-function board. The board, which increases the power and capabilities of the basic IBM personal computer, accounted for 59% of AST’s $138 million in revenue last year.
IBM Dependence
Although AST had been trying to wean itself from dependence on IBM over the last two years by developing add-on products for Apple and Digital Equipment computers, it was still vulnerable to IBM’s move to usurp some of its sales territory.
“The IBM move had a bigger impact than the company originally thought it would,” said Jon Gruber, an analyst with Montgomery Securities in San Francisco.
Gruber said he expects the company’s sales to remain in the $40-million range through the current quarter and then increase as a result of holiday gift giving.
In the last several years, AST, which became the nation’s largest supplier of add-ons on the strength of its products for the IBM personal computer, had been criticized by analysts and investors for relying too heavily on the IBM market. Analysts suggested that despite the company’s fast-paced growth, IBM could inflict substantial damage by offering some of the AST-provided extra features as a standard part of its machines.
As a result, two years ago AST launched a division to design products for Apple personal computers, and in February, AST purchased a small Santa Ana manufacturer of add-on products for the powerful and sophisticated computers made by Digital. The company said the latest cutback would not affect the Apple and Digital divisions.
Despite the moves into new markets, analysts said AST would be hard pressed to find the kind of success it did from the IBM market.
