Despite an economic slowdown that has hurt other computer companies, AST Research Inc. surprised Wall Street on Tuesday by forecasting a near doubling of its earnings for the quarter ending Dec. 31.
Wall Street traders and investors, hungry for a hot company amid a recession, sent the Irvine firm’s stock price soaring 20.8%, or $5.50 a share, to close at $32, its highest price of the year. The stock was the sixth-most actively traded issue in the over-the-counter market Tuesday.
The personal computer maker said it expects to post earnings of $13.9 million for its second quarter, up from $7.4 million a year earlier, a performance that analysts say is remarkable, given the poor state of the economy.
AST attributed its higher earnings estimate to increased sales, especially overseas, higher profit margins and improved operating efficiencies.
“The company’s complete line of high-performance personal computers has attracted strong demand from our distributors, resellers and customers worldwide,” said Safi U. Qureshey, AST co-chairman and chief executive.
The company also authorized a 2-for-1 stock split effective Jan. 31. The company said the action is intended to attract a larger and more diverse group of shareholders and to increase trading volume of the stock.
As of Dec. 17, AST had 13.9 million common shares outstanding. After the stock split, the company will have about 28 million shares outstanding.
Candace King Weir, an analyst at C. L. King & Associates, an Albany, N.Y., securities firm said that AST is executing its strategy better than other computer firms and that Wall Street is gradually becoming aware of that.
“The estimates are higher than I expected,” said Weir, who estimates that AST will earn $48 million during its fiscal year ending June 30, 1991, up from $35.1 million a year earlier. She said she expects the company to continue to perform well in the quarter that begins Jan. 1.
Just two years ago, AST was mired in a computer industry slowdown and had reported its first quarterly loss--$8.9 million for the three months ending Dec. 31, 1988. The company had a reputation on Wall Street not only for technical excellence but also for not paying enough attention to its balance sheet.
The company embarked on a program to strengthen its balance sheet, slashing 6% of its work force and trying to bring more financial discipline throughout the organization.
AST officials say those cost-cutting efforts begun two years ago have prepared the company better than some of its rivals for the current sluggish market.
More recently, AST has unveiled a host of high-performance personal computer systems to take advantage of improvements in semiconductor technology and is targeting customers who were once the domain of the $30-billion minicomputer market.
Mark Matheson, an analyst for the Newport Beach investment bank Cruttenden & Co., said AST is attracting investor interest because of its strong earnings momentum and its aggressive pricing policies, which could draw bargain-seeking customers during tough economic times.
AST recently announced plans to enter the notebook computer market with two models priced at $2,500 to $3,300, less than half the price of some of its competitors. The machines have been well received in the trade press and on Wall Street. The company has also introduced a line of competitively priced high-performance workstations.
On Nov. 29, AST stock surged $1.50 to close at $27 after Daniel C. Benton, an analyst at Goldman Sachs & Co., said in a research report that AST could sell 10,000 of its new notebook computers in the third quarter.
AST has said it plans to hire 100 additional employees at its Fountain Valley manufacturing plant during the next several months to keep up with demand for its full line of personal computers.
For the first quarter ended Sept. 30, AST reported earnings of $11.4 million, up nearly fourfold from $2.9 million a year earlier. Revenue for the quarter rose 19% to $136.3 million, up from $114.5 million a year earlier.
AST Stock Prices Price per share, daily close AST Research Tuesday: $32.00, up $5.50