Co-Founder Bows Out at Tense Time

The departure of a co-founder from AST Research Inc. comes at a time of tumult in the fiercely competitive personal computer industry, raising a difficult challenge for those now running the 12-year-old firm.

Compaq Computer Corp., the Houston-based computer giant that is a rival of AST, launched a price war against the so-called clone makers two weeks ago, forcing competitors to cut prices by as much as 40% in what analysts think will lead to a long-predicted shakeout in the industry.

Compaq officials identified AST as one of the prime targets of their new strategy to focus on selling low-priced computers. Carmelo J. Santoro, the new chairman of AST, acknowledged Monday that times are difficult for the entire industry but said he is confident that AST can continue to succeed.

“We’re in a brutally competitive situation,” Santoro said. “I think AST is a quality company. My job is to be sure that it stays that way.”

He said his principal role is to advise Safi U. Qureshey, the third AST co-founder and heir to departing Thomas C. K. Yuen’s day-to-day duties, on “how to develop management on how to run the company,” he said.

After consulting with marketing and management experts earlier this year, Santoro said, Qureshey and Yuen approached AST’s two outside directors--Santoro and Richard Goeglien--to study the way the company is run and to recommend changes to sharpen its competitive edge in the future, Santoro said.

Santoro, who for years was president of chip-maker Silicon Systems Inc. in Tustin and recently pulled out of day-to-day management to become chairman of that company, said he views his new role as a part-time advisory job.

Michael Morand, vice president of marketing for AST, said the company will proceed with its plan to respond to renewed vigor at Compaq by remaking its entire product offering in the next five months. In addition, PC Week, an industry trade journal, reported in its latest edition that AST is negotiating to manufacture a notebook computer that would be sold under International Business Machines’ brand name.

AST is not a company in trouble. Stephen Smith, an analyst at PaineWebber Inc. in New York, forecasts that the company will report $950 million in sales and earnings of $68 million for its fiscal year that ends today.

That would make it Orange County’s largest computer company. Last year, AST sold more than $688.5 million worth of a wide variety of computers: notebook models that weigh less than eight pounds, computers used in corporate networks and PCs for home consumers. The Irvine-based company has about 3,500 employees, most of them at plants in Fountain Valley, Hong Kong and Taiwan.

“AST has always been a leader in price and performance, though I’ve been disappointed in how they have been forced to react to Compaq’s moves lately,” Smith said. “I hope they take charge so they can get through the shakeout.”

Analysts pointed out that AST has a war chest of cash to ride out the price wars and has no debt.

But the competitive pressure is being felt even at successful companies such as Dell Computer Corp. in Austin, which saw its stock fall after it said last week that the renewed price competition could affect its profitability.