Profit Plummets 54% but Sales Soar to New High at AST Research
AST Research Inc., caught up in the personal-computer industry’s fierce price wars, said Wednesday that its profit fell 54% for the latest fiscal quarter, even though sales soared to a new high.
The PC maker, based in Irvine, reported earnings of $7.6 million, or 24 cents a share, for its first fiscal quarter, which ended Oct. 3. That compared to a profit of $16.5 million, or 52 cents a share, for the same period a year earlier.
At a time when the industry usually has an end-of-the-summer slowdown, AST’s quarterly revenue grew 45% to $286.4 million, compared to $197.1 million a year earlier. AST officials said that unit shipments jumped 70% from last year.
“Everyone has adjusted prices,” said Safi Qureshey, AST’s president and chief executive. “But only for a few brands did it stimulate demand.”
As prices fell throughout the industry, “customers went to the names of quality,” such as AST, Qureshey said. The company makes so-called “clones”--high-performance computers that are compatible with those made by International Business Machines Corp.
Analysts say the price wars, started in June by Compaq Computer Corp., could drive a number of PC clone makers from the market. Already, Zeos Corp., Everex Systems Inc. and Northgate Computer have been hit hard as the competition has forced even more cuts in profit margins that were already thin.
But Wall Street analysts predict that AST will come out of the price wars a winner. Overall, analysts are projecting that the company will finish its fiscal year with earnings equal to $1.88 a share.
AST is hoping to see good results sooner than that. In September, the company introduced revamped product lines that it thinks will boost profit because they will command higher prices. Those new products accounted for only 5% of sales during the first fiscal quarter.
“The strong players are going to become stronger at the expense of the weaker players,” Qureshey said. “But we are gaining momentum. As we bring out the new products, we will improve profitability.”
The company also reduced its debt during the latest quarter by 18% to $148 million from $182 million at the end of June. And it has more than $130 million in cash.
“It’s going to be a balance-sheet game,” Qureshey said. “That is going to be the fundamental thing as the industry goes through consolidation.”
One reason, he said, is that the suppliers who provide PC makers with such components as keyboards and disk drives have become more selective and are ever more careful that credit is extended only to those companies that are fiscally sound.
AST’s stock, traded on the NASDAQ market, fell $1.75 a share Wednesday to close at $17.25. The quarterly results were released after trading closed for the day.
