AST Will Lay Off 650 Workers in O.C. : High-tech: Computer maker to cut a total of 1,050 jobs, shift some operations to Texas and Ireland.
In a severe blow to Orange County’s manufacturing employment, AST Research Inc. said Tuesday it would lay off 1,050 people--including 650 workers in Fountain Valley and Irvine--in the aftermath of its purchase this summer of Tandy Corp.’s computer manufacturing operations.
AST, the nation’s fourth-largest computer maker, will also shift manufacturing operations to Texas and Ireland, which calls into question whether Orange County is becoming so uncompetitive that even companies with strong roots are pulling out.
“This is one of the toughest decision I have had to make at AST,” said Safi U. Qureshey, chairman and chief executive. “We are a California company that grew from a garage.”
The cutback includes a reduction of 450 of the company’s 1,000 assembly-line positions in Fountain Valley and the elimination of 200 of 800 jobs at AST’s Irvine headquarters. Elsewhere, an additional 400 positions will be eliminated.
Despite much speculation, city and county officials, who are battling to keep businesses from leaving the region, said that Tuesday’s layoff announcement came as a surprise.
“It’s a big hit to the high-tech cluster here in Orange County,” said Tim Cooley, president of Partnership 2010, a public-private development group. “It’s just one more example of the fact that it’s difficult to do business in the county and the state.”
Fountain Valley’s mayor said a ripple effect could hurt local businesses that depended on AST’s employee base, such as restaurants or shopping outlets.
“These are 450 people and their families who are going to be looking for new jobs in a soft job market. It’s got to have a major negative impact on Orange County,” said Mayor Laurann Cook. “I would like to tell our state legislators to wake up and see the writing on the wall. We’ve got to find a way to keep our companies here.”
Overall, the layoffs represent 16% of AST’s 6,700 employees worldwide. But AST plans to add about 500 jobs at two manufacturing plants in Fort Worth, where it acquired three Tandy computer and computer-parts manufacturing plants, and create 350 jobs in Ireland, so a net of 200 jobs will be lost.
Employees who will lose jobs will be notified over the next 90 days, which the company says allows enough notice for people to adjust their holiday spending plans. It leaves hundreds of computer assembly workers wondering about their future.
“I’m very worried, because I don’t really know what’s going on,” said one AST supervisor in Fountain Valley, who did not give her name. “It just seems like things keep getting worse and worse in Orange County.”
It is ironic that 12-year-old AST--started when its three founders began to assemble computer products in a garage--is reducing manufacturing in Orange County as the company becomes one of the nation’s largest computer companies with an estimated $2 billion in sales.
Similar cuts have taken place at IBM, Apple and Compaq in the past several years, as well as at smaller players such as rival Advanced Logic Research Inc. in Irvine. The price war, in which computer prices have fallen 40% a year for the past two years, had been relatively painless for AST.
AST was one of the few that escaped major layoffs until now. Qureshey has publicly criticized other computer firms that laid off employees, and he had been a longtime booster of keeping jobs in Orange County.
“This is not a company that hacks and slashes for the sake of hacking and slashing,” said Steve Eskenazi, analyst at Alex. Brown & Sons, an investment bank in Baltimore. “They’re pretty sensitive to employees, and they’re running at a marathon pace, not a sprinter’s.”
AST officials met with employees Tuesday morning to announce the company restructuring, but employees who attended said there were few details released and little discussion of layoffs. Others said that some of their co-workers were being fired during the afternoon.
Qureshey said state officials asked if there was anything that would persuade AST to keep its jobs here, but said he told them there was nothing that could be done fast enough to prevent the move.
Qureshey said direct costs are 10% to 20% lower in Texas compared to Orange County, not including lower taxes. He cited factors such as lower costs for wages, benefits, workers’ compensation costs and taxes in Texas, which has no personal income tax.
Wall Street analysts anticipated a broad reorganization at AST after it agreed to pay $105 million for the computer manufacturing assets of Tandy Corp. in July. Then, AST declined to hire 500 of Tandy’s 2,500 employees.
The company is expected to report a profit in its current quarter, largely because it took a $125-million charge against earnings during the summer to account for the costs of merging the two companies.
Qureshey said management will not be cut. Over the past year since co-founder Tom Yuen left the company, the company has hired a dozen middle and executive managers from other top companies.
The Tandy acquisition, largely praised on Wall Street, is a mixed blessing. AST’s larger size will allow it to compete against computer giants like IBM, Compaq and Apple. It also got deals to supply Tandy computers to 6,000 Radio Shack stores for three years, and it acquired new computer technologies from Tandy.
At the same time, AST has been forced to merge different manufacturing systems among the plants. A plant in Scotland proved too small, leading the company to decide to close it and build a larger plant in Ireland with 350 employees. Qureshey said the company had to buy the Scotland plant as part of the acquisition and discovered later that a new plant in Ireland would be better.
So, about 140 jobs will be phased out in Scotland and its work will be moved to a newly acquired Tandy plant in Limerick, Ireland, where it will create a larger factory with 350 employees.
At the Santa Monica office of the Industrial Development Authority of Ireland, a government group charged with attracting investment to Ireland, officials are very familiar with AST.
“We’ve been working with them for more than five years now,” said Patrick Gallagher, senior vice president of the authority.
AST also had to decide where to build its computers, using the principle that its machines should be assembled near where they are sold. The company has plants in Hong Kong and Taiwan, but it will open another in Tianjin, China, next year.
The Texas plants will build AST’s desktop computers for the United States, while the Fountain Valley plant will focus on portable computers, mainly to be close to portable engineering development in Irvine. A plant in Taiwan will also focus on portables and shift its desktop manufacturing to Ireland.
Qureshey said workers in Fountain Valley can apply for jobs in Texas, but their relocation costs will not be paid by the company. Instead, he said, workers will get 60 days’ pay plus a severance package that varies depending on years of service.
That severance pay, he said, could be used to pay for relocation costs. AST will also assist workers in finding new jobs.
AST Rebounding
AST’s stock appears to be reviving from summer doldrums and is inching closer to its January high of $22.75 a share. Highest monthly closing price: Tuesday’s close: $21.50
AST Research at a Glance
* Business: Computer hardware designer and manufacturer
* Founded: 1980
* Headquarters: Irvine
* Chairman and CEO: Safi U. Qureshey
* Number of employees: 6,700
* Employees in Orange County: 1,806
* Positions to be eliminated: 1,050
* Orange County positions to be eliminated: 650
* Previous layoffs: 70 in Orange County in January, 1989; 30 others through layoffs and attrition
Sources: Times reports; Bloomberg Business News, AST Research
Researched by JANICE L. JONES / Los Angeles Times
