Stock Is Battered, but AST Officials See a Profit at End of Tunnel : Earnings: Share value tumbled in wake of loss disclosure. Irvine-based firm says new products will restore growth.
Although AST Research Inc.’s stock took a beating this week after it disclosed that it would post a loss in the current quarter, the computer maker is poised for growth and profitability in coming months, analysts and AST officials said Friday.
The company, the world’s fifth-largest manufacturer of personal computers, is banking on several soon-to-be-unveiled models to revive profits. The company has also overhauled its manufacturing operations and is bolstering its management staff and internal quality controls to overcome delays that cost it dearly last month.
The new models, analysts and AST executives say, should carry prices high enough to help the company avoid some of the cutthroat discounting that has hurt the industry in general and AST in particular. “If you are there with the right product, you can charge a lot; whoever misses the boat goes down,” Jeff Kilpatrick, president of brokerage Newport Securities Corp. in Newport Beach, said Friday.
AST’s stock, which lost 27% of its value Thursday after the company said it expects to post a loss for the current quarter, crept up 18.75 cents on Friday to close at $13.25 a share on the Nasdaq market system.
Wall Street has been knocking down AST all year as the company failed to meet earlier earnings projections. Investors also worried about the depth of the problems at the company and its ability to reorganize its manufacturing operations and its top management. In addition, several nagging lawsuits, including a patent infringement case, are pending against the firm.
Analysts, however, tend to agree with James T. Schraith, the company’s president, that AST will recover and will continue to be one of the top five computer manufacturers worldwide.
“The problems are primarily internal, and we believe we have a handle on them,” Schraith said.
Only a month ago, AST was confident about its prospects as it completed its consolidation of overseas manufacturing operations and promoted Schraith to the top operations position, just under chairman and co-founder Safi U. Qureshey. But an unusual confluence of new product delays, parts shortages and atypically lower profit margins crippled the company in a month. Among them:
* Two models of its Ascentia notebook computer and Advantage desktop model were late to market because of supply problems.
* The debut of the company’s Bravo MS desktop computer was delayed by technical problems with the computer’s motherboard, a basic computer component. To avoid similar problems in the future, Schraith plans to integrate the engineering and design groups with the manufacturing group.
Throughout the year, AST has operated on slim profit margins, compared to the rest of the industry, said analyst William J. Milton Jr. of Brown Brothers Harriman in New York. The latest industry price cuts--ranging from 22% to 27%--could further exacerbate AST’s condition, he said.
“They have a bunch of new products, but so do their competitors,” Milton said. “What I want to know is why, when they are so similar in what they do, why AST’s profit margins are half what Compaq’s are.”
Aside from its operating woes, AST also is defending itself against two lawsuits. The company says, however, that neither should have a material impact on the company’s financial health.
In one court action, Texas Instruments Inc. in Dallas accuses AST of infringing on its patents. AST charges that TI failed to honor royalty rights AST acquired when it bought Tandy Corp.’s computer division last summer.
Last March, shareholders filed two lawsuits, accusing AST of issuing false and misleading statements about its anticipated quarterly earnings and revenue. A trial in that case is set for March 28.
