AST Layoffs, Plant Closure Hit O.C. Hard : Employment: Shutdown of Fountain Valley’s biggest employer will cost another 440 jobs by Feb. 1. Dozens more will be cut in Irvine as company reports larger-than-expected loss.
AST Research Inc., struggling to keep pace in the cutthroat personal computer business, said Friday that it will close its Fountain Valley manufacturing plant, lay off its 440 employees and move operations there to an AST plant in Taiwan.
The nation’s sixth-largest computer maker, which employs 6,900, said it is moving to reduce its work force by 10% worldwide. It also reported that it expects a quarterly loss of up to $40 million--far worse than industry analysts had expected.
“This is a gut-wrenching thing to have to do,” said James T. Schraith, AST’s president. “But for the sake of the remaining employees and the people who have a stake in the company, we simply had to make the necessary changes to become a stronger company.”
The ax fell swiftly Friday morning in this latest round of layoffs to hit Orange County’s high-tech work force. Employees were summoned to a 6 a.m. meeting, and 100 workers were dismissed with up to two months of severance pay. The entire plant is to close by Feb. 1.
Employees had suspected for some time that layoffs were pending, and word of the early morning session had fueled speculation. “I slept OK last night, but it was tough waiting for the 6 a.m. meeting,” said stockroom worker Jose Corvarruvias, 33. “They started the meeting by saying ‘Good morning,’ but we told them it sounded like a bad morning.”
AST attributed its problems to an unusual combination of product delays, parts shortages and atypically low profit margins. But all companies in the PC industry--which is now in many ways a marketing-driven business that relies on commodity parts and suffers chronically thin margins--are wrestling with similar issues.
AST said that about 250 additional employees worldwide, including 50 to 75 at its Irvine headquarters, also will lose their jobs.
The plant closing will erase Fountain Valley’s biggest employer from the city rolls and will leave about 290,000 square feet of manufacturing space vacant. The city receives $100,000 a year in property taxes from the AST plant, which consists of two buildings owned by Sakioka Farms in Santa Ana.
Fountain Valley Mayor John Collins bemoaned the latest hit to the local economy. “You feel bad for the employees, some of whom are Fountain Valley residents, but the economy has been very harsh to everybody, including to this city,” he said.
The news was a blow to the team of business and political leaders who have been trying to recruit businesses and keep jobs in Orange County.
“We didn’t know about it, and obviously this is not good,” said Wayne Wedin, chairman of the Orange County Economic Development Consortium, a business-retention group.
In August, Hughes Aircraft Co. said it will relocate most of its Fullerton operations, laying off 1,000 workers and taking 6,100 more jobs out of the county.
“AST’s announcement is part of a continuing loss of high-tech manufacturing jobs here,” said Anil Puri, chair of the economic department at Cal State Fullerton.
The layoff at AST is its second in a year. The company terminated 1,050 employees, including 650 in Orange County, in the aftermath of its July, 1993, purchase of Tandy Corp.’s computer manufacturing operations. It has since shifted some of its Fountain Valley operations to the former Tandy plant in Fort Worth.
In terms of percentages, AST’s latest job cuts are “not a lot,” Puri said. “But AST is an important company, a local, home-grown company, and when they make a decision like that, we need to pay attention.”
The closing of the Fountain Valley plant is mainly the result of AST’s problems over the past few months in the superheated competition to sell low-cost machines loaded with features.
The company is reeling from the computer industry price wars but, more critically, from internal problems, including delays in new-product development and difficulties absorbing the $175-million Tandy purchase, said Kimball Brown, a high-technology industry analyst with Dataquest Inc. in San Jose.
“And while they are doing that, the industry continues to be ferocious,” Brown said. Competitors such as Compaq Computer Corp. and International Business Machines Corp. are reporting profits and increased sales. “It is difficult to maneuver in that kind of climate,” Brown said.
Schraith pointed out that the company has no plans to move its headquarters, which has a staff of 800. “We feel this is the right place,” he said. “We’re close to a lot of technology, close to the operating system companies. Also, a large amount of business comes out of the Pacific Rim. So we’ll stay here with our engineering, marketing, sales and other headquarters operations.”
The company said at the end of August that it would report a loss for its first fiscal quarter, which ended Sept. 30. But Friday’s announcement of red ink totaling $39 million to $40 million was triple the amount expected by analysts, who last month had projected a loss of 35 cents to 75 cents a share. The update puts the loss at $1.20 to $1.25 a share.
Sales for the quarter also will be much lower than anticipated. AST said revenue will likely be $495 million. Analysts had expected revenue of at least $515 million, which would have matched last year’s first-quarter revenue. Final financial results will be released Oct. 27, AST said.
The company’s stock, too, has been battered this year, mainly in response to concerns that the company is overstocked with older products and is unable to get new models out the door.
AST’s share price fell $1.50 Friday to close at $10.75 a share in heavy trading of 5.7 million shares on the Nasdaq market system. The stock has plummeted from $33 a share early this year.
Friday’s announcement marked the second time in two months that the company surprised analysts with bad news. At a meeting in early August, AST executives painted a rosy picture of the company for Wall Street. Less than 30 days later, the company said that the profit it had projected would instead be a loss and that it was taking steps to rectify the situation.
From that point, Schraith said, senior executives were researching the company’s options and settled about 10 days ago on the action that the board of directors eventually approved. The move to Taiwan, where AST has a plant that also makes notebook computers, was logical not only because of the lower labor costs but also because of the proximity to Pacific Rim countries that supply that model with parts.
“The closing of the factory was expected,” said Stephen Dube, an analyst at Wasserstein Perella Securities in New York. “The surprise was the manpower cuts outside of Fountain Valley. We won’t find out at least until the March quarter if AST is back in the game.”
Contributing to this report were Times staff writers John O’Dell, Greg Johnson and Debora Vrana, and Times correspondents Hope Hamashige and Debra Cano.
GONE AT DAWN: The bad news came at 6 a.m. for Fountain Valley crew. A30
ADVANCE WARNING: Announcement is stunner, but first hint came last spring. A33
Making Jobs Disappear
Manufacturing jobs in Orange County have been disappearing steadily since the late 1980s, particularly in the electronic-equipment industry, where 35% of the jobs have been eliminated since 1988. In thousands:
Manufacturing jobs (1994*): 205.5
Electronic-equipment jobs (1994*): 24.5
* 1994 figures are for January through May; all others are annual averages.
Source: Employment Development Department; Researched by DON LEE / Los Angeles Times
