Prelude to a Takeover? : AST, Samsung in Talks for Cash, Minority-Stake Deal
AST Research Inc., a pioneer in the personal computer industry and a centerpiece of Southern California’s high-tech sector, may not be an independent company much longer.
After weeks of rumors, Irvine-based AST, which sold nearly $2.5 billion worth of PCs last year, acknowledged that it is talking to South Korean giant Samsung Electronics Co. regarding a “significant minority investment.” And some analysts are convinced that such an investment would be a prelude to a takeover.
Neither company would provide details of the discussions, but industry sources say it is likely that Samsung will invest $100 million in return for 20% of AST, with an option to increase its stake. AST said it is also in discussions with other potential investors.
“Samsung is going to buy a chunk, and then they’ll buy the whole company,” predicted Kimball Brown, an industry analyst at Dataquest Inc., a San Jose market researcher. “First they’ll make AST PCs by Samsung, and at some point they’ll just become Samsung products.”
As is often the case in such transactions, AST and Samsung were brought together by their vulnerability. AST, buffeted by fierce competition in the PC industry, is sorely in need of cash. Samsung, a diversified conglomerate that has made huge investments in computer technology, has been unable to crack the U.S. market despite three attempts.
Nor are the two companies strangers: Samsung supplies AST with critical components such as semiconductor chips and video displays for its computers.
AST, founded in 1980 by three emigres--Hong Kong-born Tom Yuen and Albert Wong (the ‘A’ and ‘T’ of AST) and Pakistan-born Safi Qureshey--has managed to ride the violent roller coaster that is the PC industry far longer than most medium-sized companies.
Over the past year, however, things have gotten even more difficult than usual. The company has had trouble digesting its 1993 acquisition of Tandy Corp.’s PC manufacturing arm in Dallas and has closed down its manufacturing plant in Fountain Valley in favor of a facility in Taiwan. (That has given rise to unconfirmed reports that the company will move its headquarters from Orange County to Texas.)
The strain showed when AST delayed a number of new products last year and blamed its difficulties on component shortages. It found itself short of PCs during a booming holiday buying season.
And Qureshey, AST’s chairman and the only remaining co-founder, has been criticized for biting off far more than he can chew, traveling almost nonstop around the world to boost sales even as the company faced troubles at home.
“They tried to do 18 things at once,” said Dataquest’s Brown. “And Safi is still trying to run it like a start-up. He’s a wonderful guy to grow a company from zero to $1 billion; it’s too much for him to expect to manage a big company by himself.”
According to Framingham, Mass.-based market researcher International Data Corp., AST market share declined slightly in 1994, a year when the PC industry flourished.
“AST’s problems say something about the importance of execution,” said IDC market analyst Richard Zweichkenbaum. “Product life cycles are shorter and as a result you need to have rapid-fire reflexes. To do that, you have to go juggle a lot of balls in the air, and not everyone can do it all the time.”
The company has been on an ardent quest to cut costs, but evidently it now feels it needs new capital as well. It still boasts valuable assets: PC manufacturing plants in the United States, Europe and Asia, a long-established network of computer resellers and a line of well-regarded products.
AST lost $62 million for the six months ended Dec. 31, and the company says it won’t make a profit until the spring. Product shipments grew a mere 15% between 1992 and ’93 as AST was eclipsed by new entrants such as Taiwan’s Acer as well as longtime rivals such as Compaq, Dell and IBM.
Should Samsung acquire AST outright, as many predict, the 42-year-old Qureshey will probably find himself in a diminished role. “Safi isn’t an operations guy,” said former partner Yuen. “But he’s been an eloquent spokesman for the company.”
Qureshey has been in control since 1992, when he prevailed in a power struggle with Yuen. Recently, Qureshey appointed former sales vice president James Schraith as president. But Schraith has never run operations like manufacturing.
“Why didn’t they go outside of AST to recruit an experienced president who can bring some operational discipline to the company?” Yuen asked.
In a recent interview, Qureshey defended the company’s product development skills. “AST has always been strong in engineering and that won’t change,” he said. But the company has been late in hot new product categories like hand-held computers, and without a cash infusion, it may not be able to spend the money it needs to spend on R&D.; In that respect, Samsung might be something of a savior.
Times staff writer Ross Kerber contributed to this report.
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AST at a Crossroads
Though AST Research Inc.’s revenue and market share grew dramatically in the early ‘90s, its stock has fallen on hard times lately, particularly compared to that of competing firms. A profile of the computer manufacturer:
* Headquarters: Irvine * Chief executive: Safi U. Qureshey * President: James T. Schraith * Employees: 6,500 * Products: Design, manufacture and marketing of IBM-compatible personal computers, including desktop, notebook and network server systems
* Formed: 1980
Market Share
AST’s share of the personal computer market is smaller than those of three major competitors. However, its growth between 1990 and 1993, the most recent year for which figures are available, compares favorably. Market share based on units shipped worldwide:
AST Research Inc.
1990: 1.2% 1991: 1.5% 1992: 1.8% 1993: 2.7%
Dell Computer Corp.
1990: 0.6% 1991: 1.0% 1992: 2.3% 1993: 3.0%
Apple Computer Inc.
199O: 7.5% 1991: 8.3% 1992: 8.5% 1993: 9.4%
Compaq Computer Corp.
1990: 4.0% 1991: 3.7% 1992: 4.8% 1993: 8.1%
As the Stock Goes
During the past year, AST’s stock has plummeted in value; it now appears to have settled at about half what it was worth a year ago. How AST monthly average stock prices compare to those of competitors:
AST Research Inc. 1995: $15.00
Dell Computer Corp. 1995: $42.63 Apple Computer Inc. 1995: $40.38
Compaq Computer Corp. 1995: $35.75
Sources: Bloomberg Business News, Dataquest Inc.
Researched by VALERIE WILLIAMS-SANCHEZ
