AST Research's $378-million deal with Samsung Electronics Co. would give the struggling maker of personal computers some badly needed cash, but analysts said Tuesday that the Irvine-based company must still prove it can survive in an increasingly competitive industry.
AST and Samsung executives spent about two months crafting the merger agreement, which would give the South Korean-based conglomerate a 40% stake in the world's sixth-largest PC manufacturer and permit the partners to jointly develop multimedia computers and advanced memory chips.
Despite the strategic fit, the deal would not reduce pressures on AST to increase its profits and shorten the time it takes to get new products to market--two goals the Irvine-based company has said it must meet to return to profitability this summer after two consecutive quarterly losses.
"It doesn't change the world PC industry, but it does change the opportunities for AST," said Stephen Dube, an analyst for Wasserstein Perella Securities in New York.
Samsung already supplies AST with memory chips, monitors, hard disk drives and other PC components, and now could begin selling AST's machines under its own brand name, he said.
Wall Street seemed to favor the proposed partnership, boosting AST shares nearly 13% to $16 in Nasdaq trading.
AST President Jim Schraith said the $250-million investment Samsung would make by buying more than 12 million of his company's shares demonstrates its interest in further development.
"They wouldn't get that by simply buying shares on the open market," Schraith said. "It's a sign that Samsung was looking for more than just buying into some PC company."
Samsung's investment in AST would occur in three stages: First, it would purchase newly issued shares--currently equal to 19.9% of the company--at $19.50 apiece; then, it would offer to buy 18% of existing stock from shareholders at $22 a share, and finally, at the same time as its offer to shareholders, it would again buy newly issued shares for $22 a share, bringing its total slice of AST to 40.25%.
Provided that AST shareholders approve the deal this spring, the companies would begin sharing research, design and marketing plans by midsummer, according to Schraith.
Michael Yang, a strategic manager at Samsung's Information Systems division in San Jose, who took part in the negotiations, said his company was looking for a partner to help it expand its U.S. computer sales. Samsung Electronics, which had 1994 revenue of $14 billion, makes PCs sold under the AT&T; and IDN brand names.
"It would have taken us too long to set up the infrastructure by ourselves," Yang said. "We felt a strategic partnership with an established company would save us money and time."