AST Launches Shake-Up of Top Executives : Computers: Orange County firm says that it expects to lose more than $40 million in its first fiscal quarter of 1996.
Struggling to pull itself out of a prolonged downward spiral, personal computer-maker AST Research Inc. shook up its top leadership Monday and warned that the company expects to lose more than $40 million in its first fiscal quarter of 1996.
AST, which reported a loss of more than $100 million last year, announced the resignation of three senior executives, including Jim Schraith, the company’s president and chief operating officer.
The resignation of Schraith, a 37-year-old who had risen rapidly over eight years to take the No. 2 position at the company last year, is part of AST’s latest reaction to a series of marketing and production missteps that threaten the nation’s seventh-largest maker of personal computers.
Also out are Jim Wittry, senior vice president, and Scott Smith, vice president and general manager of desktop products operations at AST.
The three executives departed just two months after the completion of a deal with Samsung Electronics Co. Ltd. that was touted as the cash infusion AST needed to right itself after product development problems and shipment delays had led to mounting losses.
Safi Qureshey, chief executive of AST, had predicted earlier this year that the company would return to profitability by summer, but admitted in a prepared statement Monday that AST now expects to post a loss “significantly higher than the $40-million loss” recorded in the comparable quarter last year.
“In the current quarter, AST continued to experience disappointing performance in the United States marketplace,” Qureshey said. He added that the company was also hurt by slow European sales and continuing price wars among major computer manufacturers.
“It became necessary to make immediate changes to hasten the company’s recovery,” Qureshey said. “We have to become more nimble and faster.”
Analysts questioned whether the company is in a position to pull it off.
“It is hard to believe that [the three departed executives] were the root of the problem,” said Scott Miller, an analyst at Dataquest in San Jose. “You’ve got to believe that the problems are more fundamental and widespread.”
After losing market share in recent years to aggressive rivals such as Compaq and Packard Bell, AST appeared to be headed toward a crash until Samsung, the South Korean electronics giant, agreed to invest $378 million in AST in exchange for a 40% stake in the company.
The deal with Samsung “solves the temporary problems of a shortage of cash,” Miller said. “But it doesn’t solve the longer-term troubles: distribution problems and inefficiencies.”
Analysts and former AST executives trace the company’s woes back to 1993, when it acquired the computer manufacturing operations of the Tandy Corp. in a bold attempt to move to the front of the PC industry.
“Management was convinced they were buying these great manufacturing resources,” said Gerald Fleming, an analyst at Hancock Institutional Equity Services in San Francisco. “They just got spread too thin. Rather than having everything fall together in a synergistic way, they ended up with the worst of all worlds.”
The acquisition of Tandy was followed by a series of production and shipping delays that left AST stumbling just as other PC manufacturers were aggressively dropping prices on their products.
During a tumultuous year last year, computer retailers complained of late shipments from AST. In addition, the company shifted production of notebook computers from its Fountain Valley plant to Taiwan, where labor costs are lower.
In an interview Monday, Qureshey downplayed the troubles absorbing Tandy. “People tend to look too far back,” he said, adding that he is now focused on assembling a new management team better equipped to manage a company with production facilities spread around the globe.
For starters, he brought back Gerald Devlin as senior vice president, overseeing sales across North and Central America. Devlin previously held that position from January, 1993, to June, 1994.
Qureshey also said he and Bruce Edwards, chief financial officer, will share AST’s presidential duties until a successor to Schraith can be found. “We want to attract a strong executive that can help build a team that can run an international company,” Qureshey said.
Qureshey sidestepped questions about why Schraith left so abruptly. “This was a mutual decision,” Qureshey said. “Looking at the market conditions and how fast AST had to move, he felt it was best for him to step aside.”
Schraith could not be reached for comment. In a prepared statement, he said he was proud of his role “in helping AST grow into a top-10 worldwide PC manufacturer. However, I feel now is the time to move on.”
Former AST executives questioned whether Schraith and the other departing executives were really to blame for AST’s troubles.
For months, “people thought Schraith and others would be scapegoats,” said Tom Yuen, an AST founder who served as co-chairman of the company until he was ousted in 1993. “When you look at the overall reasons for the problems--product delays and component shortages--it is just unbelievable. The company really needs a leader.”
Some analysts believe that AST’s problems were evident long before its $175 million acquisition of Tandy’s computer business in July, 1993.
“The problems were around before the Tandy purchase and they’ve never been solved,” said J. William Gurley at CS First Boston in New York. “The company has never been able to differentiate itself from other computer makers. It has no competitive advantage at all.”
Asked to describe AST’s strategy for differentiating itself from dozens of other brands, Qureshey fumbled for an answer. “In certain areas we want to be out in front [on technology], and in others we want to provide the lowest cost,” he said. “It’s not that we have totally given up on product differentiation.”
Part of AST’s recent strategy, analyst said, has been to eschew advertising and instead rely on word-of-mouth recommendations. Indeed, at a meeting of analysts last year, AST executives were defensive when questioned about their failure to create a brand name for their products.
“They said, ‘People will find out about us when they go to friends who are PC experts,’ ” said Susan Barney of Sutro & Co. “But what they haven’t seen is that the market has changed. Everybody has computers, and now, many are second-time buyers. AST computers aren’t cheap, and nobody knows who they are.”
