Caught in the Cross-Fire : Plagued by Losses and a Gun-Shy Reputation, AST’s Chief Seeks a Safe Return to Prosperity
Leaping from a chair in his sparsely decorated office, Safi U. Qureshey grabs a felt-tipped pen and maps out his vision for the future of AST Research Inc., the deeply troubled computer manufacturer he helped found 15 years ago.
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Scrawling diagrams on a white drawing board, he describes a world in which computer manufacturers such as AST will increasingly link arms with software publishers, on-line services and entertainment companies. PC makers with sterling reputations, he says, could make millions by exploiting their products’ brand names.
“There were 1.5 million PC users last year who saw AST on their machines every day,” Qureshey said in an interview late last week. “Whether you believe it or not, that is a franchise.”
He may be right. After all, Qureshey is widely regarded as a visionary, an industrial philosopher capable of recognizing the shape of markets in years to come.
But for now, AST’s well-being is far more dependent on what happens next week or next month, points in time that Qureshey seems less able to anticipate.
Once known as a company that made bold moves and forced others to play catch-up, AST has in recent years become slow-footed and clumsy.
When Compaq and other computer manufacturers dropped their prices last month, for example, AST stood by and watched.
At the company’s Irvine headquarters, top executives mulled over how to respond to the price cuts for weeks. Torn between doing nothing and losing market share, or cutting prices and taking another earnings hit after a year of whopping losses, the company was paralyzed. As one AST executive said, “Nobody wanted to pull the trigger.”
How could a once-aggressive company become so gun-shy?
The answer, according to company insiders and industry analysts, has a lot to do with the man wearing the holster.
Qureshey, one of three immigrants who founded the company in 1980, probably deserves more credit than anyone for building AST from a tiny start-up into the seventh-largest PC manufacturer in the United States, with $2.5 billion in worldwide revenue. But with the departure of the other co-founders in recent years, AST has increasingly reflected the strengths and weaknesses of its chief executive.
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Current and former executives at the company portray Qureshey as keenly intelligent, a man who can sell his vision of the company to employees and investors alike.
But they also say that Qureshey, a 43-year-old engineer from Pakistan, is an indecisive leader who lacks the ability to direct the company through the day-to-day crises that PC manufacturers face.
“The execution has not been there [at AST] and the final responsibility lies with the person in the top spot,” said Scott Miller, an analyst at Dataquest Inc. in San Jose. “Safi still has a fair amount of vision. But strategy without execution is meaningless.”
Qureshey owns up to his shortcomings.
“Identifying partners and opportunities, working with our customers and suppliers--those are my strengths,” he said. “Day-to-day core operations and manufacturing have not been my strengths.”
Over the past year, these failings have cost the company dearly. AST reported a loss of nearly $100 million for the fiscal year that ended July 1, and last week the company disclosed that it expects to lose more than $40 million in the upcoming quarter.
Numerous sources familiar with AST’s operations point to frequent and disturbing breakdowns that stem from a basic inability to build the right products at the right time for the right price.
In Fort Worth, Tex., where AST manufactures the computers it sells in the United States, production has been halted at least half a dozen times since spring, said one employee at the plant. Workers assembling computers there have frequently been forced to take unpaid days off as the company struggles to unload huge inventories based on rosy sales forecasts that never materialized.
“The mood is rather grim,” said the employee, who asked that his name not be published. “In March we built 100,000 systems in one month and things looked on the upturn. Then everything just crashed.”
The disruptions in production have been accompanied by numerous product delays and marketing missteps. AST was one of the slowest PC makers to recognize the huge market for portable notebook computers, analysts said, and was among the last to react to last month’s release of Windows 95, the hugely popular operating system from Microsoft.
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While other PC makers have been selling their computers with Windows 95 already installed since last month, AST has so far installed the software only on computers sold to business customers.
Windows 95-equipped PCs destined for retail outlets are only now being shipped by AST, meaning consumers hoping to get a PC with that program already installed until recently have had to buy other brands.
In an effort to blunt criticism following last week’s announcement, Qureshey unveiled a plan to streamline the company’s operations and fix its management troubles. The company forced the resignation of three top executives, including President James T. Schraith. And Qureshey proclaimed that he would search far and wide for a new president capable of bringing order to a corporation that has become increasingly chaotic.
“At the end of August . . . I realized we had to change quickly and in more fundamental ways,” Qureshey said in a recent interview. “We need to improve our execution, time to market, cost of products, service and support. There is nothing magical about it.”
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In the company’s early days, Qureshey’s weaknesses didn’t matter so much because the computer industry wasn’t the commodity business it is today. The distinctions among the various brands are fading as more consumers base their purchasing decisions solely on price.
Further, Qureshey was just one member of a team of three founders with such perfectly complementary talents that they rarely made a misstep. Qureshey was the visionary and public face for the company. Albert Wong was the technical wizard who knew how to get products built and was a stickler for quality. And Tom Yuen was the operations expert, the guy who cracked the whip and got problems solved.
The company’s name was taken from the first letters of the founders’ names. When they started AST in Yuen’s Santa Ana garage, the three took turns choosing straws to see who would get which corporate title. Qureshey picked the longest straw and has been AST’s top executive ever since.
But acrimonious internal disputes led to Wong’s departure in 1988 and Yuen’s ouster in 1992. Since they left, Qureshey has struggled to find other executives who could replace their talents, especially the operational agility provided by Yuen.
Contrasting Qureshey with Yuen, one former AST executive said of Qureshey: “You couldn’t run in and say, ‘Here’s the problem’ and get an answer. Yuen would give you an answer halfway through the door.”
The three founders offer similar assessments of their various skills.
“Safi is a blue sky person,” said Wong, now owner of a Lake Forest company that makes computer network products. “He’s very analytical, but not much of an implementer.”
Yuen, Wong said, was AST’s most demanding executive and its key trouble-shooter. In the early days, Wong said, it was Yuen who had AST turning out add-on products for IBM computers before IBM could even get its machines on store shelves.
Yuen, whose abrasive demeanor has alienated him from both his former partners, is characteristically blunt in assessing Qureshey’s talents. “Safi’s strengths are his oral skills, being a diplomat and a philosopher,” he said. “His weakness has always been one of indecisiveness.”
Qureshey’s mixed talents can be seen in AST’s performance since Wong was forced out of the company in 1988.
Qureshey the visionary was behind AST’s push into foreign markets, which now account for half of the company’s sales. AST is the top PC seller in China, and its market share in other countries is higher than the company’s share in the United States.
Qureshey the diplomat helped AST entice Samsung Electronics, the giant South Korean electronics company, to shell out $378 million for 40% of AST earlier this year, providing a cash infusion AST desperately needed.
But some say AST might not have needed that infusion if it hadn’t been for the first big decision Qureshey made after Yuen left.
In 1993, AST purchased the PC manufacturing operations of Tandy Corp. for $105 million. Critics say AST got snookered.
As part of that deal, AST got three manufacturing plants in Texas, another in Scotland, and a lucrative deal to have AST computers featured in Tandy’s 6,500 Radio Shack retail outlets across the country.
Since then, AST has shuttered the Scotland plant and built another in Ireland. The three Texas plants are down to one. And the deal with Radio Shack evaporated when the chain signed an agreement last month to make IBM the featured brand at its stores.
Qureshey defends the Tandy deal by saying the company knew the Scotland plant might not be big enough, that AST also got important patents and software rights in the purchase, and that some of AST’s biggest corporate customers, including American Airlines, were inherited from Tandy.
“That doesn’t show up in the sale,” he said.
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A slight man who seems uncomfortable talking about himself, Qureshey acknowledges the past year has been a personal strain. A devout Muslim who keeps a prayer rug in office, Qureshey said his faith has helped him cope with the constant pressures. He also said he has adopted a regular exercise program that helps him relieve tension.
Those who know him often refer to his gentle demeanor and point out that he frequently takes time to comfort employees who have fallen ill. Sitting on the bookcase in his office are six copies of a paperback titled “When Bad Things Happen to Good People.” He sends copies of the book to friends and associates who have suffered hardships.
In a recent interview in his office overlooking AST’s Irvine campus, Qureshey showed no signs of despondency over his company’s troubles. In fact, he seemed bent on impressing his visitor with an energetic overview of his plans to revive the company.
Some of these plans, including his decision to buy more Pentium motherboards from Intel Corp. have been widely applauded. Intel has become so efficient at making motherboards--the electronic brains of personal computers--that it makes little sense for AST to waste money and time trying to build its own. Analysts support this move, though some ask why AST took so long to figure it out.
Other parts of his plan seem to reflect an uncertain approach. For instance, his move to combine the company’s desktop, mobile and server product divisions under one senior executive reverses a decision he made two years ago to separate those divisions. Similarly, his plan to emphasize corporate marketing comes a year after the company cut its advertising budget in half and embraced a “word-of-mouth” sales approach.
The wisdom of these steps may not matter if the key component of his plan succeeds. That is, if Qureshey can find a president with all the skills he lacks. Schraith was supposed to be that man when he was appointed to the job last year. But Schraith was a home-grown talent at AST who had never been an executive at that level before, and AST’s problems only worsened.
This time, Qureshey says he will bring in somebody from the outside, but that hasn’t worked well in the past either. The company’s vice-president ranks have been filled with executives with impressive credentials from IBM, Apple and other companies. But many struggled at AST and left after a few years.
Perhaps the real test will be whether Qureshey, who is paid nearly $900,000 a year and owns 6% of his company’s stock, is sincere when he says he is committed to finding an executive who could potentially replace him as CEO.
Wong and Yuen say they never expected Qureshey to stick with AST this long in the first place. “He was always joking about retiring to play golf,” Wong said.
Qureshey said he still has such hopes, though he does not want to leave his company while it’s down. “AST has provided me and all the founders more than we ever dreamed of,” he said. “As a co-founder, it’s like your child, you want to see it prosper. But now it is like a teen-ager and it needs to grow and become more self-sufficient.”
That means the fate of AST may very well depend on whether it can survive without A, S or T.
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Times staff writer James S. Granelli contributed to this report.
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Key Events at AST Research
It has been a tumultuous 15 years for AST Research. Key points in the company’s history:
* July, 1980: Company founded by three immigrants, Safi U. Qureshey from Pakistan and Tom Yuen and Albert Wong, both from Hong Kong. They sketch a business plan over lunch at a Carl’s Jr. in Irvine and pool resources--$12,000 in cash and $28,000 worth of equipment--to set up shop in Yuen’s garage.
* December, 1981: Four months after IBM announces its first personal computer, AST introduces a circuit board kit to boost the PC’s memory capacity.
* June, 1983: Annual revenue reaches $12 million.
* December, 1984: AST goes public and raises $19.32 million in a stock offering, making its founders millionaires.
* May, 1985: Riding the success of its memory products and overall computer industry boom, AST issues a new round of stock, raising $23.8 million.
* June: Annual revenue enters nine-figure territory at $138.6 million.
* October, 1986: AST introduces its own line of personal computers.
* June, 1988: Revenue for the fiscal year hits $412 million.
* November: Wong resigns after an argument with Yuen over product mix, marketing strategies.
* June, 1989: AST posts first loss, $7.5 million for its fiscal year. Lays off 6% of staff.
* July: A week after IBM introduces a computer using Intel Corp.’s fast new 486 microprocessor, AST becomes the first maker of IBM-compatible personal computers to follow suit.
* April, 1990: AST becomes first U.S. computer maker to market a clone of NEC Corp.’s personal computer, which dominates Japanese market.
* June, 1992: Yuen resigns in disagreement with Qureshey over management powers.
* July, 1993: Company buys Tandy Corp.’s Texas-based computer operations for $105 million. AST enjoys first billion-dollar year, with $1.4 billion in sales, but takes a $53.7-million loss for fiscal 1993 after a $125-million charge related to the Tandy purchase.
* August: AST says it will build a $16-million production plant in China.
* November: AST says it will lay off 650 workers in Orange County, move high-tech jobs to Texas and Ireland.
* July, 1994: Qureshey appoints James T. Schraith president, analysts say 36-year-old wunderkind is heir apparent. AST reports $53.5-million annual profit, with $2.4 billion in revenue.
* October: AST closes its Fountain Valley manufacturing plant and lays off 450. Company predicts $40 million first-quarter loss. Worldwide operations vice president James L. Forquer resigns, reportedly under pressure from Schraith.
* February, 1995: Korean industrial giant Samsung Electronics says it will buy a 40% stake in ailing AST for about $450 million.
* July: AST posts $99.3-million annual loss, with revenue topping $2.5 billion. Samsung deal is approved by AST shareholders, and falling stock price reduces value to $378 million.
* August: Radio Shack, which had accounted for 18% of AST’s retail sales, says it still will sell company’s personal computers but now will feature “more recognizable” IBM products in 6,500 retail stores.
* August: AST agrees to pay $12.5 million to settle a $150-million suit by disgruntled investors who accused the company of misstating its financial condition after the Tandy purchase.
* September: AST announces another major management shake-up, says it expects to post first-quarter loss of more than $40 million.
Sources: AST Research, Times reports; Researched by JOHN O’DELL / Los Angeles Times
AST Key Markets
1995 estimates show AST Research Inc. losing ground, both here and abroad. Key figures for desktop personal computers, portable notebook computers and server computers for office networks:
UNITS SHIPPED
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1994 1995 % Change PC desktop 749,502 829,037 10.6 Notebook 157,330 149,003 -5.3 Server 8,479 1,816 -78.6
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MARKET SHARE / RANK *--*
1994 1995 1994 1995 PC desktop 2.2% 1.9% 11 11 Notebook 1.9 1.5 9 10 Server 0.9 0.2 13 22
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Note: 1995 figures are estimated based on industry and AST sales to date.
Source: Computer Intelligence InfoCorp; Researched by JANICE L. JONES / Los Angeles Times
Losing Ground
Although the number of computers shipped by AST steadily increased in the five-year period from 1990 through 1994, the company’s market share declined in 1994. AST’s ranking in units shipped held steady in the U.S. but slipped one rung worldwide:
UNITED STATES *--*
Units Market shipped Rank share 1990 172,200 12 1.8% 1991 224,195 7 2.4 1992 320,000 8 2.7 1993 621,000 7 4.1 1994 721,000 7 3.9
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WORLDWIDE *--*
Units Market shipped Rank share 1990 262,864 13 1.1% 1991 440,321 11 1.7 1992 594,052 9 1.9 1993 1,185,500 5 3.1 1994 1,324,000 6 2.8
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AST Profits & Losses
AST Research Inc. broke the billion-dollar sales mark in 1993, but suffered a $53.7-million loss. The company regrouped in 1994, but suffered another loss in fiscal 1995, despite continued sales growth.
SALES (IN MILLIONS)
1995: $2,467.8
NET INCOME (IN MILLIONS)
1995: $-99.3
* Loss due to purchase of Tandy’s computer manufacturing division
Source: International Data Corp., Bloomberg Business News; Researched by JANICE L. JONES / Los Angeles Times
