Poor Results Bring AST’s Survival Into Question

Signaling that it has yet to pull out of a financial free fall, personal computer vendor AST Research Inc. on Wednesday reported a loss of nearly $129 million for its second quarter ended Dec. 30, along with an ominous drop in sales.

That compares to a loss of $21.7 million a year earlier and marks the company’s sixth consecutive losing quarter, bringing accumulated losses to a whopping $323.8 million.

The loss, the largest in AST’s history, was announced just a day before the company’s new chief executive, Ian Diery, was to appear before shareholders and explain how he intends to turn the company around.

The poor results did not surprise analysts, who now describe the outlook for the once-proud company as bleak.

“The world goes forward, and their place in the world is simply not what it used to be,” said Jim Poyner, an analyst at Oppenheimer & Co. in New York.

AST also reported sales of $613 million for the quarter, down 4% from $640 million a year earlier. Those numbers reflected a significant stall in sales during the Christmas shopping season--usually the industry’s most profitable--even though AST slashed prices throughout much of the quarter to unload its inventory of aging computers.

Diery, who was hired in November to succeed company founder Safi Qureshey, acknowledged that he is disappointed at the magnitude of the second-quarter loss, but stressed that he believes the company has started to rebound and called attention to what he says are promising signs.

In particular, he pointed to a 52% rise in sales from the first quarter to the second, though he acknowledged that part of that uptick was due to offering the deep discounts on older models to clean out the company’s distribution channels.

“The important thing is we’ve reversed that decline and we’re climbing out of it at a very steep rate,” said Diery, who took the AST job after being pushed out of his job as head of worldwide sales at Apple Computer last year. “This industry is full of comeback stories, and I’m confident we’ll see another one.”

The company has found a big cushion in Samsung Electronics, a Korean electronics company that rescued AST last year with a $376-million cash infusion and has since pledged $200 million in credit.

Analysts aren’t so sure a comeback will happen at AST, however.

Industry studies show AST, which once ranked among the top five PC manufacturers in the United States, now ranks 10th. Over the past year, its share of the domestic market has shriveled from 3.9% to just 2.5%.

And while AST’s sales tumbled during the recent Christmas season, compared to a year earlier, other companies posted big gains.

“Compaq is up 30%, Gateway is going to have a nice uptick, and Dell is going to have a reasonable uptick,” Poyner said. “AST is the exception to the rule.”

The company has little room for cutting operating costs, he said, and its slide has made dealers and distributors demand steep discounts when they are willing to carry AST’s products at all.

Companies such as Dell and newcomer Hewlett-Packard have elbowed into prominent market positions, and the field could become even more crowded with Sony pledging to dive into the consumer PC business.

But Diery, who will lay out his recovery plan before shareholders at AST’s annual meeting today, insists Poyner and other skeptics are far too pessimistic.

Diery said the company has unloaded its aging inventory and is making big strides in getting the latest technology to market quickly, a nagging weakness for AST in recent years.

After walking away from the consumer market last year to concentrate on corporate accounts, the company has since recommitted to consumer channels and has tightened its relationship with suppliers such as Intel Corp.

“It’s going to be tough,” Diery said. “But those people who look below the surface will see us positioning ourselves. I believe that our results will improve next quarter.”

In an accounting change, AST is switching its reporting period from a fiscal to calendar year. The December quarter’s results, therefore, fall into a transition period.

AST’s stock closed at $8.75 per share, down 12.5 cents per share in Nasdaq trading.