Samsung Raises Stake in O.C.’s AST to Almost 50%

Samsung Electronics Corp. moved closer to swallowing AST Research Inc. on Friday, agreeing to raise its stake in the struggling computer manufacturer to nearly 50% and appointing one of its top executives to replace AST co-founder Safi U. Qureshey as chairman.

Samsung, which has provided critical financial backing for AST, agreed to buy $60 million in newly issued Kwang-Ho Kim stock to help the Irvine-based company pay off a looming debt.

The stock deal accelerated what has been a steady shift in control of one of Orange County’s high-tech beacons from its expansive offices in Irvine to the other side of the Pacific. And Qureshey’s diminished role marks the end of a management era.

Samsung Chief Executive Kwang-Ho Kim, 56, was elected chairman of AST, which means he will preside over an 11-member board of directors that the Korean company has controlled since January, after the company agreed to guarantee $200 million in credit for AST.

Industry analysts said the moves had been expected at AST, a once-soaring computer manufacturer now fighting for survival in a fiercely competitive industry.

Qureshey, who had served as chairman or co-chairman of AST since 1988, becomes chairman emeritus and will continue to serve as a director. Last fall, he stepped down as chief executive to make way for Ian Diery, a former Apple executive hired to rescue AST.

Qureshey, 45, was one of three engineers, along with Albert Wong and Tom Yuen, who founded the company in 1980. The combination of their first initials formed the AST name.

In an interview, Qureshey stressed that little is changing except his title.

“I will continue to do the things I have been doing for the past six to seven months: supporting Ian, supporting Samsung, meeting our customers and spreading the word,” Qureshey said.

He described his successor as “a soft-spoken guy, a quiet guy, but a strategic thinker,” and said Kim’s appointment symbolizes Samsung’s commitment to AST. “This clears up any doubt in anybody’s mind that working with AST is a priority [for Samsung],” Qureshey said.

Kim, who retains his executive positions at Samsung, was not available for comment.

AST said it will use proceeds from Samsung’s stock purchase to help pay off a $90-million note related to AST’s troubled acquisition of Tandy Corp.’s computer manufacturing operations in 1993. The number of shares to be issued to Samsung has not been determined, but some industry analysts frowned at the news that more AST shares would be pumped into the market.

“Oh good, more dilution,” Oppenheimer & Co. analyst Jim Poyner said sarcastically.

Poyner and others saw the deal as a troubling sign that AST, which has lost nearly half a billion dollars over the past two years, can’t sell enough computers to reduce its financial dependence on Samsung.

Samsung acquired 40% of AST last year for $376 million, and holds options to buy another 4.4 million shares of AST stock for a penny per share.

But any additional purchases could be costly for AST. Friday’s deal is expected to boost Samsung’s stake in AST to 49.9%. If Samsung were to take a 50% stake or greater, the change in ownership would force AST to pay off more than $100 million in bonds that aren’t otherwise due until 2013.

AST also said it has entered a $15-million agreement to transfer a series of patent applications to Samsung.

After growing from a tiny start-up into one of the largest PC manufacturers in the world, AST suffered a series of setbacks in recent years as product delays and manufacturing missteps led to steep market share declines.

The company has speeded up its product cycles and launched an aggressive marketing campaign under Diery’s leadership. But some question whether AST’s recovery plans may still fall short in an increasingly crowded and cutthroat PC market. Even if Diery’s plans succeed, analysts said, the company will probably not be profitable before 1997.

“It will still be red ink for the foreseeable future,” Poyner said.

AST’s stock closed at $6.75 per share Friday, up 6 cents in trading on the Nasdaq market.

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Qureshey Era Ends

Some milestones of Safi U. Qureshey’s career:

1980: Co-founds AST Research along with friends Tom Yuen and Albert Wong; the three draw straws to select the top executive. Qureshey wins and becomes president.

1984: Qureshey becomes a millionaire along with other co-founders after AST goes public.

1988: Qureshey elected co-chairman of the board; takes on chief executive role and continues as president. Wong resigns after dispute over product mix and marketing strategies.

1992: Yuen resigns after a dispute over management powers, leaving Qureshey as the only co-founder still at the company.

1993: AST buys Tandy Corp.’s computer operations for $175 million, enjoys its first billion-dollar year. But it takes a $53.7-million loss due to a $125-million charge related to the Tandy purchase. Qureshey elected board chairman.

1994: AST posts sales of $2.4 billion and net income of $53.5million for fiscal 1994.

1995: Complications from Tandy purchase, management missteps and tough competition send AST into financial tailspin. The company loses $262 million in fiscal 1995. Korea-based Samsung Electronics Co. purchases a 40% stake. Qureshey steps down as chief executive in favor of former Apple Computer executive Ian Diery.

1996: Samsung increases stake in AST to nearly 50%. Samsung President/CEO Kwang-Ho Kim replaces Qureshey as chairman. Qureshey becomes AST chairman emeritus and remains on board of directors.

Source: Times reports, AST Research Inc., Bloomberg Business News; Researched by JANICE L. JONES / Los Angeles Times