Samsung Controls AST After Diery Makes Way
For the second time in less than a year, struggling computer maker AST Research Inc. has replaced its president and chief executive, this time ceding operational control to its major partner, Samsung Electronics Co. Ltd.
Ian Diery, hired in November as the no-nonsense executive to revive the company, resigned Tuesday to make way for Samsung executive Young-Soo Kim, who had engineered the South Korean giant’s $378-million investment in AST more than a year ago.
The appointment of Kim, 62, an AST director, gives Samsung the top two positions at the Irvine manufacturer. In June, Samsung’s chief executive, Kwang-Ho Kim, no relation to the new president, took over as AST chairman, pushing out co-founder Safi U. Qureshey. Qureshey became chairman emeritus.
“The message here is that AST Research is now a subsidiary of Samsung, though not formally,” said industry analyst William J. Milton of Brown Brothers Harriman brokerage in New York. Samsung holds a 49.9% stake in AST.
Analysts said that AST’s larger-than-expected second-quarter loss of $98.7 million--its ninth consecutive quarterly loss--sealed Diery’s fate. But Young-Soo Kim disagreed, saying that Diery failed to reap the full benefits of Samsung’s technological might and international muscle.
“The support AST could have gotten from Samsung was not utilized as well as it could have been,” Kim said.
Diery, 46, became the latest in a long list of top management casualties at AST, especially since the company started losing money two years ago. Diery had replaced Qureshey as chief executive and James T. Schraith as president. Schraith had been president for only 14 months.
In addition, six other top AST executives were pushed out in the last six months of 1995. AST has spent more than $4 million in severance packages for its departed executives and, under an employment contract, is expected to pay Diery a severance of at least $1.4 million--twice his annual salary.
Young-Soo Kim
Some industry analysts were surprised at the sudden change, but they generally agreed that having Samsung’s own executive in charge of AST should help the computer maker take advantage of the resources at one of the world’s giant electronics companies.
Wall Street reacted favorably, though not enthusiastically. AST’s sagging stock price gained 50 cents a share to close Tuesday at $5.56 in Nasdaq trading. When Diery was hired 10 months ago, the stock stood at $9.375 a share.
“Wall Street is interested in sales and income momentum, and AST has lost both,” said Walter J. Winnitzki, an analyst at Dillon Read & Co. brokerage in New York. “And momentum lost in this business is not easily regained.”
Through the 1980s, AST was one of the fastest-growing PC companies in the industry, but product delays, the troubled acquisition of Tandy Corp.’s computer manufacturing facilities three years ago and other problems sent AST into a tailspin. The company has lost $547 million over the past nine quarters.
Samsung stepped in last year, buying new stock to give it a 40% stake. But with continuing AST losses, Samsung added $100 million more to increase its interest to 49.9%
Diery, a former Apple Computer executive, pushed AST to beat its rivals to market with the latest processors and features and to compete fiercely on price. Meantime, Samsung helped AST streamline its manufacturing operations in Texas.
But for consumers, AST no longer has the brand recognition that IBM, Hewlett-Packard and Compaq have, and it has been unable to move its products with the speed of mail-order leaders Dell and Gateway, analysts said.
“They have a significant task ahead of them in terms of reestablishing market share and following among corporate and consumer buyers,” said Jay Vleeschhouwer, an analyst at Josephthal, Lyon & Ross brokerage in New York. “There’s no quick, easy solution, no magic answers.”
And time is running out for what was once the nation’s fifth-largest PC maker. The company has to decide whether it wants to compete among the big players or find a small market it can serve well, said analyst Vadim Zlotnikov at Sanford C. Bernstein & Co. brokerage in New York.
If AST isn’t profitable a year from now, he said, it may never recover.
Kim, who has been a Samsung executive for nine years, may be the person to take advantage of “one of the leading electronics companies worldwide,” Zlotnikov said.
Kim agrees. He said his knowledge of Samsung’s inner workings and its personnel should help AST reach the right people for help.
Diery, 46, who couldn’t be reached for comment, didn’t use enough of Samsung’s technical know-how, computer components and abilities to get leading-edge products to market quickly, Kim said.
“Diery somewhat improved the service area and somewhat improved the manufacturing area, using Samsung’s efforts,” he said. “He was excellent in the sales area and started improving sales. He started to turn this place around.”
But it was Diery, Kim said, who told the board he had another opportunity he wanted to pursue and would resign.
“When he said that, the board members felt it was a good opportunity to make another change to capitalize on the resources in Korea and elsewhere and improve further on top of what he has done.”
Analysts said they know little about Kim, and they’re taking a wait-and-see approach to his efforts.
Kim has been corporate vice president of Samsung Electronics in Seoul since January 1993 and has held executive positions at the conglomerate since joining it in 1987.
Previously, he was vice president of the Solid State Electronics division of Honeywell Inc. in Minneapolis, where he worked for 13 years. In 1969, he founded Semiconductor Electronics Memory Inc., a manufacturer of IBM add-on memory systems in Phoenix. From 1961 to 1969, Kim was senior manager of Process Engineering at IBM in East Fishkill, N.Y.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
AST From the Top
Some key dates in AST’s corporate life:
1980: AST Research Inc. is founded during a series of lunches at a Carl’s Jr. restaurant in Irvine by three immigrant engineers: Safi U. Qureshey, Thomas C.K. Yuen and Albert Wong. Pooling their assets, which included $12,000 in cash and $218,000 in office equipment, they set up shop in Yuen’s garage.
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.
1994: AST posts sales of $2.4 billion and net income of $53.5 million for fiscal 1994.
1995: Complications from Tandy purchase, management missteps and tough competition send AST into financial tailspin. Shareholders approve $378-million investment by Samsung Electronics Co., the giant South Korean firm, as a way to help pay for new manufacturing equipment and materials. The deal gives Samsung 40% of AST stock and a minority of seats on board of directors. The company loses $262 million in fiscal 1995.
June 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.
August 1996: Hoping to end ongoing financial problems, chief executive Ian Diery resigns to make way for Samsung executive Young-Soo Kim, who engineered the South Korean giant’s investment in AST.
Source: Times reports
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Trouble Times
AST Research Inc. has posted losses for nine consecutive quarters despite revnue of more than half a billion dollars for all but two of them. Revenue and earnings, in millions:
1994:
Earnings: $-8.1
Revenue: $584.5
1996:
Earnings: $-98.7
Revenue: $553.8
Source: AST, Times reports
