AST Loses $135 Million in 3rd Quarter

Still searching for a rip cord that might end a perilous financial free fall, AST Research Inc. on Thursday reported a $135-million loss for the third quarter, continued erosion of its share of the computer market and another financial rescue from Samsung Corp.

Executives at the Irvine-based company said they have mapped out changes in strategic direction, pledging a return to AST’s traditional emphasis on engineering and reversing some of the price-slashing policies of former Chief Executive Ian Diery, who was pushed out in August.

“Numbers do not tell the story at AST right now,” said Chief Executive Y.S. Kim, who succeeded Diery in August. “AST is coming back.”

That remains to be seen, but for now the numbers are staggering. AST has posted 10 consecutive quarterly losses totaling $682 million.

AST’s latest loss of $135 million, which amounts to $2.41 per share, compares with a loss of $96 million, or $2.36 per share, a year earlier. The latest loss includes a $21.6-million write-off of goodwill associated with the company’s 1993 acquisition of Tandy Corp.’s computer manufacturing operations.

Third-quarter sales rose slightly, to $408 million from $403 million a year earlier. But sales fell 26% from the second quarter. Trying to highlight the good news, AST pointed out in a news release that its PC shipments were up 11% from a year earlier. However, the PC market grew by about 17% during that time, meaning AST’s share continued to shrink.

For the first nine months of the year, AST reported a loss of $350 million on sales of $1.47 billion, compared with a year-earlier loss of $135 million on sales of $1.74 billion.

With losses piling up, the company was forced yet again to turn for financial help to Samsung, a South Korean electronics giant that rescued AST with a $378-million cash infusion last year and now holds nearly half of AST’s stock, plus top management positions.

Samsung agreed to guarantee another $200 million in credit for AST, having guaranteed a similar amount late last year. It’s also providing AST with an emergency $50-million loan due Dec. 19. Analysts said that if AST continues to post such huge losses, Samsung can probably expect to dig even deeper into its pockets.

“How long is $200 million going to last? Two quarters?” asked Jim Poyner, an analyst at Oppenheimer & Co. in New York. “You’ve got to be concerned because [AST’s] cash burn rate is onerous.”

Poyner and others said AST is simply being squeezed out of an increasingly crowded PC market. “The water has dropped in the pool and more guys have gotten in,” Poyner said, referring to the entry of Sony, Hewlett-Packard and others. “It’s a lot harder to get wet.”

That clutter has exacerbated one of AST’s most pressing problems: making its PCs stand out from the crowd in terms of technology or price.

With that in mind, Kim said, the company will boost its advertising budget by 25% in the upcoming quarter.

AST’s stock price barely budged Thursday, falling 12.5 cents to close at $4.31 on Nasdaq.