Bad News in the E-Mail for AST Workers
Employees at AST Research Inc., anxious for the past month over rumors of more layoffs, were greeted Wednesday morning with an e-mail message saying 37% of the work force would be cut as part of a massive worldwide reorganization.
Then, top executives and managers spent the rest of the day telling about 1,100 individual workers that they would be let go, some starting immediately.
The cuts, which reduce the staff to about 1,900, are aimed at helping to revive the money-losing computer maker, which once was part of the industry’s upper echelon and had more than 6,500 employees.
Backed by the financial muscle of its parent company, Samsung Electronics Corp., AST plans to consolidate manufacturing, eliminate inventory backlogs, focus on strong markets and abandon marginal segments.
“We are confident that by the end of 1999, we can reach the break-even point,” S.T. Kim, AST’s chief executive, said Wednesday in an interview.
The layoffs are expected to put costs in line with falling revenue at a company that has lost $845 million over the last three years. Industry analysts hailed the move, but Kim and other top executives were thinking about the immediate task ahead: boosting morale.
Today, they plan to circulate among those who work in the three buildings that make up the computer maker’s headquarters in Irvine to explain the reorganization and reassure them that AST is now on the right track. On Friday, Kim will address a meeting of all remaining employees.
Despite promotional awards for employees, morale is low. Earlier this year, 1,000 workers were cut, leaving the worldwide force at about 3,000 before Wednesday’s announcement.
“I am concerned at this point that some of our employees are starting to lose hope in the company,” Kim said.
In talks this week in Irvine and in offices worldwide in the next few weeks, he and top aides hope to persuade employees that his vision is not only to return the company to profitability but to make the AST name the centerpiece in Samsung’s future plans for delivering multimedia products.
He may have a ways to go.
On Wednesday, several employees said rumors of impending layoffs over the last month--fueled partly by memos to employees about company-wide changes coming soon--have put the staff in a deep funk.
“The only thing we didn’t know until this morning was how big the cuts were,” said one.
The reorganization is the first major move by Samsung since it acquired the firm in August. Two years earlier, the South Korean conglomerate came to AST’s rescue with a cash infusion that gave it a 49% stake.
But even with Samsung executives on AST’s board since mid-1995, the computer maker continued to record quarterly losses as it struggled with manufacturing and inventory problems and tried to serve consumers and businesses.
“AST can’t be a Compaq or an IBM,” said Nathan Nuttall, an analyst with Sherwood Research Inc. in Wellesley, Mass. “They have got to figure out who they want to be, and they need to figure that out fast.”
Industry analysts said the drastic cuts, which are expected to be completed by the end of March, were long needed to stem 12 straight quarters of red ink.
“But what has Samsung been doing for the past two years?” asked Scott Miller, senior analyst for the research firm DataQuest. “This wouldn’t have been such a painful transition if the company had acted faster.”
Kim explained that despite its 49% stake for two years, Samsung felt hamstrung. “Public companies are dictated by short-term results, which is not the reason Samsung acquired AST,” he said.
Samsung, looking to use AST to break into the personal computer market and promote the brand name along with its own electronics products, envisioned an operation that could rival the major firms like IBM and Compaq Computer.
Instead, AST’s fortunes have sunk to the point where it no longer can compete directly with the major computer makers. It’s market share in the highly fragmented industry has shrunk to 0.8% from 1.8% a year ago, according to research firm International Data Corp.
After Kim was installed in May, he quickly pulled the company out of the unprofitable consumer end of the market to concentrate on small to mid-size businesses, as well as a few large corporate accounts, such as JC Penney Co. Inc. and American Airlines.
He then worked with top executives to devise a business model that can be supported by current revenue. The model helped to determine how many employees had to be laid off. The cuts are generally across the board, though more will come in areas like manufacturing, where operations can be consolidated.
AST’s headquarters, now with about 530 employees, will be reduced to about 300--enough to fill one of the three buildings. Kim said the company may lease vacant space or move to smaller quarters in Orange County.
There will be about 100 layoffs at AST headquarters. The other reductions will come mainly by moving engineers involved in developing products to manufacturing plants in the Dallas-Fort Worth area.
The engineering move is aimed at helping eliminate big inventory backlogs, the company’s bane for more than three years.
Kim plans to build brand-name recognition even at the expense of its parent company. Samsung, for instance, discontinued its own line of laptop computers in the United States and the United Kingdom in July in favor of the AST line.
In addition, AST will pull out of poor performing areas in its worldwide markets. In south Asia, for instance, it will focus on the Republic of China and Hong Kong and pull back in weaker areas such as Southeast Asia and Australia.
Tom Scott, hired as marketing director a month ago, said the company’s new structure also will be able to provide better service, once an AST hallmark, and give customers more input in determining what AST makes.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Tough Times at AST
Employment at AST Research Inc. peaked in 1994 at about 6,500, but has since been cut dramatically. The company plans to lay off about 1,100 of the 3,000 workers it had as of Monday. Estimated employment at end of fiscal year in June:
1993 6,200
1994 6,500
1995 6,006
1996 4,151
1997 3,000
Cruel Market
The highly competitive computer market has not been kind to AST Research, which no longer ranks among the top 10 in U.S. market share:
*--*
Year Share Rank 1994 3.9 7 1995 2.4 10 1996 2.5 10 1997 1st qtr. 1.3 11 2nd qtr. 1.3 11 3rd qtr. 1.3 11
*--*
Sources: Times reports, AST Research, DataQuest; Researched by JANICE L. JONES/Los Angeles Times
