AST fails to keep pace

As AST's fortunes flagged, its brand name has faded, leaving only a shadow of the high-flying PC vendor it was in the late '80s and early '90s.

Once ranked as the fifth PC manufacturer worldwide, it has sunk to 17th place, according to International Data Corporation (IDC), a major marketing research firm. AST's chronically weak sales figures have resulted in a layoff of 1,110 employees, which represents a 37 percent reduction in its worldwide workforce of 3,000, as first reported by CNET's NEWS.COM.

In an ongoing overhaul of operations, the company continues to tout its "synergies" with parent company Samsung, but observers wonder whether this relationship will the change the prevailing dour market perception or boost its brand name.

"If you go back three or four years, they [AST] were within our top four or five," says Mike Houghton, general manager at Insight Direct. Insight is a large reseller based in Tempe, Arizona. He said AST is still in the top ten, but that the top four are 80 percent of its business.

Resellers and analysts say AST has continued to struggle because they have failed to keep pace with other companies in any number of areas.

"They are not as aggressive and proactive as other OEMs on pricing," Houghton said, and that has been a significant factor in a the company's lack of success, he said. Compaq Computer and Dell are two companies Houghton says have been very aggressive with price cuts.

AST has watched its worldwide market share of PC shipments drop to 0.8 percent during the third quarter, down from 1.8 percent a year ago. Unit shipments fell by half to 153,088 units in the third quarter, down from 302,411 units a year ago, according to IDC.

AST maintains the company has evolved to secure a thriving position in the market. "We've developed a very solid strategy to maintain a nimble place in the marketplace," said an AST spokesperson.

But there are other ways AST hasn't kept up with the market. Compaq, Hewlett-Packard, and IBM have already followed direct vendors like Dell by instituting some form of "build-to-order" manufacturing techniques. In a classic build-to-order strategy, a manufacturer assembles the computer upon receiving the order, which cuts PC costs by reducing inventory cycles and, hence, the prices a customer pays.

"What's winning on desktops is build-to-order," said Dave O'Brien, marketing manager for First Source International, a large, privately held reseller of computer hardware and software. O'Brien says one of the most popular models they are selling right now is a $999 PC with "all the bells and whistles" that they get from a manufacturer in Alabama.

With no comparable low-cost, customized offering, AST has been caught in a gray area between vendors such as IBM who have the ability to provide technical service to Fortune 500 accounts and the less expensive "no-name" brands, industry analysts said. And even though the company still enjoys some measure of brand-name recognition, that alone has not been enough to keep sales from slipping.

But Tom Scott, a worldwide marketing and sales vice president, said today that the build-to-order model will improve the company's response time and will help build a closer relationship with customers. And he noted that it will greatly reduce the company's inventory risk for itself and its resellers.

With the company's most recent reorganization, S.T. Kim, president and CEO of AST, announced that AST would institute the successful build-to-order distribution model. Supply-related functions will be transferred to the company's main manufacturing plant in Fort Worth, Texas. The move, the company said, is intended to streamline the production chain and allow products to get to the market more quickly. AST said it will also increase its emphasis on customer service programs for larger corporate accounts.

"AST's strategy is to focus on small and medium-sized businesses," said Bruce Stephen, an analyst with IDC. "That same strategy is being pursued by Acer and Micron, and the big four [Compaq, IBM, HP, and Dell] have in various ways decided to make a run at this market as well, so there are some pretty big people with lead pipes in their hands waiting at the door."

"AST still has some channel loyalty. If they can keep the channel happy, that goes a long way to making them competitive in the market," Stephen said. While he doesn't expect AST to register any large market share gains, he thinks the company has the potential to be profitable in the niche market they are aiming at.