Tech Industry

AST: New strategy, fewer jobs

The struggling computer maker plans to reorganize its worldwide operations in an effort to refocus and become more flexible in the PC market.

Struggling computer maker AST announced plans today to reorganize its worldwide operations in an effort to refocus its business on a tighter market segment and enhance its ability to be more flexible in an increasingly competitive PC market.

Confirming a report by CNET's NEWS.COM last night, the company said the new corporate strategy will result in worldwide personnel reductions that may amount to 37 percent of its workforce, or 1,100 employees from among its current 3,000 workers worldwide.

The restructuring plans announced today affect the company's North American and Asian operations, and reorganization plans for AST's European operations will be announced within the next two weeks, the company said.

"AST has taken previous steps to restructure, which have been beneficial, but has not gone far enough," said S.T. Kim, AST's president and CEO. "This reorganization is driven by our recognition that, in order to affect a real shift in strategy to carry us to full recovery, we must first establish a top-line revenue target that is achievable." Last April, AST cut 25 percent, or roughly 1,000 positions, from its workforce, which at the time was made up of 4,100 employees.

Kim added that AST's goal was not simply to sell more PCs to more people, but rather to become a "smart and nimble player" that provides PCs for critical emerging target markets.

The main elements of the reorganization plan include refocusing target markets, with a particular emphasis on small- and medium-sized businesses, which the company has been doing for the past six months; focusing on selected global geographic markets; and establishing flexible manufacturing capabilities that include implementing a successful build-to-order distribution model.

AST announced that, although corporate headquarters will remain in Irvine, California, the company's supply-related functions will be transferred to its 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 market more quickly.

AST also announced that it will strengthen relations with its parent company, Samsung, through a cooperative manufacturing arrangement at its main plant in Dogguan, China. AST also announced that current sales facilities in Southeast Asia and Australia will be phased out, and that Samsung will assume management of the customer support functions in those regions.

"Given this new focus," said Tom Scott, senior vice president of worldwide marketing and sales of AST, "we must be able to reduce response time so that our customers can get what they want when they want it, which, in today's marketplace, means within a few days."

Scott added that cutting down on order-to-deliver cycles not only means a closer relationship with resellers and customers, but will also significantly reduce inventory risk for AST and its resellers.

AST has been battling losses and losing market share for some time.

The company had been hit with a string of losses before its largest shareholder, Samsung, bought out its remaining stake last August for $477 million in cash and debt assumption. AST, a wholly owned subsidiary of Samsung, reported a net loss of $110 million on revenues of $347 million in April, when it was still an independent company.

Meanwhile, AST's worldwide market share of PC shipments dropped to 0.8 percent during the third quarter, down from 1.8 percent a year ago. Unit shipments in the third quarter fell by half, to 153,088, down from 302,411 a year ago, according to International Data Corporation Research.

AST was once a high-flying hardware manufacturer, but the company has been battered in recent years as customers have consolidated their purchasing around a few brands, namely Compaq Computer (CPQ), Hewlett-Packard (HWP), Dell Computer (DELL), and IBM (IBM). These companies have been gaining market share in recent years, primarily at the expense of vendors like AST.

Moreover, many of these companies have instituted "just-in-time" or "build-to-order" manufacturing techniques, which have lowered their costs and, subsequently, their retail prices. This, in turn, has made the outlook for second-tier manufacturers such as AST even more bleak.

Ironically, AST was the first company to release a sub-$1,000 computer in 1996. Since that time, the sub-$1,000 market has become a hot one in the consumer space. At the time, though, AST's effort in this area failed to catch fire.

Meanwhile, as Asia is rocked by economic turmoil, questions have arisen about the level of commitment AST's South Korea-based parent, Samsung, is willing to invest in the troubled company.

"I think it's getting harder every day for [Samsung] to justify it," Dataquest analyst Scott Miller said. "Subsidizing sales is not a good long-term proposition, but to stay with the leaders, it's an investment decision for Samsung."

Bruce Stephen, an IDC analyst, said Samsung does indeed view AST as an important part of its global PC strategy.

"Outside of Korea, AST is the biggest part of their PC pie. Our estimate is that Samsung is committed and will be around for the mid term," he said. "Our indication is that they won't pull the plug out in a year or so. It's a long-term view they're taking, not a Wall Street view."