AST Research Inc. History

Address:

16215 Alton Parkway
P.O. Box 19658
Irvine, California 92713-9658
U.S.A.

Telephone: (714) 727-4141
Fax: (714) 727-9355

Public Company
Incorporated: 1980
Employees: 4,000
Sales: $944.10 million
Stock Exchanges: New York
SICs: 3571 Electronic Computers

Company History:

AST Research Inc., is the third-largest American manufacturer of personal computers based on the industry standard microprocessing chip. In its short history, the company has grown dramatically from a small endeavor started by three friends, to a major power in the computer business, with markets throughout the world.

The story of AST's genesis is a classic tale of a California computer company that was started on a shoe-string and rocketed to wealth and prominence on the strength of technological innovation. The company was founded by Thomas C. K. Yuen, who talked two friends into taking on extra jobs as computer consultants in 1979. The three pooled their spare cash--a total of $2,000--and started the company they named with the initials of the their first names. Albert C. Wong, Yuen's old roommate from Orange Coast College, contributed the "A"; Safi U. Qureshey, who had met Yuen while working at minicomputer maker Computer Automation, Inc., contributed the "S"; and Thomas Yuen, the son of a Hong Kong textile company limousine driver, contributed the "T."

In the spirit of equality, the three friends, all immigrants who had been trained as engineers, drew straws to determine who would take what office in the new company. Qureshey, originally from Pakistan, became president; Wong, from Hong Kong, became secretary; and Yuen took over the post of treasurer. The company was incorporated in 1980, but it was not until 1981 that the three principals of AST had an idea for their first product.

That idea was sparked by IBM's introduction of the first personal computer, or PC. AST's founders saw a need for a means to upgrade the computers so that such options as a larger memory could be added. Accordingly, the company designed circuit boards that could be installed in the IBM PC's that would allow for additional functions. By the end of 1981 the tiny company had produced its first shipment of these items. Although the check AST received in payment for its first sale bounced, the next payments did not, and the company's fortunes took off on the strength of its one good idea.

In recalling this period in AST's business, Yuen later commented in Business Week, "It became like a fairy tale. Every month, sales doubled." Needing more financing to keep up with demand, AST turned to banks for money. When the fledgling operation was turned down, the founders each took out second mortgages on their homes and raised $50,000. This investment paid off in 1983, when AST's sales soared to $13 million. After venture capitalists invested an additional $2.4 million in AST, the company grew large enough to justify a public offering of shares in 1984. In June the company offered two million shares to the public.

Following this milestone, AST's fortunes were bolstered by the introduction of further add-on products for the IBM PC and IBM-compatible PC's. Most successful among these was SixPakPlus. After its introduction in 1983, sales grew dramatically. That same year the company also entered a marketing agreement with IBM, which permitted the giant computer maker to resell AST's products.

In March of 1985 AST formed its first international division, opening AST Far East, Ltd. to facilitate the manufacture of its products in Hong Kong. By this time the company's offerings ranged from adaptor boards that allowed PC's to interact with other computers, to graphics facilities, to a hard disk drive for the Macintosh. Driven by demand for these innovative products, AST's revenues doubled in just a year, to reach $138.6 million. Earnings had risen 233 percent over the last twelve months, to reach $19 million. With these funds, AST made a number of acquisitions. In March of 1986, the company bought Camintonn, a computer memory manufacturer, and in May AST purchased the National System Company, a French computer wholesaler, subsequently forming AST France.

Despite AST's history of rapid growth, however, the company's initial operations were coming to an end. With the introduction of more powerful PC's, the need and demand for AST's peripheral products was inevitably waning. In response to this circumstance, AST was forced to lay off seven percent of its workforce in July of 1986. Faced with the decline of its original market, and the need for continued growth, AST's founders decided that the obvious next step was to begin manufacturing their own PC's. This was a risky move because the PC market was crowded with powerful competitors, among them IBM, Compaq, Leading Edge, and NEC.

In late October, 1986, AST introduced five IBM-compatible PC models, and the following month, the company announced a $2 million print ad campaign to support its new products. AST planned to promote its Premium/286 PC, along with its laser printer and laser scanner, as a package that provided desktop publishing, outperforming its competitors while selling for less money.

AST also continued to aggressively push its geographical expansion. In addition to its French operations, the company opened European subsidiaries in the United Kingdom, Germany, Canada, and Australia. By 1987, one-quarter of AST's revenues came from overseas sales.

In an attempt to stay ahead of its fierce competition, AST put its emphasis on cutting-edge technology. When the introduction of a higher-capacity microchip, the Intel Corporation's sophisticated 80486 chip, was announced, AST followed close behind with a computer design that used this new technology. The company's offering debuted on October 19, 1987.

Despite this advance, however, AST experienced some rough times. In June of 1987 the company delayed shipment of a new product for use with IBM computers, and the following month, AST cancelled a planned stock offering. Then in November the company was sued by IBM, which was aggressively seeking to protect its PS/2 trademark from infringement, because AST had used the name in an advertising campaign that boasted "PS/2 Memory. Our Name Says It All." The company chose to settle out of court in the matter.

In addition, AST's rapid growth had slowed. The company's net income for 1987 was only $13 million, less than half what the company had made the year before. AST's PC offerings, despite their many virtues, were not special enough to set them apart from the welter of competitors. In an attempt to remedy the company's woes, AST undertook a reorganization. In June of 1988 the company merged its data communications group with its systems product group. To maintain pace with the industry standard, AST also set about developing its own version of the newer OS/2 computer operating system, along with communications software based upon it.

July of that year saw AST introduce 5 new models of its Premium workstation family, and three months later, two other products in this line were introduced. In September AST announced its first national network television ads, to be broadcast during the Summer Olympics. This effort, which cost $2.2 million, made up a significant portion of the company's $12 million advertising effort. AST hoped that the ads would raise consumer awareness of the company's brand name. To make the most of this effort, AST planned to tie in the Olympics campaign with posters, pins, and highlights videos, to be distributed to computer dealers.

By the end of the year it seemed that these efforts had paid off, as sales rose 100 percent from the previous twelve month period to reach $412.7 million. AST had become the third-largest seller of IBM-compatible computers, behind only IBM itself and the Compaq Computer Corporation. Despite this gain, however, all-important revenue growth had reached a plateau.

Tiring of the company's struggles, one of AST's three co-founders, Albert Wong, left the company after a particularly virulent fight with Thomas Yuen in late 1988. By early 1989 AST's fortunes had soured to the extent that the company reported its first ever quarterly loss, which totaled $8.9 million. AST had failed to anticipate that the introduction of a new microprocessor chip, the Intel 80386, would make its models based on the old chip obsolete. As sales slowed, products were stockpiled in warehouses, and the company's costs continued to grow. The blow AST suffered as a result of its failure to innovate quickly enough and stay at the cutting edge of technology was not a lesson the company's leaders forgot quickly.

In an effort to streamline itself and stem the tide of red ink, AST laid off six percent of its employees, letting 120 people go in January of 1989. "Everything," Yuen later recounted in USA Today, "was negative." The company took further steps to return to financial health. In April the Camintonn acquisition was sold off to the unit's managers, and AST also divested itself of its Apple Macintosh product lines, which were purchased by Orange Micro. With these moves, the company was able to refocus its efforts on its core business of IBM-compatible PC's.

By the fall of 1989 the company was showing signs of a turnaround, as AST introduced a new line of computers with a feature that its previous models had lacked. Invented in response to the rapid advance of technology, and called "cupid architecture," this design innovation allowed computer buyers to upgrade their machines easily by switching one circuit board inside the computer. AST made this possible by isolating the aspects of a computer that were likely to become obsolete, the microprocessor and memory chips, on one circuit board that could be easily removed and replaced. In this way, customers did not have to worry about improvements in speed and processing power making their unit obsolete. Although many customers were not expected to actually make the move to an upgrade, observers lauded AST's strategy as a great marketing ploy, since it removed the impetus to delay a computer purchase. The cupid architecture design innovation also allowed AST to introduce updated computer models to the market more quickly than its competitors, and helped keep the cost of new technology down. In this way, the company was able to underprice its rivals by ten to sixty percent.

In April of 1990 AST announced that it had developed a computer to imitate Japanese competitor NEC Corporation's PC 9801. AST planned to try and sell this machine in the Japanese market, dominated by NEC. This risky move, which lacked the safety net of possible U.S. sales, was an attempt to tap into the vast Japanese market for business computers, second in size only to America. "It's one of those huge, untapped markets for aggressive overseas companies," Qureshey told the Wall Street Journal at the time.

The machine AST planned to market in Japan was called the Dual SX/16, and it was capable of running software written for NEC machines as well as IBM machines. AST set out to implement its usual strategy of offering more features on its Japanese product than its competitors did, while also charging a lower price. In addition, to encourage acceptance of the product by Japanese consumers, the company planned to sell its wares under various Japanese trade names that would be familiar to customers.

This move came as part of AST's overall push to make up for lost U.S. market share with heavy overseas expansion. A key aspect of this was the company's entry into foreign markets frequently overlooked or ignored by other U.S. computer makers. AST peddled its products in the former Soviet Union, for example, supporting its sales with Russian-language advertising, and computers were also sold on the Indian subcontinent.

As a result of these and other efforts, AST's financial outlook was steadily improving in the early 1990s. Support from the financial community came as the company's share price grew nearly 260 percent in 1990, keeping pace with growing sales and earnings. As AST solidified its position as the third-place IBM compatible computer maker, the company's sales neared the billion-dollar mark.

In April of 1991, as a result of AST's aggressive pricing, Compaq and its competitors cut their prices, indicating that AST's policies were having an impact on the industry as a whole. By this time, the company's original business, add-on circuit boards for PC clones, had shrunk to make up just seven percent of its business. In its place, AST had become a force to reckon with in the PC industry due to its unusual strategy of selling computers both under its own name through a network of thousands of dealers and under the brand names of other companies, including Texas Instruments and Digital Equipment Corporation.

In addition, the company maintained its technical edge, announcing advances in its own products in order to keep up with innovations in technology. For instance, AST unveiled a new product based on the new industry standard microprocessor, the Intel 486SX, just one day after the new chip was introduced. As the overall American economy entered a recession, AST was able to cater to companies seeking bargains in their computer purchasing. In a big coup, AST won a contract from AT&T to supply more than 1,600 notebook computers to its sales corps. By spring of 1991 the company was selling its low-priced products to 65 percent of the Fortune 500 companies. As growth in the domestic market and in overseas operations continued, AST opened a fourth manufacturing plant to supply its products to vendors.

By mid-1992, however, fierce competition in the computer industry had started to slow AST's growth, and the company began to consider various forms of restructuring in order to keep its costs as low as possible. In a surprising move Thomas Yuen announced in June that he would be leaving the company and would be replaced, in effect, with an ally of the last original member of the troika, Safi Qureshey. Under its sole leader, AST then set out to maintain its position in an industry undergoing widespread upheaval.

A staple of the company's business philosophy was to keep pace with technological developments, and accordingly, in November of 1992 AST announced that it would produce a notebook computer that exploited the capabilities of Intel's new i486SL, a chip designed for portable models. With this chip and its faster processing rate, notebook computers would have a longer battery life. AST called its entry into this segment of the PC market the Powerexec 4/25SL Colorplus.

The company's commitment to technological innovation continued in 1993, when AST announced that it would enter the pen computing market with its shipments of the PenExec "PenTop" notebook computer, which used a cordless stylus to enter data on a screen. AST had created this product as a joint venture with its competitor Tandy's Grid unit, and the product was manufactured by that company's TE Electronics unit. Later that summer, AST announced that it had purchased these two parts of Tandy for $160 million, causing the company to incur a loss for that financial quarter.

Despite this temporary financial setback, AST's position as the third-largest producer of IBM-clone PC's appeared solid. In a brief time, the company had grown from a three-man operation to a major player in the computer industry, its growth driven by innovative products and constant attention to technological advances. As the computer industry continued to evolve, AST appeared to be well prepared to meet the continuing challenges of its market.

Principal Subsidiaries: AST Research Deutschland GmbH (Germany); AST Europe Ltd. (England); AST Research (Far East) Ltd. (Hong Kong); AST Research, Inc. (Canada); AST Research ANZ Pty. Ltd. (Australia); AST Research, Inc. (China); AST Research (Switzerland) S.A.; AST Research Japan (K.K.); AST Taiwan Ltd.; AST Research France S.A.R.L.; AST Research Italia S.r.l.

AST Research Inc. History

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