AST’s New Drive : Computer Maker Aims to Get Out of the Big 3’s Shadow

IRVINE — From its humble beginnings 12 years ago, when three immigrant engineers--working in a garage--risked all they had to launch a small computer company, AST Research Inc. has reinvented itself many times.

The toughest transformation may be yet to come, however, as Chief Executive Safi U. Qureshey, the last of the original “Three Musketeers,” attempts to make the Irvine-based company a recognized major player in the computer manufacturing industry.

After a series of executive and other turnovers in personnel earlier in the year, AST completed a $105-million acquisition of Tandy Corp.’s computer business this summer. That made AST Research the fourth-largest PC manufacturer in the United States, based on 1992 revenue, according to market researcher International Data Corp. in Framingham, Mass.

AST’s 1993 market-share growth is projected to be second only to that of Compaq Computer Corp., estimates IDC analyst Eric Lewis. Two years ago, AST declared it was a “first-tier” manufacturer and not just a maker of inexpensive IBM clones. But many still say AST--expected to have $2.3 billion in sales for fiscal 1994--is in the shadow of the computer industry’s Big Three.

“We put them in the clone nobility; not a no-name brand and not quite a top-tier company with the recognition of Apple, IBM or Compaq,” said John McCarthy, director of technology research at Forrester Research Inc. in Cambridge, Mass. “They’re holding their own in the PC industry blood bath.”

Taking the company to the top tier will be the ultimate leadership test for Qureshey, 42, an immigrant from Pakistan who founded the company with Thomas C.K. Yuen and Albert V. Wong.

In the early years, Qureshey was viewed as “Mr. Outside,” the personable executive who spoke to the media and to Wall Street to gain attention for the company. He left the engineering, marketing and operations duties to other senior officials.

But the Tandy deal helps establish AST as Qureshey’s company. For $15 million in cash and $90 million in notes, Qureshey has set in motion the company’s next stage of growth, analysts say.

There is little prologue to this unfolding drama at AST, which had never made a major acquisition before.

The company has plunged into the Tandy purchase with the same instinct it showed in October, 1986, when it moved from being a circuit-board maker to become a computer manufacturer.

AST made add-on boards, electronic circuitry mounted on plastic that can be snapped into a computer. Such boards enhance the power of PCs and were AST’s bread and butter from its founding in Yuen’s garage in July, 1981. Skeptics doubted AST could thrive in the increasingly crowded PC market.

But, in a defining moment, AST showed that it had some of the best talent in the computer industry in “Albert, Safi and Tom,” the founders whose first initials gave the company its name.

AST’s first personal computers were a smashing success, placing a spotlight on the threesome as rags-to-riches immigrant heroes. They fostered an image of egalitarian management; they had an esprit de corps that earned them a distinct image in the industry.

Soon enough, the image of the so-called “Three Musketeers” burst. Wong, the chief technical officer, quit in November, 1988, after an argument with Yuen about the launch of a new product. Miscues and poor sales resulted in a layoff of 6% of the staff and a loss of $7.5 million for fiscal 1989.

AST rebounded. Yuen and Qureshey closed ranks and pushed for innovations in marketing and technology. They distributed multiple brands of computers to different computer retailers and offered “upgradeable” computers that used inexpensive modular components, which addressed concerns that PCs would always become obsolete. Such ideas showed AST to be more pioneer than mere clone maker.

For years, the industry giants tolerated strategies such as AST’s. However, in the past two years Compaq, Apple and IBM have dropped the hammer on middle-tier manufacturers by cutting their prices as much as 40% a year.

It was during the latest price war that AST faced its next challenge. The lines of authority between the remaining founders were never really clear, and in April, 1992, Yuen and Qureshey fought over them. Yuen thought he should take control of operations such as engineering and finance.

The pair asked the outside corporate directors to evaluate their respective leadership. Directors Carmelo J. Santoro and Richard Goeglein sided with Qureshey. At a board meeting in June, 1992, they recommended that the company have a single leader.

Three months later, Yuen quit, Qureshey became chief executive, and Santoro was appointed board chairman, a title formerly shared by Yuen and Qureshey. The players chose to keep it all quiet, but Qureshey later said the split was “like a divorce.”

Will the Tandy deal create another speed bump in AST’s ascension?

This time, with larger competitors tightening the screws, AST can’t afford to be seen as anything less than a leader and innovator. And this time, Yuen is not around to lend his skills.

“As an individual, I have more at stake,” Qureshey said in a recent interview. “I’m betting the farm on this acquisition. I have my net worth tied to this company.”

Qureshey controls 2.58 million, or 8%, of AST’s 31.5 million shares. At Friday’s closing price of $17.75 a share, his stake is valued at $45.8 million.

Surely, Qureshey knows that what happened to Yuen could happen to him. Chief executives have been pushed out at IBM, Apple, Compaq and a host of other companies. But Qureshey has outlasted skeptics who have doubted his management skills in the past.

Santoro, an industry veteran who is chairman of Silicon Systems in Tustin, has a reputation as a board member who displaces founders. But Qureshey, he said, is the rare kind of founding executive who has made the transition from entrepreneur to CEO.

Qureshey’s longevity as a top executive “is embedded in how he handles power,” Santoro said. “The true manager knows you amplify your power by giving it away.”

Behind the scenes, Qureshey has assembled an experienced team to help lead the new AST. Eight of 14 top executives have come aboard since Yuen left, bringing experience from companies such as IBM, Apple, Tandy and Digital Equipment Corp.

The string of hires that culminated two months ago with the addition of former Apple Computer executive Jim Forquer, now AST’s senior vice president of operations, “completes a Class-A slate,” Santoro said.

Others don’t take such a rosy view of the changes at AST. They see Qureshey allies replacing Yuen allies. Some veteran executives, who requested anonymity, say that AST has become a place where vice presidents battle over the size of their offices.

To critics who followed AST’s early years, the company has left behind its soul.

Not all the new hires have worked out. One embarrassment was when operations executive Gordon Chilton, brought in to direct AST’s manufacturing, resigned after less than six months. That kind of turnover is dangerous for the fast-moving computer company.

Such setbacks in AST’s management transition, however, are too minor to knock AST from its path, said Eugene Glazer, analyst at Dean Witter Securities, a brokerage in New York. And the strengths gained in the Tandy purchase complement AST well, he said.

With Tandy, the company will benefit from volume discounts on its computer components, Tandy’s computer technology, access to 6,000 Radio Shack stores, and four new factories, including a much-needed one in Europe.

“It is too soon to judge whether this deal succeeds or not,” said Jay Vleeschhauer, a PC analyst at investment bank Unterberg Harris in New York. “We’re watching closely what the financial impact and organizational impact will be.”

Perhaps the most difficult job ahead will be to tie all the efforts together to make AST a household name, said Jeffrey Henning, senior analyst at BIS Strategic Decisions, a consultant in Norwell, Mass.

“People aren’t sure what they stand for,” Henning said. “They’re in a gray area.”

Qureshey said he would like to see the AST name stay as a moniker above a group of product line names, sort of like GM, which has its Chevrolet, Buick and Cadillac brands. More important than name recognition, he says, is whether AST keeps producing fundamentally good products.