AST: Brand on the Run

Lisa Barnett looks at how AST plans to hold on to and strengthen its own identity in the wake of Samsung?s takeover

For corporates and dealers to commit to a PC brand, its trading history has to prove the company has a good name, quality products and that it has enough cash in the bank to secure its future. If not, then don?t bother dealing with them.

So employees at AST must have breathed a sigh of relief when it was announced that Korean giant Samsung Electronics was mounting a buyout proposal for AST?s entire operation. In January 1997, Samsung stated its intention to acquire all of the outstanding shares of AST not currently owned by Samsung at the price of $5.10 a share.

At the time, Samsung owned 46.6 per cent of AST, but also had options, which, if it exercised, would result in ownership of 49 per cent of the out- standing shares. So it was a foregone conclusion that Samsung would end up owning the US PC manufacturer.

AST?s future, however, had looked precarious for the past few years, and the proposed buyout did little to allay the fears of corporates and dealers until the entire process had gone through and a future strategy could be laid out.

Graham Hopper, AST UK and Northern European general manager, admits it has been a difficult time for AST, with its financial uncertainty and the proposed takeover. ?It?s a big distraction. You can?t put it out of your mind as customers are always asking about it. Selling into corporate customers while you have no clear financial future makes it very difficult to get someone to commit.?

But he is quick to point out that while the vendor has not managed successfully to get new customers to commit to its brand, it has not lost any significant existing customers.

It first emerged that AST was struggling to gain a significant market share more than two years ago. The manufacturer was not a success because it was restricted by cash flow. Hopper attributes AST?s problems to the fact that it entered product cycles too late. So while other manufacturers had already released hardware models including the latest technology, AST was about three months too late. But with an average lifecycle of six months, AST found it hard to shift kit, as it was virtually obsolete.

The manufacturer also spent too much time, effort and money on penetrating the US consumer market, which had just taken off. The UK subsidiary, which is the second largest operation behind the US, was not making any money. Therefore Samsung made its initial approach to AST by taking a significant holding in AST to help alleviate its financial situation and gave guarantees on lines of credit.

Hopper was always of the opinion that Samsung would eventually take over the AST operation. But the fact that it took the Korean giant two years to do so did not help AST build up its client base.

So corporates will no doubt be heading for AST, as it is now part of an $80 billion operation that does not look like it is going to go under. Hopper says: ?We can be as relaxed as we will be there in the future.?

Which brings us to what the future now holds for AST. It has already been widely reported that AST will pull out of the retail market ? an unusual move as Samsung is well known in the consumer market for its videos and televisions (PC Dealer, 7 May).

Hopper reveals that for every box AST sold, the company was actually losing money. He adds that the market conditions were too competitive for AST to continue throwing money at, pointing out that the cost of entering the retail market is now so low that all manufacturers seem to be jumping on the bandwagon. More market competition completely destroys the price points, and the fact that retailers? demands are entirely different from dealer requirements, coupled with the high standard consumers expect, it is no wonder AST has turned its back on the retail market ? for now, anyway.

Hopper says AST will not play in the retail market for the next two years, but hints that the manufacturer was working on a product that will see it return to the home market. ?We made a difficult decision to get out ? although there was a large volume, we were losing money. We are committed to growing the server business and mobile products. Everyone has to believe that,? he says.

Hopper is at pains to point out AST under its new ownership will not change the way the company runs its business ? it is simply the case that AST is now answering to a different management board.

One advantage of the merger with Samsung is that AST?s R&D spend has now doubled as it shares its resources with its new owner. So while AST will concentrate on desktop PCs and servers, Samsung will concentrate on notebooks. AST believes that by moving its focus entirely on to corporates, it will be able to make a success of its server business, which it has not done so far.

Despite a small market share, AST is not planning any changes to its channel strategy. Hopper says the manufacturer will continue to work with its existing distributors ? Northamber, Frontline, ETC, Ingram Micro and Fraser Associates ? but not add any more partners to avoid its products being over distributed. He claims that so far the channel?s reaction to the merger has been positive, with dealers and distributors prepared to stand by the manufacturer until it had sorted out all its financial worries.

Commenting on the AST/ Samsung merger, one dealer says: ?I am glad that this whole ownership problem is now out of the way. While corporates would look at AST kit, they weren?t happy with the company. I hope that we will see a lot of business come through now that the lack of money is out of the way.?

So AST?s biggest task is to reward these dealers that have remained patient with the manufacturer and put some money back into the channel. Unless AST invigorates the channel to begin pushing its products once more, then the whole merger with Samsung has been a waste of time. AST is committed to providing resellers a better infrastructure and data driven marketing techniques.

AST has set up a server accreditation scheme, whereby dealers are trained every six months on its Manhattan servers. These trained dealers are then put on to a list and can be recommended to corporates. To improve customer flow of information ? and thereby giving better qualified leads to dealers ? AST has merged its 16 databases into one, so there is only one number of customers to call. By consolidating the information, AST telesales staff are better equipped to deal with enquiries.

The company has also highlighted the fact that it wants to get into the small and medium enterprise (SME) market, and has recently set up a programme to encourage its resellers to work in this sector. The trial project ? A Plus ? began four months ago, when AST worked with a select group of 50 resellers that source products from distributors. The 50 key resellers were given a dedicated telephone number and the latest product information, such as pricing and product availability, from the company to target the SME market.

Con Mallon, AST sales director, says that as a result of this programme, the manufacturer is seeing an increase in business that it wouldn?t have done previously. There is a plan to increase the number of resellers involved in A Plus by adding another 50.

It is this type of programme that AST will roll out during the rest of the year to its resellers to convince them that at long last, AST can be a manufacturer resellers would want to spend time and money investing in selling.

One thing AST is adamant about is its commitment to the channel. It does not intend to bend to peer pressure and go direct, like arch-rival Compaq. Mallon says the manufacturer sat back three to four years ago and watched other vendors set up direct operations, only to come back to the dealer fold when it didn?t work out. AST, therefore, does not intend to make the direct move.

?We?re moving in the right direction and have focused behind us, we just need to get on and do it,? says Mallon. ?The partners are here. We all know what we are doing and we need to get things started in the channel and with customers.?

AST is fortunate in that it has been given a second lease of life following the takeover, but only time will tell if all the fear, uncertainty and doubt of the past two years has been worth it, and the vendor can become a real force in the PC industry.