Alagem/21/dp1st”/mark2nd
By SARA FISHER
Staff Reporter
The man who built Packard Bell is back after a brief break and ready to duplicate his previous success.
The question is how.
Beny Alagem, a legendary figure in the personal computer business, was somewhat hazy last week about details of his comeback, other than announcing plans to purchase a 75 percent stake of troubled Samsung subsidiary AST Research Inc. including the brand name and the company’s array of computer-manufacturing patents. Samsung retains a 25 percent stake and an option to buy an additional 10 percent within the next four years.
Alagem wouldn’t say how much he paid for the private company, which he renamed AST Computers and has moved from Irvine to Century City, but Samsung executives reportedly put the price at $12.5 million in cash.
“(Alagem) got AST for a reasonably good price,” said Bruce Stephan, an analyst for Framingham, Mass.-based International Data Corp. “Although AST still has a modest amount of name recognition, the company has been in very serious decline in terms of market share and visibility over the last several years.”
AST had been the fifth-largest PC maker in the world until the market was flooded with low-priced personal computers several years ago. The private company’s sales fell from a high of $2.5 billion five years ago to just $400 million in 1998, according to Alagem. Analysts currently estimate AST assets to be worth about $200 million.
“AST was a propelling force in the industry in the past and still has a great brand name and strong intellectual property,” Alagem said in an interview. “We’re planning to bring it back to its prominence over the next couple years.”
Alagem began developing the deal with Samsung almost immediately after stepping down in July from Packard Bell NEC Inc., amid rumors of a rift with the company’s majority partners.
He is certainly a force to be reckoned with. While at Packard Bell, he pioneered the market for selling personal computers through retail stores, and has strong ties to the industry.
“Alagem is a master merchant and an expert deal maker,” Stephan said. “He’s an industry player very well connected in the manufacturing arena. It will be interesting to see what he can do with this company.”
If Alagem did pay $12.5 million, it represents a significant loss for Samsung, which paid $377.5 million in 1995 to acquire a 40 percent stake in AST and is believed to have invested as much as $200 million more to keep things afloat.
But what can Alagem do to turn around AST especially given the industry’s notoriously low margins?
He said he plans to move away from its traditional high-end corporate market and toward the small to mid-sized business sector that he says is under-served by current manufacturers as well as the home consumer market, where he doesn’t believe the current ultra-low prices can be sustained.
To attract the small-business sector, AST Computers will offer a variety of hardware, software and even telecommunication services while partnering with variety of other companies. To reach the home market, where less than 50 percent of U.S. households currently own a computer, the company will offer customized products.
“If it’s the Internet, or finance, or entertainment, we can customize the computer and price it accordingly,” Alagem said, adding that the Internet will be used to advertise and sell its products, as well as offer computer services.
Analysts, however, have heard this kind of talk before.
“It’s tough to enter the PC market unless you undercut everyone else’s prices and are prepared to battle the big boys, like Compaq,” said Matthew Nordan, an analyst for Cambridge, Mass.-based Forrester Research Inc. “Frankly, I’m surprised that Alagem wants to stick with the AST name brand. Its negative connotations as a company in decline may outweigh its positives.”
Said Stephan: “This is like bringing a flamboyant coach to a fallen team. (Alagem) will make noise, but it’s a hard market to make money in.”
AST Computers plans to launch at a fast pace, getting its first new products to market by the second quarter of this year. Its headquarters already has been moved to Century City, with about 160 employees expected to move up from Irvine during the next three months. The management team is not yet finalized, though Alagem will serve as chairman, president and chief executive.
Meanwhile, the 380-employee AST Research will wind down its business over the next year. Alagem will later assess company assets, including employees and factory equipment, then decide what he wants to fold into the new company.
Only limited personal information is known about 46-year-old Alagem, who is widely characterized as intensely private.
As reported in the October 1997 edition of trade magazine User Friendly Computer News and in a Dec. 15, 1997 Sacramento Bee article, Alagem is described as the son of a Tel Aviv appliance manufacturer. He immigrated to Los Angeles in 1975 after serving as a tank commander during his compulsory stint in the Israeli army.
Expressly interested in entering the computer business, Alagem took a variety of college classes at local institutions before launching Packard Bell in 1986 with two fellow Israelis. He moved the company from Northridge to Sacramento in the wake of the 1994 Northridge earthquake, then left the company last July.
Alagem reportedly is committed to philanthropic causes, and donated more than $1 million worth of computers to the Sacramento public school system in 1996.
