August 4, 1997 4:20 PM PDT

Samsung faces tough road in U.S.

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South Korean government regulators today gave Samsung Electronics the thumbs-up on its acquisition of AST Research (ASTA), but the electronics giant appears headed for a wall of competition and few immediate rewards.

Industry analysts say the U.S. personal computer market is saturated already, leaving little room for foreign PC makers like Samsung, Sony, Fujitsu, and Hitachi.

Nonetheless, Samsung announced it has earned all the necessary approvals and expects its merger with AST to be completed around August 25, making the computer maker a wholly-owned Samsung subsidiary.

Samsung, which had increasingly upped its stake and management role in troubled AST since last year, will purchase all of the roughly 31 million outstanding AST shares it does not already own for $5.40 a share, or nearly $170 million. The deal will also include the assumption of $307 million in debt.

The company's stock climbed to 5-3/8 today, up 3/16 in heavy trading.

Though Samsung will bring added financial clout to AST, the Korean company has no guarantee it will have any better luck gaining market share and making money. "AST has been hemorrhaging," said Kimball Brown, an analyst with Dataquest, noting that the acquisition will hide future losses because AST's results will no longer be made public.

As the merger draws to a close, observers wonder how Samsung will leverage AST's market share to turn the computer maker into a profitable business.

"Their best bet is not in the PC space, but rather to look to where PCs are going," said Tom Rhinelander, an analyst at Forrester Research.

There is opportunity for consumer electronics companies like Samsung in joining personal computers and consumer products--similar to the Internet-TV convergence concept, analysts said.

Some companies have already taken advantage of their positions in both the computer and consumer electronics markets. For example: NEC, Sony, and Sharp have developed DVD drives.

"It is a consumer electronics crossover," said Brown, noting that DVD is the big push this year and that digital TV broadcasts start in late 1998.

Rhinelander said new PC makers from Asia have not been very successful in penetrating the U.S. market for one main reason : "The U.S. is still where computing technology is defined, which has made it especially difficult for foreign companies to edge into."

Even with its brand recognition, Sony has had a hard time gaining acceptance with its personal computers. Fujitsu and Hitachi have also attempted to enter the PC market, but "there is no market that isn't being tapped," said Rhinelander.

With the U.S. channel fairly full, it takes extra effort to attract resellers and distributors, he added.

 

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