Dow falls 21 points, had been plus 51 Microsoft delay raises doubts about profits

September 16, 1997|By BLOOMBERG NEWS

NEW YORK -- U.S. stocks fell yesterday as Microsoft Corp. said it would delay a new version of its best-selling Windows software, raising fresh doubts about corporate profits.

"There's reason for concern in terms of slower earnings," said David Diamond, head of equity policy at Boston Co., which has $20 billion in assets. "You could point to a host of different measures that suggest the market is expensive."

Those lofty valuations have been justified in the past by companies' abilities to show investors better-than-expected growth, Diamond said.

The Dow Jones industrial average fell 21.83, or 0.3 percent, to 7,721.14, giving up a gain of more than 51 points.

The Nasdaq composite index, which counts Microsoft as its largest member, dropped 14.41, or 0.9 percent, to 1,634.92. Microsoft declined $7.15, or 5.3 percent, to $130.69, its biggest retreat in almost two months, after saying its Windows 98 operating system will be released in the second quarter, rather than in the first as originally planned.

The Standard & Poor's 500 index fell 4.14, or 0.5 percent, to 919.77. The weakness centered in the biggest stocks, as advancing shares still managed to outnumber those that declined on the New York Stock Exchange by 1,544 to 1297.

Stocks rose early in the day as investors snapped up shares of Eli Lilly & Co. and other companies that are buying back shares, shedding businesses or raising dividends.

Eli Lilly rose $2.93 to $111.375 after the maker of Prozac antidepressant said it would raise its dividend 11 percent and split its stock 2 for 1.

Sara Lee Corp. surged $6 to $48.5625 after unveiling a three-year plan to sell some manufacturing businesses and cut costs to raise $3 billion for a stock buyback.

Manor Care Inc., the largest operator of nursing homes in the United States, jumped $3.125 to $34.25 after saying it would split its health care and real estate businesses.

Eastman Kodak Co. fell $5.50 to $60 in trading off the floor of the New York Stock Exchange after it said that third-quarter and annual earnings could be significantly lower. Fuji Photo Film Co. has been gaining more and more of the U.S. film market.

Microsoft's slump came after the company confirmed that it will delay the release of Windows 98 so that the system is compatible with its older Windows 3.1 operating system as well as with its more recent Windows 95.

Microsoft's news hurt others in the computer industry. Intel Corp., the No. 1 chip-maker, fell $2.1875 to $92.0625; Applied Materials, the leading supplier to chip- making factories, declined $2.78 to $93.84; and Compaq Computer Corp., the largest maker of computers, dropped $1.125 to $64.3125. Micron Technology Inc., which builds memory chips, slumped $1.25 to $40.3125.

Ascend Communications Inc. dropped $2.75 to $32.50 on concern that delays in sales of a key product will reduce third-quarter earnings. Robertson, Stephens & Co. cut its rating on Ascend to "outperform" from "buy," the latest in a series of downgrades by Wall Street analysts. The network equipment maker has fallen 45 percent from its high May 28.

Boeing Co. fell $1.50 to $51.4375 after disclosing that deliveries of 12 jets scheduled for this month will be delayed until the fourth quarter.

The Dow average is 6.5 percent below its peak Aug. 6. Some analysts say that presents a buying opportunity as member companies show strong earnings for this quarter.

Abby Joseph Cohen, co-chair of investment policy at Goldman, Sachs & Co., and colleague Gabrielle Napolitano wrote in a recent report that currency translations will have "only a muted impact" on profits.

One reason is that these companies have strong brand names that make sales less sensitive to changes in price.

Pub Date: 9/16/97

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