Computer issues sag on outlook Nasdaq tumbles 1.5%, even as Dow industrials are adding 5 points, to 8,018

Wall Street

December 03, 1997|By BLOOMBERG NEWS

NEW YORK -- Computer-related companies sent the Nasdaq stock market into a tizzy yesterday, as they warned of disappointing profits and raised concern that more shortfalls are in store.

The Nasdaq composite index, packed with computer shares, dropped 24.35 points, or 1.5 percent, to 1,606.37, after a week of steady gains.

Coca-Cola Co. gained after Merrill Lynch & Co. said the world's largest soft-drink company is a buy.

The Dow Jones industrial average rose 5.72 to 8,018.83, while broader market measures were mixed.

The Standard & Poor's 500 index dropped 3.10 to 971.68, led by computer and telecommunications shares. The Russell 2,000 index of small capitalization stocks slid 1.68 to 432.48; the Wilshire 5,000 index lost 23.42 to 9,283.76; the American Stock ,, Exchange composite index added 1.57 to 665.70; and the S&P 400 midcap index gained 0.07 to 326.38.

Sixteen stocks rose for every 13 that fell on the New York Stock Exchange. About 581 million shares changed hands.

Disk-drive maker Western Digital Corp. and networking equipment manufacturer Cabletron Systems Inc. declined after saying fourth-quarter profits would be below forecasts.

Western Digital fell $1.75 to $19.375 after saying it will break even in its fiscal second quarter, before a charge three times the amount previously announced. Analysts expected earnings of 25 cents a share. Western Digital blamed price cuts by competitors.

Cabletron Systems Inc. dropped $7.50 to $15.6875 -- a 32.3 percent loss -- after the maker of computer networking equipment said it expects to report third-quarter profit of 8 cents to 12 cents a share, below analyst forecasts of 40 cents a share.

After the close of trading, 3Com Corp., which makes hardware that lets computers communicate, said it expects quarterly sales at least 23 percent below the prior quarter's. The company said it expects a "slight profit" for the quarter.

"The disappointments are much more severe than people expected," said Phil Schettewi, managing director at Loomis, Sayles & Co. in Washington.

Some investors speculated that the warnings signaled slower growth for a range of computer-related companies as the economic crisis in Asia takes its toll on companies that sell products around the globe.

Altera Corp. fell more than 20 percent after it said sales of its specialty semiconductors are slowing. The company's shares were downgraded to "neutral" from "outperform" by analyst Mark Edelstone at Morgan Stanley, Dean Witter, Discover & Co.

Merrill Lynch analyst Tom Kurlak also warned of slowing growth for semiconductor companies, and lowered earnings estimates for Altera, LSI Logic Corp., Texas Instruments Inc. and VLSI Technology Inc.

The four companies were among yesterday's biggest losers. Altera fell $10.9375 to $40.75; VLSI lost $3.125 to $19.8125; LSI dropped $2 to $23.125; and Texas Instruments fell $4.3125 to $47.50.

On the flip side, Coca-Cola rose $1.3125 to $65.875 after analyst Douglas Lane at Merrill Lynch raised his rating to near-term "accumulate" from near-term "neutral."

"With superior unit growth and strong financials, we view Coca-Cola as a core stock," Lane wrote.

Coke has had an average annual return of 32 percent the past decade. One thousand dollars invested in the Atlanta company in 1987 was worth $15,000 yesterday, assuming the reinvestment of dividends.

The Dow is 240 points below its Aug. 6 peak. The 30-stock average has returned an average of 22 percent each of the past five years.

"Prices have risen as high as they have because they deserved it," said Abby Joseph Cohen, co-chair of the investment policy committee at Goldman, Sachs & Co. "The place to be in this bull market is equities."

Pub Date: 12/03/97

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