Convertibles trading quiet; Micron adds ahead of earnings; Take-Two calm amid guidance cut

By Rebecca Melvin

New York, Dec. 22 - The convertible bond market was painfully quiet on Tuesday as the shortened holiday week ground on.

There was some trading of Micron Technology Inc. ahead of the Boise, Idaho-based chip maker's quarterly earnings report, which was posted after the close, revealing the DRAM and NAND memory maker swung to a fiscal first-quarter profit that beat estimates.

Take-Two Software Inc. wasn't seen in trade Tuesday even as the underlying stock was knocked down a little earlier in the day on news of an asset divestiture and guidance reduction.

"The divestiture was non-core, but still accretive to earnings, so they had to take down their guidance," a New York-based sellside analyst said.

Ford Motor Co.'s 4.25% convertibles due 2016 were last at 124.875 versus a closing share price of $9.90, which looked about in line, compared to a trade at 124 versus a share price of $9.75 on Monday.

Trading was described as "just dead," as sellsiders "sat on their hands" waiting for Christmas break and anticipating a resumption of activity next week in the form of last-minute portfolio clean up.

"People will be back in next week to get stuff on or off their books before the New Year," a New York-based sellsider said.

Micron edges up ahead of earnings

Micron Technology 4.25% convertible senior notes due 2013 were at 196.50 bid, 197.50 offered versus a stock price of $9.31 on Tuesday ahead of earnings. According to Trace data, the new price was up 10 points compared to previous levels, but another pricing source said the increase represented a 3-point increase.

Micron reported a fiscal first-quarter profit of $204 million, or 23 cents a share, compared with a loss of $718 million, or 93 cents a share, in the year-earlier period.

Revenue was up 23% to $1.74 billion from $1.4 billion as improving demand and rising prices for memory chips helped the company post its first quarterly profit in more than two years.

Analysts had expected Micron to report earnings of 6 cents a share on revenue of $1.6 billion.

Micron shares jumped 5% in after-hours trade.

A New York-based sellside convertibles trader said there was some,but "not much trading in the name" Tuesday.

Micron's DRAM and NAND flash memory is used in computers, consumer electronics and other electronic equipment, and image sensors for digital cameras and wireless handsets.

"We realize there are still challenges in the global economy, but our team members deserve a lot of credit for generating positive operating cash flow throughout the downturn," Micron chairman and chief executive Steve Appleton said in a release. "Our technology, cost competitiveness and strong balance sheet will provide a great foundation for taking advantage of improving market conditions."

Revenue from sales of DRAM products increased 50% in the first quarter compared to the fourth quarter due to a 25% increase in sales volume and a 21% increase in average selling prices.

Revenue from sales of NAND Flash products increased 21% in the first quarter compared to the fourth quarter due to a 16% increase in sales volume and a 5% increase in average selling prices.

The company's gross margin on sales of memory products improved from 12% in the 2009 fiscal fourth quarter to 27% in the first quarter of fiscal 2010 due primarily to the increases in average selling prices.

Prior to the earnings release, Wells Fargo equity analysts had calculated that Micron's DRAM ASPs may have risen by about 10% sequentially in the November quarter while NAND trade ASPs may have risen 5% to 10%. They estimated that Micron's DRAM revenue may have grown by about 35% to 40% sequentially in the November quarter with NAND trade revenue up by 20% or more sequentially.

Analyst projections raised

"We are raising our revenue projections for the November 2009 and February 2010 quarters, resulting in our FY2010 EPS estimate improving to a loss of $0.02, up from our previous estimate for a loss of $0.24," according to analysts David Wong, Brian Cutlip and Amit Chanda in research published Dec. 18.

"Over the last few years Micron has successfully diversified beyond commodity DRAM to establish substantial businesses in specialty DRAM, NAND flash, and image sensors," the analysts wrote.

"We believe that solid growth in the computer space will drive DRAM growth over the next several years. We view NAND flash as a segment that has high growth potential given the many new applications that NAND flash is used for, including music storage and solid state memory drives."

"However, to remain competitive in the memory markets a relatively high level of capital investment is needed," the analysts wrote.

Take-Two quiet after guidance cut

Take-Two's 4.375% convertibles due 2014 didn't look to have traded on Tuesday, but the paper was last at 110.95, which was up from early December when the paper was at par.

The convertibles were knocked down from a level of more than 130 in October.

Shares of the New York-based maker of Xbox and other video games closed up 7 cents, or 0.75%, at $9.50 on Tuesday, compared to $7.74 when the bonds were at par.

The shares had dipped earlier in the day after the company said late Monday that it was selling its Jack of All Games business to Synnex Corp. for about $43.3 million in cash and payments based on reaching certain milestones.

Take-Two said that the unit sale would lead to a wider first-quarter loss in the range of 45 cents to 55 cents per share, excluding items, which marked a wider loss that previous guidance.

Revenue would plunge to a range of $90 million to $140 million without Jack of All Games, from $210 million to $260 million.

For full-year fiscal 2010, the company now expects its loss will widen by 8 cents to a range of 48 cents to 68 cents, and revenue is expected to drop to a range of $710 million to $910 million from $1 billion to $1.2 billion.

Mentioned in this article:

Ford Motor Co. NYSE: F

Micron Technology Inc. NYSE: MU

Take-Two Software Inc. Nasdaq: TTWO

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