Convertibles end higher on strong gains in stocks; Intel, Synaptics, NII Holdings edge higher

By Rebecca Melvin

New York, Nov. 13 - Convertible players mostly watched helplessly early Thursday as equities, convertibles and other asset classes deteriorated with increasing steam before a major bounce occurred late in the session, sending stocks exploding higher and spurring activity in the convertibles market.

Convertibles pretty much followed suit, sources said.

"It was a wild ride. Things were soft and falling apart; everything was heading down, and then stocks flew after that," a New York-based sellsider said, adding that there wasn't as much convertibles activity early on.

Convertible paper that the sellsider was looking to buy early wasn't being offered. "It was one of those days," he said. "Now they'll tell me, 'stock's up.'"

The Dow Jones Industrial Average sank below the 8,000 mark before soaring upward by 552.59 points, or 6.7%, to 8,835.25.

The Dow did not sink below its Oct. 10 trading low of 7,882.51.

Intel Corp., which slashed its revenue forecast after the market close Wednesday, was among several reasons for Thursday's early weakness. The convertibles were actually up a little early in the day despite the weaker stock and then tightened further when the shares reversed course.

Synaptics Inc. convertibles were holding pretty steady despite an early slide in their underlying shares. Lazard Capital Markets analysts downgraded the equities to "sell" from "hold," citing Intel's preannouncement and their belief that the deteriorating PC market and macro tech market are "too significant to ignore."

NII Holdings Inc., which has been a name in convertibles trade recently, moved up mostly in line with its shares. The NII 2.75% convertibles ended at 81.5 versus a share price of $18.26, which was up $1.54, or 9.2%.

Intel adds a little

Intel's 2.95% convertibles due 2035 traded at 71.7 intraday, up from 71, versus $13.00 a share. The convertibles were seen settling near 72.625 versus a stock price of $14.43.

They were 71.5 bid, 73 offered against $13.00 for most of the session, and then they ended 72 bid, 73 offered, a sellside trader said.

Shares of the Santa Clara, Calif.-based microprocessor maker fell 4% to 5% early but turned around to end up 91 cents, or 7%, at $14.43.

The company was downgraded to "neutral" by Global Crown Capital Thursday after it had said fourth-quarter revenue would be lower by about 14% due to "significantly weaker than expected demand in all geographies and market segments."

The chip maker now expects to make $8.7 billion to $9.3 billion in sales, down from the previous expectation of $10.1 billion to $10.9 billion and the previous consensus view of $10.26 billion.

The company also said gross margin for the fourth quarter is now expected to be 55% plus or minus a couple of points, lower than the previous expectation of 59% plus or minus, due to lower revenue, and other charges associated with the weaker-than-expected demand environment.

Also, the PC supply chain is aggressively reducing component inventories, Intel noted in a release.

Synaptics strengthens

Intel's sales slump bodes ill for the broader technology sector. Lazard analysts Daniel Amir and Lauren Stoller said that Intel's preannouncement and negative commentary on the PC market reflect the significant worsening of the market since mid-October.

They believe Synaptics' C4A and C1Q revenue estimates could be at risk given that about 70% of the company's business is exposed to PC supply chain. "Intel's commentary on inventory and reduced GM worries us as well," the Lazard analysts said.

Synaptics has been able to buck the trend in the past three quarters, but despite a few new design wins coming in the next few quarters, "we cannot ignore the near-term pressure on the PC market."

They reduced their revenue and earnings estimates for C4Q to $132 million, or 62 cents a share, from $138 million, or 67 cents a share. The Street is at $139 million, or 68 cents a share.

For the first quarter, Lazard reduced its estimates to $98 million, or 29 cents a share, from $104 million, or 34 cents a share, with the Street at $104 million, or 35 cents a share.

The greatest risk to their thesis could be faster unit rebound in the PC market.

Synaptics' 0.75% convertibles due 2024 closed at about 92.75, which was down from 93.43 on Wednesday, compared to shares of the Santa Clara, Calif.-based computer components maker, which ended down $2.33, or 10%, at $21.05.

The company had first-quarter profit rise 24% as a surge in revenue offset higher expenses.

NII mostly firm, active

NII Holdings' 2.75% convertibles due 2025 opened with a 79 handle bid and then moved up to 80.5 bid, 82.5 offered with the stock down a little. At the end of the session it was 81.5 bid, no offers versus a stock close of $18.26.

The Reston, Va.-based wireless services provider's shares gained 9%.

Mentioned in this article:

Intel Corp. Nasdaq: INTC

NII Holdings Inc. Nasdaq: NIHD

Synaptics Inc. Nasdaq: SYNA

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