Arris hounded by earnings, guidance; Priceline goes other way; Test results boost Cell Genesys

By Evan Weinberger

New York, Feb. 15 - Arris Group Inc. convertibles took a pounding Friday on earnings.

Priceline.com Inc. convertibles went the other directions.

And lowered 2008 guidance dropped Best Buy Co. Inc. convertibles.

Meanwhile, positive test results pushed up Cell Genesys Inc. convertibles.

ON Semiconductor Corp. convertibles ended the day lower.

Trading activity remained light Friday. "[The] market's soft again," a trader said. "People would rather sell names than look at new ones."

Another trader said he saw the same activity Friday as he did for the rest of the week. "I didn't see much going on yesterday," the second trader said.

Further turmoil with bond insurers was the culprit, the second trader added. He said that the government was preparing investors for the more exotic arms of the bond insurers to fail while the sturdy municipal bond section remains intact. He likened it to lopping off a gangrenous limb. His words were backed up by reports that bond insurer Federal Guaranty Insurance Co. was preparing to apply to separate into two entities - one insuring municipals, the other insuring the more exotic securities.

The market had had enough by Friday, the trader said. "It's monoline overkill," the trader said. "By Friday, you just get tired of hearing about it."

No new issues priced and none were announced Friday.

Stocks moved into the weekend on a generally down note following discomfiting economic reports Friday. Consumer confidence was at a 16-year low, according to one key index, and manufacturing and import price reports were also disappointing. Markets were able to come off earlier lows, with one finishing in the black.

The Dow Jones Industrial Average slipped 28.77 points, or 0.23%, to close at 12,348.21.

The Nasdaq gave back 10.74 points, or 0.46%, for a 2,321.80 close.

And the Standard & Poor's 500 finished up 1.13 points, or 0.08%, at 1,349.99.

Arris convertibles pounded

Arris Group, a Suwanee, Ga.-based cable phone and television services developer, announced its fourth-quarter 2007 earnings report and its 2008 guidance. Neither brought smiles to investors' faces.

Arris announced that it had profits of 16 cents per share in the last three months of 2007 after a $41 million one-time tax charge was accounted for. That's down from the company's adjusted profits from the same period of 2006 of 32 cents per share.

Analysts polled by Thomson Financial expected profits of 21 cents per share after one-time charges were taken into account.

Even worse, Arris dropped its first-quarter guidance because of an expected drop in sales.

That expected drop in sales led to the expected drop in Arris' convertibles.

Arris' 2% convertible senior notes due Nov. 15, 2026 closed Friday at 71.5297 versus a closing stock price of $5.50. They closed Thursday at 81.2951 versus a closing stock price of $7.91.

Arris stock (Nasdaq: ARRS) dropped $2.41, or 30.47%, on the day.

A trader called the Arris convertibles "interesting."

On the positive side, the trader said, the company still has a strong balance sheet, despite the drop in profits. He added that Arris is expected to post decent EBITDA for 2008.

"The negatives are they are losing market share within Comcast, which is [a third] of their revenues, and they are suffering margin compression from competition. Also, these bonds are rather longer dated. Depending on your view, there is a wide disparity on credit assumptions from 400 to 800; thus the bonds were fairly actively trading today."

A second trader also agreed that there was a wide disparity of views on the Arris convertibles. When he heard the credit spread estimates of the first trader, he responded: "That's a big disparity."

Priceline goes the other way

Norwalk, Conn.-based travel discount web site Priceline.com reported a 62% increase in gross travel bookings Thursday after the market close. That led to more than a doubling of the company's fourth-quarter profits.

In the fourth quarter of 2007, Priceline had a profit of $32.9 million, or 68 cents per share. In the fourth quarter of 2006, Priceline earned $13.2 million, or 33 cents per share.

The outlook for 2008 is looking rosy as well, Priceline said, and it was that outlook that led to Friday's steep rise.

Priceline's 0.5% convertible senior notes due Sept. 30, 2011 closed Friday at 307.735 versus a closing stock price of $123.86. They closed Thursday at 259.938 versus a closing stock price of $102.23.

Priceline's 0.75% convertible senior notes due Sept. 30, 2013 closed Friday at 307.76 versus a closing stock price of $123.86 after closing Thursday at 260.428 versus a closing stock price of $102.23.

Priceline's 2.25% convertible senior unsecured notes due Jan. 15, 2025 closed Friday at 324.387 versus a closing stock price of $123.86. They finished Thursday at 274.794 versus a closing stock price of $102.23.

And Priceline's 1% convertible senior unsecured notes due Aug. 1, 2010 closed Friday at 307.391 versus a closing stock price of $123.86 after closing Thursday at 257.703 versus a closing stock price of $102.23.

Priceline (Nasdaq: PCLN) stock leaped $21.63, or 21.16%, Friday.

Best Buy lowers guidance

Richfield, Minn.-based electronics retailer Best Buy lowered its 2008 guidance because of an expected slowdown in consumer spending in 2008.

That lowered the outlook on Best Buy's 2.25% convertible senior notes due Jan. 15, 2022, which closed Friday at 112.156 versus a closing stock price of $44.62. The convertibles closed Thursday at 113.573 versus a closing stock price of $45.77.

Best Buy stock (NYSE: BBY) fell $1.15, or 2.51%, on the day.

Good results boost Cell Genesys

Cell Genesys announced Friday that prostate cancer patients who produced a response to the biotech's GVAX vaccine lived longer.

That positive test result sent the South San Francisco, Calif.-based company's 3.125% convertible senior notes due Nov. 1, 2011 up to 72.551 versus a closing stock price of $2.36 Friday. They closed Thursday at 67.301 versus a closing stock price of $1.97.

Cell Genesys stock (Nasdaq: CEGE) also jumped, gaining 39 cents, or 19.80%, Friday.

ON nods off

Phoenix-based semiconductor maker ON Semiconductor saw its 2.625% convertible senior subordinated notes due Dec. 15, 2026 close Friday at 84.8592 versus a closing stock price of $5.78. They closed Thursday at 87.285 versus a closing stock price of $6.13.

ON stock (Nasdaq: ONNN) slid 35 cents, or 5.71%, Friday.

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