Intel flat to slightly up ahead of earnings; ON Semiconductor weaker; Salesforce.com adds

By Rebecca Melvin

New York, Jan. 14 - Intel Corp. was being watched by investors Thursday, with its convertibles trading flat to slightly higher ahead of the semiconductor company's fourth-quarter earnings report expected after the session's close. When that report was posted, it was better than expected.

Fellow chipmaker ON Semiconductor Corp. traded slightly weaker; meanwhile, Microchip Technology Inc. was mostly quiet but indicated lower following healthy activity earlier in the week.

Salesforce.com's newly priced 0.75% convertibles added about 0.375 point to trade at 100.5 as its shares gained 1% a day after the convertible paper's debut on Wednesday.

Tyson Foods Inc. convertibles were higher outright by about 2 points as its underlying shares jumped 5.5%.

The Springdale, Ark.-based meat producer's shares were among the day's big movers after a Credit Suisse analyst upgraded the company to "outperform" from "neutral," citing the potential for higher profit margins from its chicken unit.

Disappointing retail sales data didn't seem to spur trades among retail names in the convertible market, such as Saks Inc. and Best Buy Co. Inc. Saks and Best Buy were indicated a little lower with shares that were each down about 1%.

The Commerce Department said Thursday that retail sales declined 0.3% in December compared with November, weaker than the 0.5% increase that economists had been expecting. Excluding autos, sales dropped by 0.2%, which was also weaker than the 0.3% increase analysts had forecast.

Overall, the convertible bond market continued to trade mixed, with vol. names generally weaker as equity volatility remained low. The Chicago Board Options Exchange Volatility Index closed under 20 for the eighth consecutive day.

These vol. levels were last seen in August 2008, a New York-based sellsider pointed out. Also the S&P 500's three-month realized and implied vols are at pre-Lehman Brothers bankruptcy levels. And given the current expectation for equity performance in 2010, there is no catalyst to drive vols higher, he said.

Another sellsider said the market Thursday was murky at best.

"The convert market today is like driving home from work without wiper fluid after a snowy day and the plows have just salted the roads: you think you know about when and where to make turns, but you're not 100% sure, and you can't see the potholes, and what's worse is there is no liquidity to help you out," one West Coast-based sellsider said.

Intel flat to higher

Intel's 3.25% convertibles due 2039 were at 115 bid versus a share price of $21.35 early in the day, which wasn't much changed from a market in mid-October when the paper traded at 115 versus a share price of $21.10. But it was indicated up about a point from Wednesday's market level, according to one pricing source.

The older Intel 2.95% convertibles due 2035 traded at 97 versus a share price of $21.35, which was up from 95.50 in October and indicated up about 0.5 point from Wednesday, according to the market source.

Shares of the Santa Clara, Calif., chip giant gained 52 cents, or 3.5%, to close at $21.48. They rose in after-hours trade. Shares are up 5% since the beginning of the year.

After the market close, Intel reported a fourth-quarter profit of $2.28 billion, or 40 cents a share, compared with a profit of $234 million, or 4 cents a share, a year earlier. Revenue rose to $10.6 billion from $8.2 billion a year earlier. Adjusted income was 55 cents a share.

The results beat estimates, which was for earnings of 30 cents a share on revenue of $10.2 billion.

That compares to last year when the company reported earnings of 4 cents a share on revenue of $8.2 billion during a time when chipmakers were taking a beating in the market downturn.

Chip sector eyed

A strong Intel result was expected to spur other chip makers and the technology sector in general.

Chip makers have gotten a boost from strengthening consumer demand, and analysts say the industry is also poised to benefit from better corporate demand as businesses upgrade and replace older systems.

ON Semiconductor's 0% convertibles due 2024 traded at 102.25 versus a share price of $8.35 on Thursday, according to a New York-based sellside desk analyst.

That trade looked to be on the top of the market, as the paper was indicated lower at 101.95 versus its closing share price of $8.51, from 102.5 on Wednesday.

Phoenix-based ON Semiconductor, which supplies wireless, computing and consumer electronics markets, is expected to announce its fourth-quarter results Feb. 3.

Salesforce.com edges up

Salesforce.com's 0.75% convertibles due 2015 traded at 100.5 versus a share price of $69.00, compared to 100 bid, 100.25 offered versus a share price of $68.50 on Wednesday, the convertibles' debut.

Shares of the San Francisco-based enterprise cloud computing company added 1% on the day.

Salesforce.com wasn't getting rave reviews, however.

"CRM in my opinion was a poorly priced deal for investors, and that's why it came on the cheap end and traded below issue on the first day. Accounts are getting money in, in smaller quantities, one's and two millions, so any reasonably priced deal should do very well," a Connecticut-based sellside trader said.

Retail names mum after sales data

Saks 7.5% convertibles due 2013 were seen at 154.62 on Thursday, down from 155.5 on Wednesday, according to a pricing source, as their underlying shares shed 1%.

Best Buy 2.25% convertibles due 2022 were seen closing at 106.90, down from 107.44, on a similar 1% dip in underlying shares, the same pricing source said.

The Commerce Department said Thursday that retail sales were down 0.3% in December from November, which was weaker than the 0.5% increase that economists had been expecting. Excluding autos, sales dropped by 0.2%, also weaker than the 0.3% increase analysts had forecast.

For the year, sales fell 6.2%, the biggest decline on records that go back to 1992, according to a report by the Associated Press. The only other year that annual sales fell was in 2008, when they slipped by 0.5%.

The 0.3% decline in December was the first setback since September, when sales had fallen 2%. Sales posted strong gains of 1.2% in October and 1.8% in November.

Economists had been predicting that the retail sales data would say a lot about the economy, particularly the demand side.

It was hoped that better demand would finally force companies to increase production and rebuild inventories.

Mentioned in this article:

Best Buy Co. Inc. NYSE: BBY

Intel Corp. Nasdaq: INTC

ON Semiconductor Corp. Nasdaq: ONNN

Saks Inc. NYSE: SKS

Salesforce.com NYSE: CRM

Tyson Foods Inc. NYSE: TSN

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