Intel active, unchanged after acquisition news; SanDisk steady to weaker; Mylan trades

By Rebecca Melvin

New York, Aug. 30 - Intel Corp. remained an active trader in the convertible bond market on Monday, albeit at unchanged pricing, after the chip giant agreed to buy Infineon Technologies AG's wireless unit for $1.4 billion.

Intel was also active on Friday after riding a broad equity rally higher to overcome early weakness related to a warning on third-quarter sales. Pricing Monday was basically unchanged on a hedged basis, according to a New York-based sellside analyst.

SanDisk Corp. was also among the most actively traded names, according to Trace data, a sellside trader said on Monday.

Overall, however, the market was pretty quiet with market players already referencing the upcoming Labor Day holiday as putting a crimp in trade activity.

There's "really not much happening today," a New York-based sellside desk analyst said. There were "just a couple of trades," he continued regarding the names that did change hands on Monday.

Among those that changed hands were Mylan Inc.'s 1.25% convertibles, which were steady at 102.25 versus a share price of $17.35, which compared to 102.75 versus a share price of $18.10 in recent weeks, and Ciena Corp.'s 4% convertibles, which traded at 98 versus a share price of $13.00.

Looking ahead at the week, traders were eyeing a decent amount of economic data coming out that could prompt trading action. That data includes the Case-Shiller home prices indices data and the Consumer Price Index on Tuesday, the Institute for Supply Management manufacturing report on Wednesday and Non-farm payroll numbers for August on Friday.

"It will be interesting to see what [data] moves the market. I think the ISM number Wednesday will be important," a New York-based sellside convertibles analyst said, adding auto sale figures to the data list.

On Monday, with "it being close to month end, there was a bit of cleaning up of small scraps," he said, but nothing significant in terms of selling or buying.

"They are trimming and rounding out positions," he said. "There hasn't been a ton of huge news to put a bid out on or have stuff for sale."

Most of his firm's accounts are on vacation and he anticipated a very quiet week. Other sources echoed the sentiment.

Quest for yield

Although the convertibles market in general outperformed most markets in recent weeks due to its specific tight supply situation, overall performance for investors for August was said to have been pretty lackluster.

"I don't think August was a huge month for anyone," a sellsider said.

Probably the most notable trend is the "permanent bid for anything with any yield to it," the sellsider said

Specifically, that quest for yield has been helpful to convertible preferred shares, which are outperforming in the convertibles space due to their higher yields.

Investors have been willing to "roll down the capital structure, taking riskier assets for higher yield."

"There's a huge bid for yield," the sellsider said.

The trend has been prompted by many investors preparing for a low-interest rate environment for an extended period, and with the general tone of a deflationary scenario.

The picture painted by August economic data was for less growth and gross domestic product estimates being revised lower. The latest economic data came from the Commerce Department, which showed that personal income rose 0.2% for July, which was less than analysts expected.

Intel unchanged, shares slip

Intel's 2.95% convertible due 2035 traded around 97, which was called unchanged on a hedged basis from Friday even as shares of the Santa Clara, Calif.-based chip maker closed down 41 cents, or 2.2%, to $17.96.

On Friday, the Intel 2.95% convertibles were reported in trade at 98.

Intel has agreed to buy the wireless unit of Infineon Technologies for $1.4 billion in cash, its second deal this month to gain market in areas beyond its core computer chip business. Earlier this month, Intel announced it was acquiring McAffee Inc., a security technology firm, for $7.7 billion in cash.

The latest deal is aimed at strengthening Intel's cell phone business, and it comes on the heels of its news that it believes its quarterly revenue will miss forecasts because of weak consumer demand for personal computers.

Intel on Friday said it expects third-quarter revenue of $10.8 billion to $11.2 billion, down from its earlier forecast of $11.2 billion to $12 billion. Analysts had been expecting sales of about $11.5 billion.

SanDisk steady to weaker

SanDisk's new 1.5% convertible due 2017 traded down to 89 on Monday from 90 on Friday and ended the session at about 89.5, which was down about 0.5 point outright from Friday.

The older SanDisk 1% convertibles due 2013 traded at 90, which was down 2 points from previous trades, according to Trace data.

Shares of the Milpitas, Calif.-based flash memory company were little changed, settling at $34.26 which was up 7 cents.

Last week was a tough week for SanDisk after reports that prices of a type of flash chip that SanDisk produces have fallen sharply. Intel's revenue warning added pressure on the smaller rival.

Mentioned in this article:

Ciena Corp. Nasdaq: CIEN

Intel Corp. Nasdaq: INTC

Mylan Inc. NYSE: MYL

SanDisk Corp. Nasdaq: SNDK

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