Western Digital in focus, contracts after earnings; Akamai, Microchip Technology active

By Abigail W. Adams

Portland, Me., Oct. 26 – Tech names remained in focus in the convertibles secondary space as equity markets closed out a volatile week in the red.

Western Digital Corp.’s 1.5% convertible notes due 2024 were volume leaders with the notes dropping on both an outright and dollar-neutral basis as stock tanked after its third-quarter earnings report.

Microchip Technology Inc.’s 1.625% convertible notes due 2025 and Akamai Technologies Inc.’s convertible notes were also active with their equity under pressure in the sell-off.

With Amazon and Alphabet missing earnings, equity markets saw another brutal session with the Dow Jones industrial average closing the day down 296 points and the Nasdaq closing the day down 151 points.

Chipmakers’ equities have “gotten destroyed” over the past few sessions, a market source said.

Better credit tech names stand to benefit from the stock moves on a hedged basis. However, the gains will only last so long, a market source said.

“It’s good for hedges until the credit blows out,” a market source said.

Credit markets were beginning to feel the effects of the extended sell-off with high-yields down about 3/8 point on Friday and high-yield spreads widening 30 bps over the past month, sources said.

Market players were keeping an eye on credit. However, the situation was not dangerous, a source said.

Outright accounts remained like “deer in the headlights” and have not yet swooped in to buy on the dip, a market source said.

While the market trended lower on Friday, Vocera Communications, Inc.’s 1.5% convertible notes due 2023 saw large gains on an outright and dollar-neutral basis on Friday as stock soared after a third-quarter earnings beat.

Western Digital dominates

Western Digital’s 1.5% convertible notes due 2024 were the focus of the secondary space on Friday with the notes dropping on both an outright and dollar-neutral basis as stock tanked after the company’s third-quarter earnings.

The 1.5% notes dropped to their lowest outright price since hitting the market in January. They were down about 3.5 points outright to trade at 86.125 versus an equity price of $44.38.

The notes were contracted 1 point dollar-neutral, a market source said.

They were moving on a 35% delta.

More than $80 million bonds were in play during Friday’s session.

The notes were down to their lowest level since the data storage company priced the $1.2 billion issue in January.

However, the notes “were overpriced to begin with,” a market source said.

After dropping as much as 22% during Friday’s session, Western Digital stock closed the day at $44.14, a decrease of 18.27%.

Stock tanked after Western Digital reported first-quarter earnings.

While the reported earnings per share of $3.04 were in line with analyst expectations, the data storage company missed on revenue.

Western Digital reported $5.03 billion in revenue in the first quarter versus analyst expectations of revenue of $5.14 billion.

Like many other companies in the tech sector, Western Digital is anticipating slower growth.

Tech active

Tech convertibles remained active in the secondary space as equities in the tech sector continued to get hammered with slowdowns in revenue projected.

Microchip’s 1.625% convertible notes due 2025 were second only to Western Digital in trading volume.

The notes were relatively unchanged on an outright basis. They were seen changing hands at 124.875 versus an equity price of $62.66.

More than $35 million bonds were in play by late afternoon.

Microchip’s stock traded to a low of $60.70 and a high of $63.45 before closing the day at $62.37, a decrease of 0.22%.

The semiconductor company is slated to report earnings on Nov. 7.

Akamai’s convertible notes were also active with the company scheduled to report earnings post-close on Monday.

The 0.125% convertible notes due 2025 were changing hands at 91 versus an equity price of $62.73. More than $10 million bonds were in play during Friday’s session.

The 0% convertible notes due Feb. 15, 2019 were changing hands at 99 versus an equity price $63.07. The yield to maturity on the notes is now almost 3.5%, a market source said.

More than $7 million of the bonds were in play during Friday’s session.

Akamai stock closed Friday at $62.02, a decrease of 2.01%.

Vocera expands

Vocera Communications’ 1.5% convertible notes due 2023 were one of the few issues to see large gains on both an outright and dollar-neutral basis on Friday.

While not actively traded, the 1.5% convertible notes jumped 7 points outright to 122.5.

The notes were expanded 1 point dollar-neutral, a market source said.

On a red day for the markets, Vocera stock soared after a third-quarter earnings beat.

Stock traded as high as $35.52 before closing the day at $34.75, an increase of 12.61%.

Vocera reported third-quarter earnings of 21 cents a share versus analyst expectations of 11 cents per share.

The mobile network provider reported revenue of $47.8 million for the third quarter compared to analyst expectations of revenue of $46.4 million.

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

Microchip Technology Inc. Nasdaq: MCHP

Vocera Communications, Inc. NYSE: VCRA

Western Digital Corp. Nasdaq: WDC

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