Kodak soars on patent sale speculation; AMD, Intel slip; EMC, Gilead follow market lower

By Kenneth Lim

Boston, Aug. 17 - Eastman Kodak Co. climbed sharply with its stock on Wednesday following a bullish report on the value of the company's patents, while the rest of the convertible market had a mixed day in a choppy session for equities.

Semiconductor names Advanced Micro Devices, Inc. and Intel Corp. slipped on the back of disappointing earnings from Dell Inc. and Analog Devices Inc.

The convertible market in general had a choppy session, with stocks climbing early in the day before surrendering the early gains by lunchtime and ending flat for the day.

"It was kind of a weird day," one sellside trader said. "We kind of started out pretty strong in the morning as stocks rose. But within a few hours, we were back where we started and even lower by a bit, and the rest of the day was just kind of not doing much."

Market bellwethers largely reflected the performance of their underlying stocks.

EMC Corp.'s 1.75% convertible due 2013 fell 3 points to 146.75 against a common stock price of $22.40. The common stock closed at $22.51, down by 2.13% or $0.49 each.

EMC is a Hopkinton, Mass.-based information technology infrastructure company.

Gilead Sciences, Inc.'s 1% convertible due 2014 rose a point outright to trade at 109 against a common stock price of $38.85 early in the day.

The common stock of the Foster City, Calif.-based biopharmaceutical company slipped 1.03% or $0.40 on Wednesday to close at $38.45.

Trading volumes were actually relatively slow outside of the few names that made it to the headlines.

"There isn't anything really exciting going on," the trader said. "We saw some action early in the day, but the afternoon's been really quiet."

The market is hungry for new issues to provide some additional liquidity, one analyst said.

"It's hard to find a good bargain in this market," the analyst said.

"We had some credit concerns that are pushing valuations in some of the investment-grade names richer, and on the flip side, some of the non-investment-grade names, it's hard to find bids. So that affects liquidity. Some new issues would bring in some new paper at a discount and hopefully free up a little bit of that logjam."

Kodak up on report

Kodak's 7% convertible due 2017 jumped about 7 points outright on Wednesday as the stock shot up on a report that put a rich valuation on the company's portfolio of patents.

The convertible traded at 59.875 against a common stock price of $2.63. The common stock rose 25.7% or $0.55 to close at $2.69 apiece.

"The stock just took off today on new speculation about its patents," a sellsider said. "The converts are up with the stock, but down a bit dollar-neutral."

The stock initially climbed early in the day on the back of a report that quoted analysts valuing the Rochester, N.Y.-based imaging technology company's suite of patents at about $3 billion, significantly more than the company's current market capitalization of about $724 million.

After the close, there were also unconfirmed reports that the company has begun marketing the patents to interested buyers. Kodak said in July that it is willing to sell its 1,100 digital imaging patents and was considering "strategic alternatives."

"If they can get that valuation in a sale, the stock's going to go crazy and their credit's going to improve dramatically," the sellsider said. "But that's a very big if."

The sellsider said on Wednesday's price action may have been exaggerated by the recent focus on the recent patent battle between Google Inc. and its rivals Apple Inc. and Microsoft Corp. The patent battle between the companies escalated on Monday with Google bidding $12.5 billion in cash for Motorola Mobility Holdings Inc., a mobile hardware maker that also happens to have a sizeable patent war chest.

"It's like a gold rush, except that people are going after patents instead," the sellsider said. "Personally I think the market's getting a little too enthusiastic right now."

Whether Eastman Kodak can find a buyer for its patents remains to be seen. And whether it can get a good price for the patents is uncertain as well.

"There isn't even a deal on the table yet, as far as we know," the sellsider said.

If those patents do not yield a deal as lucrative as the market expects, new investors could be left with a sour taste in their mouths.

"Remember, this is a loss-making company, it's bleeding cash and it's heavily in debt," the sellsider said. "If this miracle portfolio of patents isn't what it seems, you're left holding a pretty lousy piece of asset."

Chip names suffer hit

The market was not as kind to semiconductor chip names on Wednesday following lackluster earnings from computer maker Dell Inc. and chip maker Analog Devices, Inc.

AMD's 6% convertible due 2015 slipped three-quarters of a point outright to trade at 100.875 against a common stock price of $6.13 per share.

The common stock dropped 3.15% or $0.20 to close at $6.14 on Wednesday.

Intel's 3.25% convertible due 2039 eased a quarter point to change hands at 116.5 versus a $20.60 stock price. The shares ended the day at $20.67, down by 0.58% or $0.12.

Santa Clara, Calif.-based Intel and Sunnyvale, Calif.-based AMD are semiconductor chip makers.

"Tech stocks were down on earnings," a trader said. "Dell, ADI missed estimates. The whole sector is down."

Dell said after the market closed on Tuesday that second-quarter revenue was $15.66 billion, less than the $15.75 billion forecast by analysts. Earnings per share was 54 cents.

The company also said third-quarter revenue should be flat versus the second quarter, disappointing Street expectations for growth. Dell also lowered its 2012 revenue growth forecast to between 1% and 5% from the previous estimate of 5% to 9%.

Analog Devices also fell short of estimates, reporting third fiscal quarter net income of 71 cents per share, below Street estimates of about 73 cents per share.

A sellside analyst said that many of the tech names have actually been quite resilient despite recent weakness in the stocks.

"A lot of these are pretty solid credits," the analyst said. "For the most part, I think they're holding up OK."

Mentioned in this article

Advanced Micro Devices, Inc. NYSE: AMD

Eastman Kodak Co. NYSE: EK

EMC Corp. NYSE: EMC

Gilead Sciences, Inc. Nasdaq: GILD

Intel Corp. Nasdaq: INTC

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