Salesforce up on earnings; hedged Micron beats tech woes; Amgen, EMC see flight to quality

By Kenneth Lim

Boston, Aug. 19 - Investment-grade names dominated convertible trading on Friday as the market shed risk amid heightened worries about the debt crisis in Europe.

Salesforce.com Inc. rose in early trading after the company's quarterly earnings beat estimates.

Micron Technology, Inc. improved dollar-neutral despite falling outright as the stock continued to fall with the rest of the tech sector.

The convertible market in general had a quiet session, with most of the activity focused on tighter credit names.

"Not a terribly active day," a sellside trader said. "A lot of stuff that's trading are just short-dated or higher quality stuff."

Amgen Inc.'s 0.375% convertible due 2013 gained about a quarter-point outright to trade at 98.5 versus a common stock price of $52.05.

Shares of the Thousand Oaks, Calif.-based drug giant closed at $51.98, up by 1.05% or $0.54.

EMC Corp.'s 1.75% convertible due 2013 was up by a point outright when it changed hands at 138.75 versus a stock price of $20.75, while the 1.75% convertible due 2011 was half a point higher at 129.5 against the same stock price.

EMC common stock slipped 1.51% or $0.31 to close at $20.28 on Friday.

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

Concerns hit flows

The light trading volumes partly reflected a reluctance among investors to sell with nothing appealing to reinvest in. The primary convertible market has been quiet all month, holders of investment-grade names do not want to sell and buyers do not want non-investment grade paper.

"We've had no issuance this month, right?" the trader said. "So people are holding on to paper because even if they sell it, they don't necessarily want to sell it at a loss and have nothing to replace it with."

Underlying the lack of interest outside of strong-credit paper was a growing fear among investors about the credit crisis in Europe. Investors are still smarting from the collapse of Lehman Brothers in 2008 and are worried about further contagion coming from Europe.

"It looks horrible," the trader said.

Salesforce gains on earnings

Salesforce.com's 0.75% convertible due 2015 rose about 10 points outright in early trading before the broader market's down current swept the bond price back to flat before the close.

The convertible traded at 155 versus a stock price of 120.125 in the morning, while the common stock slipped 2.68% or $3.06 to close at $111.

"After decent earnings they had some good buying," one trader said.

Salesforce.com on Thursday reported second-quarter earnings of 34 cents per share, beating Street estimates for 30 cents per share profit. The company also raised its full-year sales outlook to between $2.22 billion and $2.23 billion, from the earlier forecast of between $2.15 billion and $2.17 billion.

The San Francisco-based company develops cloud computing applications for businesses.

Micron lower outright

Micron's 1.875% convertible due 2014 traded at 94.125 against a common stock price of $5.60, down by about 3/8 point outright.

But the convertible improved on a hedged basis.

"They've expanded a little bit as the stock continues to weaken," one sellsider said. "They've expanded maybe ½ point over the past two days on a valuation basis."

Micron, a Boise, Idaho-based maker of memory chips, saw its stock drop 6.91% or $0.39 on Friday for a $5.25 close.

The name was not in any headlines on Friday, but it was a bellwether name that reflected the plight of the tech sector, which has been beaten up over the past week on weak earnings and a poorly received plan by Hewlett-Packard Co. to shift strategy.

Nevertheless, investment-grade names like Micron were widening out on Friday and valuations were getting rich for paper with strong credit, but investors were still buying them readily.

"Perhaps they're a little rich, but there really is no sign yet of any kind of forced selling or redemption-related activity," the trader said. "Not yet, anyway."

Mentioned in this article

Salesforce.com Inc. NYSE: CRM

Micron Technology, Inc. Nasdaq: MU

Amgen Inc. Nasdaq: AMGN

EMC Corp. NYSE: EMC

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