Tech convertibles active on volatility; Tesla firm dollar neutral; Inphi notes active

By Abigail W. Adams

Portland, Me., Feb. 8 – Trading in the convertibles space centered on equity sensitive names in the tech sector on Thursday, a market source said, as volatility continues to rattle the broader equity markets.

Microchip Technology Inc.’s 1.625% convertible notes due 2027 and Micron Technology Inc.’s 3% convertible notes due 2043 were in focus with heavy trading volume during Thursday’s session.

Microchip’s 1.625% notes remained relatively stable in the 106 to 109 range as Micron’s 3% notes saw a volatile session with trades swinging from a low of 139 to a high of 147.

Tesla, Inc.’s convertible notes were active and saw slight improvements on a dollar-neutral basis as the company’s stock saw wild fluctuations after releasing its fourth-quarter earnings report after the market close on Wednesday.

Inphi Corp.’s 0.75% convertible notes due 2021 were also active on Thursday after the semiconductor company specializing in data movement interconnects reported fourth-quarter and year-end results after the market close on Wednesday.

The struggling notes dropped about 3 points on an outright basis to close Thursday at 90 as the company’s stock plummeted.

Trading activity was subdued in the convertibles space throughout the week with a sense the stock swings were a technical issue and that credit was fine, a market source said.

With high yields backing off their gains, “there’s more of a rumbling things are for sale in the market,” a source said. “Things are starting to trade and they’re not just offering, they’re hitting their bids and selling.”

Micron and Microchip

Microchip Technology’s 1.625% notes due 2027 were in focus on Thursday and eclipsed the trading activity of its 1.625% notes due 2025, which dominated the market on Wednesday.

The 1.625% notes due 2027 dropped about 3 points on an outright basis to close the day around 106, after dropping about 8 points on Wednesday.

Microchip’s 1.625% notes due 2025 dropped another 6 points on an outright basis to end Thursday at 153 after tumbling 13 points on Wednesday. Microchip stock closed Thursday at $79.90, a decrease of 3.63%, after dropping about 9% at market close Wednesday.

Microchip has been in the spotlight since reporting its third-quarter earnings after the market close on Tuesday.

Meanwhile, Micron Technology’s 3% convertible notes due 2043 were volatile during heavy trading on Thursday, reaching a high of 147 before ending at a low of 139, according to Trace data.

Micron stock was down to $40.00, a decrease of 4.78%, at market close. The semiconductor company’s stock was up 11% on Tuesday after upgrading its second-quarter guidance to earnings per share of $2.70 to $2.75 from its previous guidance of $2.51 to $2.65.

Micron is expected to report its second-quarter earnings results on March 22.

Tesla firm dollar neutral

Tesla’s convertible notes were active yet firm on a dollar-neutral basis, as its stock saw wild fluctuations during Thursday’s session.

Tesla’s 2.375% convertible notes due 2022 dropped about 6 points on an outright basis to end Thursday’s session at 117.

Tesla’s 1.25% convertible notes due 2021 dropped about 4 points on an outright basis to end Thursday at 109.

Tesla’s 0.25% convertible notes due 2019 also dropped about 4 points on an outright basis to 105. However, the notes were either unchanged or saw slight improvements on a dollar-neutral basis, a market source said.

Tesla stock experienced a volatile session after releasing its fourth-quarter earnings report after the market close on Wednesday. Tesla stock traded to a low of $314.60 and to a high of $348.62 before ending the day at $315.23, a decrease of 8.63%.

“The price swings are incredible,” a market source said.

Tesla reported a record net loss of $675.4 million on revenue of $3.29 billion in the fourth-quarter, translating to a loss per share of $4.01, or a non-GAAP loss per share of $3.04.

However, revenue beat expectations and the per share loss was less than anticipated.

Tesla struggled to meet its Model 3 production goals in 2017, but CEO Elon Musk has promised 2018 will be a “transformative year” for the company and affirmed a weekly production rate of 5,000 Model 3 sedans by the end of the second quarter, in a company news release.

Inphi’s downgrade

Inphi’s 0.75% convertible notes dropped about 3 points on an outright basis to close Thursday at 90, as the company’s stock plummeted after the company released its fourth-quarter and year-end earnings report.

Inphi stock nosedived on Thursday, closing the day at $25.09, a decrease of 15.55%.

Inphi’s struggling convertible notes have been in the 92 to 93 range for most of February. The notes were trading above par until mid-January when they slowly started to spiral into busted territory after the company warned of a less than stellar fourth-quarter report.

Inphi reported a net operating loss of $74.9 million, or a loss of $1.78 per diluted share, compared to a net income of $26.5 million, or 60 cents per diluted share, in 2016.

Non-GAAP net income was $67.2 million, or $1.52 per diluted share, for 2017.

Inphi set future guidance for the first-quarter at $58 million to $62 million with a net loss in the range of $21.5 million to 22.7 million, or a loss of 50 cents to 53 cents per share.

Non-GAAP net losses are expected to be $1.6 million to $2.6 million, or 4 cents to 6 cents per share.

Analysts at Morgan Stanley, B. Riley, Stifel Nicolaus, and DA Davidson each lowered their price target for Inphi on Thursday.

Mentioned in this article:

Inphi Corp. NYSE: IPHI

Microchip Technology Inc. Nasdaq: MCHP

Micron Technology Inc. Nasdaq: MU

Tesla Inc. Nasdaq: TSLA

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