Emulex Shares Bounce Higher

Hard-pressed Emulex(ELX Quote - Cramer on ELX - Stock Picks) investors got some relief Tuesday, as shares in the storage component maker finally turned north.

In recent trading, Emulex was up 62 cents, or 6%, to $10.34 -- a modest move, but after losing more than two-thirds of its value since the beginning of the year, the change is a welcome one.

Aaron Rakers, who follows the stock for A.G. Edwards, said Tuesday's move was likely caused by short covering as traders realized the company's recent performance issues may be short term. Indeed, short interest in the stock soared 32% in June, and then dropped by nearly 12% in July, according to the Nasdaq Trader Web site.

Earlier this month, the company modestly beat its drastically reduced fourth-quarter guidance and said first-quarter revenue could come in lower than previously forecast.

Emulex makes host bus adapters, a key component of storage networks, and sells them to other storage vendors which in turn resell them to their customers. EMC, one of Emulex's largest customers, recently made changes in its distribution model that slowed sales to Emulex. Although the shift is problematic, it is much less significant than a drop in underlying demand, and is likely to clear up fairly soon, said Rakers, whose company is seeking banking business with Emulex.

Rakers also noted that pricing, always an issue in the cutthroat storage business, was relatively stable in the June quarter and has remained stable in the September quarter.