Updated from 11:32 a.m. EST

Emulex

(EMLX)

shot up 14% Wednesday on optimism the network storage sector is shaping up as a bright spot in an otherwise murky IT landscape.

Several of the company's peers, including

QLogic

(QLGC)

, which also beat earnings estimates, gained as well.

Emulex, which makes adapters for storage networks, last night said it earned $10.8 million, or 13 cents a share, in its fiscal second quarter, compared with a profit of $18.2 million, or 23 cents a share, in the same quarter a year ago. The number topped the 9-cent consensus earnings estimate.

"This was the first quarter in which our revenue grew sequentially since the IT spending slowdown which began in early 2001," said Paul Folino, chief executive of Emulex, in a written statement.

The company reported revenue of $62.2 million in the second quarter, down 12% from $71.1 million last year, but up 18% sequentially. The outcome surpassed Wall Street's forecasts for revenue of $53.9 million.

Room to Grow

In the third quarter, Emulex expects revenue of $66 million, better than predictions for $56.1 million. For 2002, it predicts revenue of $245 million to $250 million, topping forecasts of $224.6 million.

Enthusiasm for storage area networks, or SANs, isn't new -- between 1998 and 2000, sales of SANs doubled, according to IDC data. While it dampened during the past year with the technology meltdown, IDC is still forecasting annual sales growth for SANs of 20.4% per year through 2005.

"Most indicators suggest IT spending isn't going to have a serious recovery in 2002," said Bill Lewis, an analyst at J.P. Morgan Chase. "But a shift to storage area networks could spark growth in this industry."

Lewis said Emulex has benefited from a few noteworthy trends in the SAN industry, among them a seasonal rebound at its original equipment manufacturer customers:

IBM

(IBM) - Get Report

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,

Compaq

(CPQ)

and

EMC

(EMC)

. Emulex was also helped by new product launches and an ability to gain market share.

Spending

"Emulex's strong quarter certainly appears to indicate that spending on storage infrastructure has returned in earnest by IT managers," said Mark Kelleher, an analyst at First Albany. But Kelleher said that if the economy double dips -- or goes into a slump again -- demand for SANs would be hurt.

Using generally accepted accounting principles (GAAP), the company had a loss of $28.3 million, or 35 cents a share, vs. earnings of $19.4 million, or 25 cents a share, in the year-ago period. These results include amortization of deferred compensation, goodwill and other intangibles.

Emulex hopes to earn 13 cents a share in the third quarter, on a pro forma basis, above estimates for 9 cents. For the full year, it's predicting a profit of 48 cents a share, compared with expectations for 37 cents.

Several Wall Street firms upgraded the stock on news of the better-than-expected earnings, including J.P. Morgan Chase, Salomon Smith Barney, A.G. Edwards, and First Albany.

Emulex closed up $5.53, or 14.3%, to $44.13. Its rivals in the storage space ended higher as well:

JNI Corporation

(JNIC)

ended higher 18 cents, or 2.6%, to $7.15, while QLogic -- which reported earnings after the closing bell -- finished ahead $2.86, or 5.9%, to $51.02.

QLogic said it earned $18.9 million, or 20 cents a share, in the third quarter, compared with $26.9 million, or 28 cents a share, a year ago. The results beat analysts' predictions by a penny.

Revenue came in at $83.6 million, down 14% from $97.2 million a year ago, but above forecasts of $83.4 million. QLogic's sequential revenue growth of 2% was below Emulex's 18% quarterly gain.