Updated from 1:52 p.m. EDT

Shares of Emulex ( ELX) lost about one-third of their value the day after the company gave guidance below Wall Street expectations. Thursday, the storage equipment maker said it expected revenue to come in as much as 9% below analyst estimates for the quarter under way.

In early afternoon trading, the stock was off $8.34, or 35.3%, to $15.27. Rival QLogic ( QLGC)was down $3.42, or 8.7%, to $35.90, while Brocade ( BRCD), another storage concern, surrendered $1.92, or 11.1%, to $15.36.

Friday, a couple of analysts slightly upped their estimates for Emulex's current quarter, citing the company's improving gross margins and lower tax rate. But the majority sounded fairly gloomy on the stock, given the reduced sales outlook.

"Expected revenue growth is disappointing, competition is heating up, and for now, the market appears to be moving away too quickly for ELX's traditional high-end business to keep up," saip analyst Laura Conigliaro of Goldman Sachs, who downgraded Emulex to market perform. Goldman Sachs expects to seek banking business from Emulex in the next three months.

At Deutsche Bank, analyst Sabrina Ricci expressed concern that the H-P-Compaq merger could hurt business for Emulex. Deutsche Bank has done banking for Emulex.

In the past, Compaq was one of the company's biggest customers, accounting for as much as one-quarter of revenue. "In the transition associated with the HP merger, it appears that Emulex is experiencing integration issues, as the new company shifts its teams. We believe this may have stretched out plans a bit for the near term," said Ricci in a research note.

At the same time, continuing erosion in average selling prices ASPs of 3% to 6% per quarter could put pressure on margins down the road, she said.

Compounding fundamental worries, Ricci contends, Emulex shares are still overpriced given its two-year multiples for revenue, earnings, book value, free cash flow, and EBITDA. And that's after the stock has already dropped 25% in the past two months.

She put a target price of $22 on the stock.