Spooked by a warning that Emulex ( ELX) will badly miss its next two quarters, investors pounded the stock Thursday; in recent trading shares of the storage gear maker were off $2.80, or 19.6%, to $11.46.

The warning also depressed shares of other network storage vendors: Hardest hit were McData ( MCDT), recently off 40 cents, or 7.5%, to $4.95; and Brocade ( BRCD), which was down 39 cents, or 6.5%, to $5.57.

Even QLogic ( QLGC), which competes directly with Emulex but was probably not affected by the inventory problems that sank its rival, preannounced a good quarter in reaction and was recently off 28 cents, or 1%, to $26.30.

Emulex now expects revenue for the just-ended fiscal fourth quarter to range from $85 million to $86 million, well below its earlier guidance of $100 million to $103 million. Instead of a pro forma profit of 25 cents a share, the company now expects a profit of 18 cents per share.

In the first quarter of 2005, ending Sept. 30, the company now expects to post revenue of $75 million to $76 million, down about $10 million from its earlier projections.

As bad as the news was for Emulex, it appears that demand for its flagship host bus adapter products is fundamentally strong, several sell-side analysts said.

Emulex's revenue shortfall appears to stem from inventory issues at two of the company's major customers -- EMC ( EMC) and Hewlett-Packard ( HPQ).

EMC has a history of playing hardball with its suppliers, and apparently damaged Emulex by signaling that it will shift its distribution model, said analyst Shaw Wu of American Technology Research.

By shifting to a so-called hub model by the end of the year, EMC will force Emulex to keep ownership of product until it is shipped to EMC's end-user customers. Previously, Emulex could book the revenue as soon as product was shipped to EMC. In response, Emulex is reducing channel inventory at a cost of about $10 million.

Although Emulex did not name EMC as the customer shifting its inventory model, the relationship between the two companies is no secret on Wall Street.

AMR does not have a banking business.

A source familiar with EMC's operations said only that the company had not changed its inventory model as of the end of June, but would not comment on future plans.

H-P, meanwhile, has acknowledged inventory problems that hurt a number of its suppliers, said Punk Ziegel analyst Steve Berg. "Since the merger of H-P and Compaq, results have been erratic," he said in a note to clients. "We do not foresee this correcting in the near term."

Berg said he is suspending his buy rating on Emulex until he has a better feel for its valuation. Punk Ziegel is seeking a banking relationship with Emulex.

Amid general market weakness, shares of EMC were recently down 39 cents, or 3.4%, to $11.01, while Hewlett-Packard was off 64 cents, or 3%, to $20.46.