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Emulex Gets a Kick From New Hardware

The switchmaker's Thor-based products were certified by EMC and are under review by IBM and H-P.
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Investors who missed Tuesday's strong run by



will likely get more chances later this year, according to bullish notes issued after the close by Thomas Weisel Partners and Goldman Sachs.

Weisel's Jason Adler upgraded the Costa Mesa, Calif., storage vendor from underperform to peer perform, saying, "Our bias has shifted from ELX potentially missing numbers to the company meeting or beating current expectations -- at least in the near term." Adler said his view is being driven by Emulex's stable position in the two-company HBA market and "an overall pickup in storage market demand."

Emulex added $1.73, or 6.8%, on Tuesday to close at $27, apparently on the news that



, its largest customer, has qualified Emulex's next-generation host bus adapter based on the Thor ASIC. There may be more good news coming, as two other large customers are reviewing the hardware.

Goldman's Laura Conigliaro, who maintained her in-line rating, said: "With the stock still trading at only 27x our published CY04 estimate, ELX shares could still have room to appreciate on both a relative and absolute basis into the start of December."

The Thor-based adapters, Conigliaro said, are likely to drive both revenue and gross margins. Goldman is seeking a banking relationship with Emulex.

In recent trading on Wednesday, Emulex was off 53 cents, or 1.9%, to $26.47.

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Emulex's other major customers,


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Hewlett Packard

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, have yet to qualify Thor-based products but are expected to do so later in the year. Those approvals may have already been factored into the stock price, however.

And in an observation that could also benefit rival HBA-maker



, Adler said that his August channel checks "suggest a broad-based pickup in storage demand, with customers loosening purse strings amid more predictable IT budgets." The August strength, he added, "bodes well for the seasonally strong September-to-December period."

Adler, whose company is seeking investment banking business with Emulex, raised his estimates in line with the consensus for the full fiscal-year 2004 to $358.4 million in revenue and 98 cents per share, from $348.7 million in revenue and 95 cents per share.