Updated from Aug. 7

Emulex's

(ELX)

solid fourth-quarter results and respectable, if not stellar, guidance is being rewarded by investors on Friday. In recent trading, the data storage company was up $1.05, or nearly 5%, to $22.47, reversing a month-long slide. On Thursday, the Costa Mesa, Calif., company posted fourth-quarter earnings above company guidance and Wall Street estimates.

Management was generally upbeat about the September quarter, noting that July was a stronger-than expected month. The company said first-quarter earnings could exceed analyst expectations by a penny, but revenue might fall short.

Emulex, a leader in the market for host bus adapters used in data storage, reported fiscal first-quarter net income of $18.4 million, or 22 cents a share, under generally accepted accounting principles. That compares to a net loss of $11.4 million, or 14 cents a share, in the year-earlier period.

The solid results prompted Lazard Freres and Punk Ziegel to upgrade the stocks from hold to buy, while Deutsche Bank analyst Sabrina Ricci raised her estimate of first-quarter gross margins by 240 basis points, and added a penny to her original EPS estimate of 22 cents. Both Deutsche Bank and Lazard Freres have banking relationships with ELX; Punk Ziegel does not.

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Excluding items, Emulex reported pro forma earnings of 23 cents a share, up from 16 cents a share a year ago. Revenue climbed 16% year over year and 3% sequentially to $81.8 million in the fourth quarter, which ended June 29.

Analysts were expecting Emulex to post a 22-cent profit on sales of $81.9 million in revenue, according to Thomson First Call. In April, the company predicted it would report fourth-quarter earnings of up to 22 cents a share on revenue ranging from $80 million to $82 million.

Emulex said fiscal first-quarter pro forma earnings should come in at 23 cents a share on revenue ranging from $82 million to $85 million. That represents year-over-year sales growth of 17% to 20% and flat-to-4% growth sequentially. Emulex said GAAP earnings per share results are uncertain, but the company is budgeting for up to 21 cents a share. The consensus estimate called for first-quarter pro forma earnings of 22 cents a share with revenue at $84.4 million.

"We saw the bottom back in the fall of 2001," said Emulex CEO Paul Folino, noting that since then Emulex has posted seven consecutive quarters of sequential growth. "We've seen that momentum continue to progress through the summer quarter, which is traditionally a slower part of the calendar season."

Brion D. Tanous of Merriman Curhan Ford & Co. called the quarter "very solid" and was "very pleased" with guidance. In particular, he pointed to stronger-than-expected gross margins of 64% on a pro forma basis, compared to his estimate of 62.7%.

The flattish to modestly up sequential growth predicted for the September quarter is normal and healthy in the storage sector, which has been picking up for the past three quarters, Tanous said. "I think we're setting up for a very strong December quarter," he said. Tanous has a buy rating on Emulex and his firm hasn't done any investment banking with the company.

Emulex and other storage companies rallied strongly during the first half of the year, but slid sharply throughout July, with ELX off 12.3% since the end of June before Thursday's earnings report.

Staff writer Bill Snyder contributed to this report