Emulex Breaks Through

Emulex Corp. (NYSE: ELX) expects to shatter its revenue forecast for the second straight quarter, bringing the HBA vendor back from a two-quarter 2004 slump.

Emulex announced Thursday night that it raised its revenue forecast for last quarter to approximately $101 million to $102 million, with anticipated earnings per share of $0.23 or $0.24 (see Emulex Announces Prelim Results).

The companys previous guidance was for $91 million to $93 million in revenue and EPS of $0.18 to $0.20 (see Emulex Posts Q2). Emulex will announce its earnings April 21.

Financial analysts see Emulex’s strong quarter as a good sign for the industry because it is unusual for storage companies to beat expectations by a wide margin in the first quarter of the year. Emulex is now on track for a sequential revenue increase of more than 10 percent. The first quarter of the year is usually weak, following a spending surge in the fourth quarter as businesses flush their budgets.

Wall Street seems pleased. “Emulex's story has improved considerably. For the company to grow its Fibre Channel solutions by more than 10 percent sequentially following the 30 percent sequential growth selling HBAs in the December quarter is quite impressive,” analyst Shebly Seyrafi of Merrill Lynch & Co. Inc. wrote today in a research note.Most Emulex HBAs are sold through storage system vendors, particularly EMC Corp. (NYSE: EMC), Hewlett-Packard Co. (NYSE: HPQ), and IBM Corp. (NYSE: IBM). That means one or more of those vendors likely had a strong quarter. Several analysts said they believe IBM’s new high-end SAN systems helped Emulex sales, while others credit EMC sales.

Emulex also might have gained market share from its HBA rival QLogic Corp. (Nasdaq: QLGC). But analysts suspect the overall HBA market expanded for the second straight quarter (see HBA Sales Quicken Industry Pulse).

“A market share shift could have occurred, although that seems unlikely, considering the strength of the recent results of QLogic and that company’s product offering,” analyst Steve Berg of Punk Ziegel & Co. wrote in a research note. “The most likely reason for the increase in revenue is simply increased demand.”

Emulex probably also benefited from a strong quarter by subsystems vendor Xyratex Ltd. (Nasdaq: XRTX), which last month reported its revenues rose 22.1 percent sequentially last quarter (see Xyratex Announces Earnings). Xyratex sells embedded switches that Emulex acquired when it bought startup Vixel for around $310 million in 2003 (see Emulex Drops Cash for Vixel).

Emulex also raised guidance last January before announcing a 25 percent overall sequential revenue increase to $91.7 million. That came after consecutive quarters of falling income and revenue (see Emulex Drops Revenue Again and Emulex Cuts Guidance, Jobs).— Dave Raffo, Senior Editor, Byte and Switch