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Adapting at Emulex

Even as the tech wreck continues, Emulex (ELX) is drawing raves. On Aug. 9, Emulex tumbled 34%, to 15 a share, when it warned that 2003 sales would miss forecasts. The stock rallied later, to 19 on Sept. 11. But by Sept. 18, it had retreated to 15. No matter. Tech pros remain high on Emulex, a leader in fiber channel "host-bus adapters," which let storage devices communicate with networks. "Emulex is a leader in one of the fast-growing tech segments--storage," says Craig Chodash of J.&W. Seligman, which has been buying.

Despite the lower revenue outlook, Chodash says, Emulex' earnings growth, gross margins, and balance sheet are solid. He has a 12-month price target of 30 based on his estimated earnings of 72 cents a share for fiscal 2003, ending on June 30, and 93 cents for 2004--up from 54 cents in 2002. Growth has revived, says Chodash, with revenues expected to jump 7%, and earnings 6%, in the next quarter. Top customers are Hewlett-Packard (HPQ), which accounts for 25% of sales; IBM (IBM), with 21%; and EMC (EMC) , 12%. Rival QLogic (QLGC) and Emulex together control 70% of host-bus-adapter sales. Emulex is way ahead in upgrading its adapters, mainly for the high-end market, he says.

Analyst Shebly Seyrafi of A.G. Edwards (AGE) rates the stock a buy, based on his forecast that it will outperform its peers in the next 12 to 18 months, with its "attractive, sustainable growth rate in the 30%-to-40%-plus range." By Gene G. Marcial

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