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Emulex shares rebound

After plunging earlier this week, shares in the maker of servers and high-speed fibre-channel products recover as analysts throw their support behind the company.

Despite a broad sell-off in tech shares today, Emulex stock climbed nearly 8 percent after analysts threw their support behind the company.

The company's shares gained $9.44 to close at $131.13. Today's bounce fell far short of restoring a plunge of more than 40 percent earlier this week, however.

Emulex makes products that speed data transmission, including servers for network access and printers, which combine to make up 16 percent of its sales. It also develops high-speed fibre-channel products, which make up about 84 percent of sales.

The company's shares reached $225.50 on Monday--not bad considering they were selling for a split-adjusted $7.69 one year ago. But they fell off a cliff Tuesday after analyst Robert Montague of Morgan Keegan cut his rating on the stock from "outperform" to "market perform." The shares closed yesterday around $122.

In his report, Montague said that many companies are moving toward smaller computers that run on Windows NT software and use chips made by QLogic, an Emulex spinoff. Montague could not be reached for comment.

Today's rebound in the shares comes after Glenn Hanus of Needham & Co. reiterated his "buy" rating on the stock, and Chase H&Q's William Lewis launched coverage of the company with a $200 price target and a "buy" rating.

"There is no change to our outlook," Hanus said in his report. "We believe that the company should meet or slightly exceed our third-quarter revenue and earnings-per-share estimates of $34.8 million and 18 cents." Emulex will report earnings April 20.

Hanus' report expressed confidence in the company's consistent earnings guidance to analysts and its strong sales to equipment makers such as IBM and Compaq.

"We expect the Unix market to continue to drive the majority of fibre-channel revenue given the large installed base of systems, the current dominance of Unix in enterprise applications, and the higher rate of penetration of fibre-channel (products) in Unix environments," Lewis stated in his report.

Both analysts said Emulex can take advantage of the increasing demand for storage area networks (SANs), which use fibre-channel technology.

The Internet is driving the need for SANs as more data is made available online and "access to this data must be faster, more reliable and more cost-effective than ever before," Lewis said.

The analysts said Emulex's fibre-channel host bus adapters will play an increasingly important role for the company, as spending on host adapters climbs to more than $1 billion in 2002 from $195 million in 1999.

Bloomberg News contributed to this report.