Walk into Paul Folino’s office and you’ll see at least three pictures of him with Gov. Arnold Schwarzenegger. There are two with President Bush. Even one with Jay Leno.
The mementos are from Folino’s work with the New Majority, the centrist Republican group he’s been a member of for years and has headed as chairman since July.
Folino is in the upper ranks of those with close ties to Schwarzenegger.
“I have all the confidence in the world,” Folino said of the governor after his special election drubbing in November.
Folino just as easily could have been talking about Emulex Corp., which, like the governor, is coming off a rough patch.
The Costa Mesa-based company, which makes devices for linking computers on data storage networks, has seen subtle market share slips and an even more pronounced fall on Wall Street in recent weeks.
Emulex continues to battle cross-county rival QLogic Corp. in Aliso Viejo in a market the two companies dominate like Coke and Pepsi.
Folino, Emulex’s chief executive and chairman who has headed the company for more than a decade, said he’s looking to keep sales and profits growing three ways: by taking care of the core business, making acquisitions and going after new markets.
The goal is to ensure yearly sales growth of around 30% and get Emulex closer to $500 million in annual revenue.
Analysts expect Emulex to do $433 million in sales for the 12 months through June, up 15% from a year earlier. Through June 2007, they see $477 million in sales.
Emulex sells host bus adapters,a circuit board that links servers to other computers on data storage networks. They make up about 85% of Emulex’s sales.
The company also sells switches that connect data storage banks with servers.
QLogic, which spun off from Emulex in 1993, goes head-to-head with its former parent in host bus adapters.
In the fourth quarter, Emulex had about 42% of the market versus QLogic’s 44%.
Back in 2004, Emulex had the lead with about 47% of the market.
On Wall Street, the gap with QLogic is greater.
So far this year, Emulex’s shares are off 15% with a recent market value of $1.4 billion. QLogic’s shares are up about 18% with a market value of nearly $3.2 billion.
QLogic counts yearly sales of nearly $600 million and sells a wider variety of products.
The two stocks often trade in tandem, though six months ago Emulex was surging and QLogic was waning.
Back then, analysts were worried about QLogic’s slumping business selling controllers for disk drives. The company sold the business late last year.
Now Emulex is getting the cold shoulder.
One analyst recently downgraded Emulex’s shares to “sell” after the company said it expects to post revenue of $106 million to $108 million for the current quarter.
Wall Street had expected $112 million.
The company also said earnings would be slightly below expectations.
“We believe this will be sufficient to move the stock from a momentum story to a ‘show me’ story for the time being,” New York-based Citigroup Inc. analyst Paul Mansky wrote.
Another analyst, Andy McCullough with Credit Suisse Inc. in New York, held his “neutral” rating but lowered estimates for the year.
“Growth is stalling,” McCullough wrote. “We believe that this outlook more closely resembles the company’s normalized … growth profile.”
Emulex sells higher-end adapters that go into workhorse servers from IBM Corp., Hewlett-Packard Co. and others. QLogic dominates the lower end.
But Emulex is getting down to QLogic’s turf in a bid to grab sales from a popular type of data room computer: blade servers.
Blade servers, which have helped drive QLogic’s growth, can be about the size of a pizza box and are easily inserted into a rack to expand network capacity.
Emulex came out with blade server adapters last year.
The company is looking to tap the same customers it has for other adapters, including IBM, HP and EMC Corp.
The company isn’t late to the blade server party, according to Folino. The growth rates were too big to ignore, he said.
“You want to focus on this piece of the business,” Folino said. “This is an important market for us.”
Emulex is rolling out other products to expand beyond the company’s traditional base of large data centers with big mainframes and servers.
The company is working with Microsoft Corp. and others to offer cheaper adapters and switches based on fibre channel, a high-speed networking technology.
“It’s all upside market share,” Folino said.
Emulex also is looking to get into servers running the Linux operating system. QLogic recently announced a $109 million acquisition to help tap the Linux market.
QLogic has been a more aggressive acquirer. But Emulex is looking to spend, Folino said.
An acquisition likely would be in the storage networking arena, he said.
“We will probably do another acquisition or two in the next 12 to 18 months,” Folino said.
Emulex has made two acquisitions in the past five years.
The last one came in late 2003 when Emulex paid $310 million for Bothell, Wash.-based Vixel Corp. The buy broadened Emulex a bit beyond adapters.
“We’ll be looking at more diversification, too,” he said.
Emulex has shopping money.
The company had cash and investments of $356 million as of Jan. 1.
“This is a cash machine,” Folino said.
Meanwhile, Emulex has been tending to its mainstay business of adapters and switches.
Eight big players control the market, including EMC, IBM and HP.
Emulex now sells to all of the big players after recently landing a pact with Sun Microsystems Inc.
“That was big for us,” Folino said, just before switching gears to his other passion.
He had a message waiting from a reporter interested in his thoughts as leader of the New Majority.
He seems adept at handling it all and dismissed any idea of rolling back his duties at Emulex.
“I get up every day at 4:30 a.m.,” he said. “If I get up at 5 a.m., I feel guilty.”
