At this time last year, Costa Mesa’s Emulex Corp. was the focus of a high-profile, often acrimonious takeover attempt by Irvine chipmaker Broadcom Corp.
The ordeal preoccupied Emulex’s executives and board for months and put an uncomfortable spotlight on the data networking electronics maker’s struggles with growth.
A year later, a still independent Emulex “has accomplished a lot, despite some of the distractions we have had,” Chief Executive Jim McCluney said. “You know that old saying, ‘Out of adversity comes opportunities.’ Broadcom’s unsolicited bid and its aftermath were very public. But we got our way through it.”
Emulex now “feels vindicated” and is on track for growth in a new area of data networking electronics, he said.
Investors and analysts still are awaiting the promise of an independent Emulex. Last month, the company disappointed Wall Street with its profit and sales outlook for the current quarter.
For the three months through June 27, Emulex gave a profit outlook of $13 million to $16 million, roughly in line with the $15 million expected on average by analysts.
The company said it expects sales of $100 million to $103 million, short of the $107 million Wall Street had been expecting.
At this point in the economic recovery, investors expect more than just so-so guidance, according to Kaushik Roy, an analyst at Wedbush Securities LLC in San Francisco.
“Demand is getting so much better—every other company is reporting better than expected numbers,” he said. “It’s not enough in this kind of environment. You need to have some kind of material beat.”
Roy is one of those who are skeptical of an independent Emulex.
“Whether Emulex did the right thing for shareholders—that’s harder to say. I still believe that it would have served shareholders better if they were part of Broadcom,” he said.
Emulex makes chips and circuit boards for specialized banks of computers that store and quickly serve up data to corporations, banks, governments and others.
The company is making inroads and landing customers for adapters based on a new technology dubbed converged networking, which promises to bridge everyday corporate networks of servers and desktop PCs with more robust, specialized data storage networks.
Converged networking is seen as the biggest development in corporate networks in years and is set to play out in the next few years.
McCluney said he’s eyeing the second half of the year for growth spurred by converged networking adapters.
That’s when “the real revenues will start to roll,” he said.
Users of Emulex’s products—financial companies and others—are doing a lot of “sampling and trials” right now, McCluney said.
Broadcom Offer
Converged networking is what attracted Broadcom to Emulex.
In late 2008, Broadcom originally offered $764 million for Emulex in private and then went public with its offer in early 2009.
Emulex rejected the offer several times, prompting Broadcom last June to up its ante to $912 million, which also was rejected. Broadcom dropped its bid a month later.
The takeover drama pitted some of the county’s most high-profile executives against each other and saw the companies trade barbs, lawsuits and occasional personal attacks.
Some good came out of the sparring, according to McCluney.
For one, it kicked Emulex’s management—which some had accused of being complacent—into high gear.
“We really pulled together as a company and stayed focused,” McCluney said. “We didn’t miss a heartbeat. What’s also important is that we didn’t lose any talent. People wanted to stay to prove that we could be successful.”
The ordeal also forced Emulex to go on the road and make its case to investors, analysts and customers.
“A side effect of this was that it gave a lot of visibility to Emulex,” McCluney said. “We got to talk about new markets and our prospects. It gave us better visibility in the industry and with our investor base, with who we shared our plans and strategies for growth. A lot of them believed in the story.”
“They are executing better,” analyst Roy said. “That is likely the result of getting the attack by Broadcom.”
Emulex’s “business results have improved quarter by quarter,” McCluney said. “As we pointed out during the Broadcom bid, we had loads of unannounced design wins.”
Emulex has announced converged networking design wins with IBM Corp., Hewlett-Packard Co., Hitachi Data Systems Ltd., EMC Corp. and NetApp Inc., among others.
“Long-term investors really like our prospects,” McCluney said. “We are in a fantastic position to ride the wave of this market.”
For now, Wall Street still is awaiting the results of Emulex’s efforts.
The company’s shares are up 10% in the past 12 months on a recent market value of about $920 million, not much more than the $912 million Broadcom offered a year ago.
Emulex has lagged behind the tech-heavy Nasdaq, which is up 35% in the past 12 months.
Broadcom is up about 40% in the past 12 months.
