Stock in Next Level fell as much as $52.18 to $39.38 after a research report by investment bank Lehman Brothers suggested a significant portion of Next Level's revenue could be lost if Qwest Communications International shifts its strategy.
Next Level was the largest loser on the Nasdaq Stock Market based on percentage decline and the third most active equity on the market. Shares closed at $41.75, down $49.81, or more than 54 percent.
The declines underscore the precarious position in which many start-up communications, networking and optical equipment manufacturers find themselves. Dozens of new gear makers have burst forth with lofty stock market valuations based in large part on their big-name customers. Some, such as Corvis, have no revenue. But in many cases, these start-ups are reliant upon just a handful of customers.
Any threat of a rift between these new suppliers and their scant customers can have a major effect on investor perceptions and the share price, as Next Level has seen today.
Steven Levy, a Lehman Brothers analyst, believes Qwest may decide to back away from using Next Level's equipment.
Baby Bell local phone company US West, which was recently acquired by Qwest, had been using Next Level's VDSL, or very high data rate digital subscriber line, technology for video services. The company planned to use the high-speed, or "broadband," Internet access technology to deliver cable TV-like programming to consumers and already was testing a service in 13,000 homes in Phoenix.
"Following the completion of the Qwest-US West merger, we believe Qwest is reviewing all its initiatives and is likely to focus going forward on business data and business Internet opportunities," Levy wrote in his report. "That makes it likely, in our opinion, that Qwest is not going to move forward aggressively with the VDSL initiative started by US West."
Qwest spokeswoman Jane Morrissey said: "We continue to evaluate every level of the business. The decision (on Next Level) hasn't been made yet." Qwest represents about two-thirds of Next Level's revenue.
"Qwest-US West has not informed us of its future plans for VDSL," Next Level chief executive Peter Keeler said in a statement. "Any significant decline in revenues from US West would have a material adverse effect on our operating results. However, we are pleased that a number of new customers are deploying our products."
Qwest is expected to hold a conference call with analysts Sept. 7 to address the integration of Qwest and US West and to outline specific strategic plans for the future, which is likely to shed light on Next Level's fate.