Lehman Brothers

analyst Steve Levy dropped his rating and earnings estimates Wednesday for

Avanex

(AVNX)

, a day after the networking equipment maker warned that its fiscal third-quarter and 2001 results would come in below expectations.

Levy cut his rating to market perform from strong buy -- a drop of two positions. His 2001 earnings estimate fell to 15 cents a share from 26 cents a share, while his 2002 estimate was trimmed by more than half, to 31 cents a share from 76 cents.

"Investors are not going to reinstate a premium valuation on a company like Avanex until the overall uncertainty in the space improves," Levy wrote to investors in a note on Wednesday morning. "The March quarter shortfall is entirely due to lower-than-expected sales to

MCI Worldcom

(WCOM)

for the PowerFilter product due the carrier's weak seasonal demand that was even slower than already-lowered expectations."

The company announced that third-quarter sales would come in around $41 million, resulting in earnings between 2 cents and 3 cents a share. Analysts, on average, expected the company to make 6 cents a share. And going forward, 2001 will also be tough. The company said that full-year earnings could come in between 15 cents and 16 cents a share, missing the 25-cent estimate. Revenues will come in around $169 million, a huge upswing over the year-ago $40.7 million, but well shy of the forecasted $195.5 million.

The company, once worth as much as $270 a share, was down $3.63, or 15%, to $20.31 in recent

Nasdaq

trading.