Shares of communications network builders took a tumble today, with many reaching 52-week lows, after

Level 3

(LVLT)

issued an earnings warning and said it plans to cut 1,400 jobs, or 23.7%, of its workforce, in order to trim costs.

But despite today's falloff, some market watchers see the possibility of a turnaround in the beaten-down sector. Shares of Level 3, which fell in preopen trading as early players reacted to the earnings confession, reached a 52-week low of $6.02 earlier in the

Nasdaq regular session. The shares, one of the most actively traded over-the-counter issues, recently lost 14.6% to $6.50.

Merrill Lynch

downgraded the stock today to near-term neutral from near-term accumulate and to long-term neutral from long-term buy.

In a press release this morning, Level 3, which has built a $10 billion network of fiber-optic communications lines linking cities across the U.S. with cities in Europe and Asia, forecast a loss in 2001 of about $7.50 a share, wider than the previous estimate of $7.25. Analysts surveyed by

Thomson Financial/First Call

had expected Level 3 to lose $7.27 a share for the year. Still, the company said it expects a recovery late in 2001.

William Klein, an analyst at

Dresdner Kleinwort Wasserstein

, believes a late-year recovery is possible, given that some of Level 3's customers, particularly the enterprise and carrier customers, are seeing demand pick up. "How that translates into earnings, we shall see," Klein said. "It's clear who the survivors are." But the names Klein cited,

Metromedia

( MFNX) and

Qwest

(Q)

, are having a tough time today. Metromedia, which also found a 52-week low of $2.69, lately fell 21.2% to $2.76, while Qwest lost 6.7% to $30.79. Klein's firm has had an underwriting relationship with Level 3, and he has an add rating on the stock.

Bandwidth merchant

Williams Communications

(WCG) - Get Report

tumbled 12.7% to $2.74 on the

New York Stock Exchange, after reaching a bottom for the year of $2.65 earlier in the day.

Global Crossing

( GX), which also hit a 52-week low earlier, rebounded to $7.91, still down 8.8% on the day.

First Union Securities

downgraded Global Crossing to market perform from buy.

Broadwing

( BRW) lost 3.8% to $24.05.

Phone service providers also lost ground.

WorldCom

( WCOM) lost 4.6% to $15.08, and

Sprint

( FON) slipped 1.8% to $19.48. Meanwhile,

AT&T

(T) - Get Report

gave up 1.5% to $20.69.

"It's tough. I've sensed for a long time that warfare in that industry is going to claim a lot of casualties, and it has. Many have gone belly up and many will follow," said Howard Barlow, vice president of

WHB/Wolverine Asset Management

in Stamford, Conn.

That said, the money manager believes an industry turnaround is feasible, but remains a few months away. "Any recovery in a broad sense will not happen until really late in the fourth quarter, like the final two months of the year," said Barlow. "But at $6.50 a share, I'd be a buyer

of Level 3. There's certainly a risk the company's going away, but the management team has proven they're capable of monetizing their ideas and human capital. At $6.50 you could buy a long-term call on management."