Word of yet another spending cutback is hammering

Juniper

(JNPR) - Get Report

shares and raising the inevitable speculation about an earnings shortfall.

The stock, which has lost two-thirds of its value this year, continued a recent nosedive Thursday in response to a report that big router customer

WorldCom

(WCOM)

is preparing to pare back spending on Internet backbone equipment.

Investors, still recovering from Wednesday's

thrashing at the hands of another

Nortel

(NT)

warning, pushed Juniper shares down $4.81, or 11%, to $39.17 at midafternoon; Juniper shares have lost nearly a quarter of their value over two days. But even after this year's selloff, Juniper still sells at a premium to router rival

Cisco

(CSCO) - Get Report

, boosting the risk of a selloff should its financials fail to pass muster.

Danger Zone

Thursday's selling started with word that WorldCom Chairman Bernie Ebbers told a gathering at a

Morgan Stanley Dean Witter

conference in New York Wednesday of plans to cut spending on so-called Internet protocol gear, which speeds data along networks. A WorldCom spokeswoman said Thursday that the company would spend $2 billion on IP gear this year. That represents a 13% cut from last year's levels, but it's the same projection WorldCom has been making since the beginning of the year. The spokeswoman declined to comment on whether WorldCom would be buying more IP gear from Juniper.

Downturn
Networkers since Nortel's Feb. 15 warning

Even the slightest pullback would hurt Juniper, which counts WorldCom as one of its largest customers, making up more than 20% of its business. Juniper, which makes devices that manage the flow of traffic at junction points in data networks, didn't immediately respond to a call seeking comment.

But Susan Kalla, an analyst with New York investment shop

Trade.com

, says WorldCom's situation is far more tenuous than investors may realize, at least from a networking equipment point of view.

"The

WorldCom situation is dynamically unstable," says Kalla, who has a sell rating on Juniper. Last year "was a peak year for building. They have more capacity than they need and are now selling some services below cost." Kalla

bases her equipment company opinions on research she's done among the service providers -- in other words, gauging the sellers by the health of their buyers.

Free Fall

Meanwhile, adding to investor unrest, recent public speaking engagements by CEO Scott Kriens have taken on an increasingly cautious tone.

"Their body language has been squishy for the past few months," a hedge fund manager says of Juniper, which like the rest of the networking sector was once notable mostly for its unshakable optimism. Still, the company faced similar concerns going into the end of last quarter and managed to "blow the numbers off the door," says the hedge fund manager, who has no position in Cisco or Juniper.

Juniper's 68% plunge this year, while steep, puts it in lockstep with the 59% decline at industry leader Cisco, as telcos cut spending to conserve cash. As

TheStreet.com

has

noted, Wall Street anticipates more bad news in the coming weeks from the nation's largest data networking player. But Juniper, which boasts five-year consensus growth estimates of around twice those of Cisco, trades at some 40 times 2001 earnings estimates, compared with 28 for Cisco. That means investors will be likely to swiftly punish any disappointment at Juniper. And with visibility lacking throughout the industry, Wall Street will probably be less likely to accord premium valuations to mere projections.

So expect the hammering to continue.