Yes, there is a dark side to the current wave of VOIP hype: If you don't live up to the lofty expectations, there's hell to pay.

Verso Technologies Inc. (Nasdaq: VRSO), which makes VOIP systems for both carriers and enterprises, saw its market valuation tumble by 40 percent today as it announced that fourth quarter revenues will be as much as 25 percent lower than previously expected (see Verso Lowers Q4 Guidance).

The company, which acquired bankrupt softswitch vendor Clarent Corp. early in 2003 (see Softswitch Vendor Dodges Bullet and Verso Closes Clarent Acquisition), had been expecting revenues for the fourth quarter (ended December 31, 2003) of $19 million to $20 million, but now estimates they will be between $14.5 million and $15.5 million. This will result in negative EBITDA and a greater loss per share.

The vendor's share price fell to $1.97, down 41 percent from yesterday's close of $3.32. This values the company at $236 million, compared with a market capitalization of $398 million when the market closed Wednesday. Verso's share price hit a 12-month low of $0.35 at about the time it closed the Clarent acquisition.

Third quarter revenues came in at $15.3 million, slightly down on the second quarter's $15.9 million, so it is possible that Verso could post successive quarter-on-quarter revenue decreases. This doesn't bode well for the company, as carrier and enterprise demand for VOIP systems is presently growing (see Probe Sees VOIP Growth, Global VOIP Traffic Grew 80% in 02, and In-Stat: VOIP Kit Sales to Grow).

The company says some enterprise orders failed to materialize and some expected carrier contracts failed to complete during the quarter. In addition, CEO Steve Odom says his company spent too little on marketing and sales as it cut costs to assimilate Clarent. He pledged to increase resources in this area.

Verso did not return calls requesting further comment.

Analysts at Pacific Growth Equities Inc. downgraded Verso's stock to "equal weight" (in line with the sector) from "over weight" (exceeding the sector), stating in a research note that while Verso's "sales pipeline is robust," the company is "having problems closing on these opportunities." The Pacific Growth team also believes that one unnamed carrier in the Asia/Pacific region cancelled part of its order with Verso during the fourth quarter.

— Ray Le Maistre, International Editor, Boardwatch