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2001 was disastrous year for high-tech industries

But the slump may have finally reached bottom

SHARE 2001 was disastrous year for high-tech industries

Although some rays of hope broke through the December clouds in recent weeks, 2001's place in high-tech history is secure: It was the worst of times.

Even before Sept. 11, most of the industry was caught in a downdraft of unprecedented severity, and except for suppliers of video games and security technologies, the terror attacks only made things worse.

Mark Edelstone, semiconductor analyst at Morgan Stanley Dean Witter, called 2001 "definitely the worst year on record for the technology sector."

"I've been around this industry for more than 35 years, and this is the worst I've ever seen," said Stanley T. Myers, president and chief executive officer of SEMI (Semiconductor Equipment and Materials International), a trade association with headquarters in San Jose, Calif.

The 2,400 companies in Myers' group are the bottom of the high-tech food chain — they supply the materials and equipment used to make semiconductors, which in turn power the whole panoply of digital devices. His members have been particularly hard-hit this year, with revenues plunging more than 30 percent compared with 2000.

But things weren't much better in most other parts of the high-tech economy.


CHIPS. Manufacturers of semiconductors — microprocessors, memory and other kinds of chips — also suffered through "the worst industry decline in the history of the market," according to preliminary year-end statistics released last week by Gartner Dataquest.

Total worldwide revenue plunged 33 percent, the research firm said. Among the top 10 chip suppliers, expected revenue declines range from 19 percent to 49 percent, with market leader Intel seeing a drop of about 22.4 percent.

For the 12 months through October, Edelstone calculated, the semiconductor industry worldwide lost a total of $100 billion in revenue, compared with its peak annual run rate of $223 billion.

PCs. Sales of the personal computer, the device that above all others symbolizes the digital revolution, fell this year for only the second time ever.

According to preliminary Dataquest estimates, worldwide shipments will be off 4.8 percent. In the United States, according to Charles Smulders, vice president for hardware platforms at the market research firm, volume is down 11.2 percent.

And those figures are all measured in units shipped. According to Smulders' data, total spending on PCs this year will be down almost 16 percent worldwide and more than 26 percent in the United States, compared with last year's totals.

MOBILE DEVICES. "Post-PC" digital devices such as mobile phones and handheld organizers turned out to be at least as vulnerable to the vagaries of the business cycle and consumer confidence as older industry sectors.

Mobile phone sales, for example, were once expected to top half a billion this year, but most industry watchers now predict that the final total will be below 450 million units, perhaps as low as 380 million.

As for handhelds, IDC, which once predicted worldwide unit growth would approach 50 percent this year, in October lowered that figure to somewhere between 10 percent and 20 percent, warning that U.S. sales could wind up no higher than last year. Even those estimates may turn out to be overly optimistic. Even Palm, the industry leader, reported a 44 percent decline.

DOT-COMs. Although the dot-com implosion began in 2000, it continued and by some measures even intensified this year. Through November, according to the Webmergers.com tracking service, 516 Internet companies had shut down since the beginning of the year, compared with a mere 225 in all of 2000.

This year's toll included two of the original poster children for e-commerce, EToys and Webvan. Shares in EToys, once the largest online toy outlet, fell from a peak of $84.25 in October 1999 to just 9 cents in March, when the company, unable to find new funding, finally declared them worthless and shut its site.

Webvan, the Foster City company that tried to persuade Americans to give up the grocery store in favor of online ordering, finally ran out of gas in July, after racking up $830 million in losses.

INTERNET INFRASTRUCTURE. Many analysts once argued — in part by analogy to the success of Gold Rush-era merchants such as Levi Strauss, Leland Stanford and Sam Brannan — that companies providing equipment, bandwidth and services for the Internet were bound to prosper even if many dot-coms, like most Forty-Niners, never struck gold.

But 2001 disproved that analogy, at least for the short term. The networking-equipment giant Cisco suffered its first quarterly loss in 11 years as a public company because it had to write off a staggering $2.2 billion worth of components it had purchased, then found it had no use for. JDS Uniphase had to cut more than half its workers and write off almost $50 billion for "impaired good will."

In July, Sun Microsystems, the company that used to boast it put the dot in dot-com, logged its first quarterly loss in 12 years. Three months later, it posted another loss, more than twice as large this time, as revenue plunged 43 percent year over year. Exodus Communications, the best-known specialist in the new field of Web hosting, was forced into Chapter 11 bankruptcy protection, then began selling off its assets.

A whole series of broadband Internet access providers, whose valuations had soared in anticipation of burgeoning demand, crashed and burned. Among those seriously hurt were NorPoint Communications, Covad, Rhythms, Metricom and ExciteAtHome.

THE VICTIMS. The biggest victims in all this, of course, were the workers who lost their jobs. According to the outplacement firm Challenger, Gray & Christmas, the three industries hardest hit by job cuts this year were all tech-related: telecommunications (292,756 jobs eliminated through November), computers (162,038 jobs cut) and electronics (145,231 cuts).

But investors also suffered, with the tech-heavy Nasdaq index sliding another 20 percent or so for the year, on the heels of last year's decline of nearly 40 percent.

THE GOOD NEWS. Not that there weren't bright spots in the market. U.S. sales of video games and consoles, combined with online gaming revenues, are likely to total at least $11.4 billion this year, a jump of almost 40 percent from last year, according to IDC analyst Schelley Olhava.

Microsoft also prospered with its new XP versions for Windows and the lucrative Office suite. Its antitrust legal problems dissolved, which helped drive the software giant's shares up more than 60 percent. IBM shares climbed about 45 percent for the year.

After Sept. 11, shares in suppliers of security technology also soared.

LOOKING AHEAD. For most of the high-tech world, however, the best that can be said about the current situation is that the slump may be at or near its bottom. While few observers are predicting a sharp upturn anytime soon, many now expect some recovery later in 2002.