Chip makers experienced a horrific year in 2001, but most saw the light at the end of the tunnel at the start of 2002. Indeed, the semiconductor industry was looking for a decent recovery in 2002, especially in the second half of this year.

But instead, the IC market was another major disappointment in 2002--if not a disaster for many chip suppliers. And it goes from bad to worse. Morris Chang, chairman of Taiwan Semiconductor Manufacturing Co. Ltd., recently told analysts that the silicon foundry giant doesn't foresee a strong recovery coming before the second quarter of 2003.

Meanwhile, back in January of 2002, leading semiconductor analysts projected the worldwide IC market would grow anywhere from 1% to 20% in 2002 over 2001. For example, VLSI Research Inc. predicted the worldwide IC market would grow by a healthy 20.6% in 2002 in revenue over 2001. In 2001, IC sales fell by staggering 31% from record revenues in 2000, according to VLSI Research.

Some predications were even more bullish, but IC Insights Inc. got it right. In January, IC Insights projected the worldwide IC industry would grow by a modest 1% in 2002 over 2001 (see Jan. 7, 2002 story ).

Without a doubt, chip makers struggled in 2002, as the industry fought to shake off the effects of the industry's worst downturn in 2001. And there was nothing to write home about. For example, iSuppli's Market Intelligence Group said that worldwide semiconductor sales would hit $155.35 billion in 2002, a mere 1.5% increase over 2001 (see Dec. 11, 2002 story ).

And after revising its figures a number of times, Dataquest Inc. came up with the same conclusion. The worldwide semiconductor industry returned to positive growth in 2002, with revenue totaling $155.4 billion in 2002, a mere 1.4% over 2001, according to Dataquest.

However, the industry would have suffered another year of revenue decline if not for the DRAM segment. If DRAM revenue is excluded from the total semiconductor market, worldwide semiconductor sales revenue would actually decline by 2% (see Dec. 13, 2002 story ).

Simply put, the IC market fizzled out this year. So what happened? Poor consumer demand. Analysts believe there were (and still are) no "killer applications" or hot products to the drive the semiconductor industry in 2002--and maybe even beyond.

Another big problem chip makers face is that their customers are offering few indications about future demand, forcing them to survive on short-term orders and hold back purchases of new capital equipment. This situation persists today, even though more purchase orders are coming in.

"What we've seen for the past couple of quarters is real business being transacted. Purchasing orders are being placed every day and purchasing people are talking to our salespeople," said Wilfred Corrigan, chairman and chief executive officer at LSI Logic Corp., in a recent interview with EE Times, a sister site of SBN. "The one thing that is lacking is forward visibility. You'll hear this from virtually every one of our customers even though business is happening on a daily basis," he said.

Others believe the handwriting was already on the wall. Heading into 2002, the market was still suffering from a ton of excess capacity and inventory, especially in the slumping communications sector. There was also little capital spending in the long-haul and access wireline sectors, although the metropolitan area network (MAN) saw some action. Cisco, Lucent, Nortel, and other OEMs were (and still are) hit hard by the first downturn in the communications sector.

Wireless was a bright spot, however. Cellular phones and wireless LANs continue to remain relatively strong in a bad market. Carriers are beginning to deploy 2.5G networks, with 3G deployments showing up in Japan and Korea. And China continues to ramp up its cell-phone sector.

Consumer products, including DVDs and digital cameras, seem to be growing. But PC demand was disappointing in 2002. For example, the market simply yawned, when Intel Corp. this year rolled out the world's first 3-GHz microprocessor for desktop PCs.

(Return to 2002 Top 10 list or go to No. 2).