Fraud. Scandal. Bankruptcy. The Network World 200 - the biggest names in networking - stumble through 2002.Stepping backClearer skiesIT spendingSystems bluesTelecom's black eyeDell most productiveFast growthThe NW200 alphabetically\u00a0Sector summariesOne thing you can say about 2002 is that there was nothing subtle about it.The year was pockmarked by fraud on a grand scale, management changes at some of the leading companies and frantic refocusing. The latter wasn't all bad, as companies such as\u00a0Nortel and\u00a03Com, among others, found new religion about the enterprise market.But the turmoil left an indelible mark on the Network World 200, our annual list of the largest domestic public network companies.\u00a0WorldCom\u00a0didn't make it because it is in Chapter 11, while Broadwing Communications dropped off because it is busy restructuring and waiting until the last minute to close its books (missing our deadline of March 18). That takes $38 billion right off the top of the list.When you combine the revenue missing from companies in Chapter 11 with the whipsaw effects of the sour economy and a general retreat from IT spending, it's no surprise that revenue for the NW200 dropped 12% from $890 billion in 2001 to $785 billion in 2002. That makes 2001 and 2002 the only years in the NW200's nine-year history for which collective revenue declined.The profit picture was just as bleak: Together the NW200 companies generated about $154 billion in losses, compared with $65 billion in losses in 2001. But that number is deceiving because 1) new accounting rules required companies to write off impaired goodwill immediately instead of over many years, and 2) almost $100 billion of that outsized loss is from a single company:\u00a0AOL Time Warner.Of AOL's loss, some $46 billion is attributed to goodwill. Companies end up with goodwill on their balance sheets if, in acquiring another company, they pay more than the market value of that company's assets. Companies don't have to write off goodwill unless it becomes permanently impaired, meaning it no longer represents the value of the asset. For example, if a company issues a million shares at $100 to buy a company for $100 million, and after the transaction the share price tumbles to $10, the company could write $90 million of impaired goodwill off its balance sheet.Companies that went on acquisition sprees in the bubble were left with huge impaired assets after it burst. Of\u00a0Qwest's $36 billion loss in 2002, for example, $18 billion was in impaired goodwill. Alfred King, vice chairman of Valuation Research in Milwaukee, says his best guess is that U.S. companies wrote off some $400 billion to $500 billion in goodwill last year.The numbers are all the more dramatic because everyone took the charges at the same time to comply with regulations that went into effect in January 2002. But the write-offs are what analysts call noncash events, meaning they don't reflect the day-to-day health of an organization. The poor stockholders are the ones whose money has gone up in smoke.So, as bad as the profit number looks, it is artificially high and not really as dire as it might seem. In fact, more NW200 companies reported profits in 2002 than in 2001: 69 vs. 62. But a few of the losses were real whoppers. Besides AOL's loss - the largest ever in U.S. corporate history - the NW200 includes eight other billion-dollar-plus losses, including\u00a0AT&T, $13 billion; Qwest, $36 billion; and\u00a0VeriSign, $4.9 billion.Clearer skiesOne company that did muster a profit is industry bellwether\u00a0Cisco. Even as revenue dropped 15% to $18.9 billion, the company managed to reduce expenses enough to generate income of $1.9 billion. That compares with the $1 billion loss the company posted in 2001.Cisco's 2002 fiscal year ended in July, so to get a better sense for how the company did in calendar 2002, it is interesting to string together the last two quarters of '02 with the first two quarters of '03. For that period, revenue was up 5% to $19.2 billion compared with the same four quarters spanning '01, and profits were $3.1 billion vs. a $2.3 billion loss in the earlier period. Either way, the sky is getting brighter for this network demagogue.The same cannot be said for some of the other network pure plays:\u00a03Com's sales were down 48% last year,\u00a0Juniper's, 38%;\u00a0Extreme Networks', 10%;\u00a0Enterasys Networks', 57%,\u00a0Foundry Networks', 3%.Even\u00a0Avaya, sitting pretty in the hot convergence market, saw sales decline 27%.But one bright spot was the security sector:\u00a0Symantec's 26% revenue jump made it a billion-dollar-plus company for the first time;\u00a0Network Associates' sales grew 16% to $942 million; Internet Security Systems' revenue was up 9% to $243 million; and NetScreen Technologies' sales leapt a whopping 62% to close at $138 million.Check Point \u00a0is one security company that didn't fare well. Revenue dropped 19% to $427 million, and profits slid 21% to $255 million. But with a 60% profit margin, Check Point still ranks as one of the top 20 most profitable NW200 companies.Systems bluesWhile you can find pockets of good news among the network-only houses, it is harder with the big systems players. Revenue trailed off in 2002 for all the big systems houses.That is, technically speaking. While the numbers on the chart show\u00a0Dell sales slipped 2% to $31 billion in fiscal 2002, Dell's year ends in February so those results are mostly for the 2001 calendar year. In Dell's fiscal 2003, which is comparable to the other systems houses' 2002, Dell did much better: Revenue was up 9% to $35 billion and profits were up 37% to $2 billion.Growth-wise, no one else comes close.IBM's\u00a0sales were down 2% to $81 billion for roughly the same period, while profits dropped 54% to $3.6 billion, largely because of charges associated with the acquisition of PricewaterhouseCoopers Consulting.Revenue for\u00a0HP, merged with Compaq midyear, was $72 billion, down 11% compared with $81 billion in fiscal 2001 on a combined company basis. HP posted a loss of close to $1 billion.In HP's annual report, CEO Carly Fiorina said: "Our Enterprise Systems Group and our Personal Systems Group each reduced its operating loss by more than 50% in the fourth quarter from the third quarter - while ESG's revenue grew more than 8%, and PSG's revenue increased by 6% in the same period."Customer focus keeps Dell productiveWith its 'customer is king' mantra, Dell ends Palm's two-year reign as the most productive NW200 company.The ongoing technology slump has done little to dampen spirits at\u00a0Dell, which edged out PDA makers\u00a0Palm and\u00a0Handspring in 2002 to become the most productive Network World 200 company, defined in terms of revenue per employee. Dell, which has been expanding beyond its PC roots into a variety of network sectors, made nearly $901,000 per employee in 2002, compared with $797,000 per employee in 2001. MoreIf you add up IDC's total server shipment numbers for Compaq and HP and compare them in 2001 and 2002, you end up with a 6% decline year to year. Dell for the same period ratcheted server shipments up 15%. While Dell still is in the minor leagues on a server revenue basis - $3.6 billion vs. HP's $12.3 billion - Dell certainly is on a tear.Fiorina once said in an interview: "Michael Dell is doing a superb job of driving a business model to its logical conclusion. But he is not innovating. Period. He is not an innovator. He's a distributor."Well, that master distributor just launched a line of printing products, a traditional profit engine for HP. It will be interesting to see if and how this will squeeze HP.Sun, on the other hand, is getting squeezed on multiple sides: Sales for 2002 were down 32% to $12 billion, and the company reported a loss of $587 million. Rocked hard by the dot-com and telecom implosions over the last few years, the company crept away from those wrecks only to face growing acceptance of\u00a0Linux on powerful Intel-based boxes as an alternative to its costly servers."Market conditions are still tough, but we expect opportunities in network computing to grow long-term," CEO Scott McNealy wrote in Sun's annual report. "Wireless phones, pagers, PDAs, game players, cars, radio-frequency ID tags, embedded controllers, security cameras, environmental sensors - all these things, and more, are being connected to the network. The sheer volume of data and transactions will create demand for new and more powerful computing architectures." Telecom's black eyeCounting on future demand is, of course, what got the whole telecom sector in trouble a few years ago. And trouble still dogs this market.Let's see, we had accounting scandals at WorldCom and Qwest; the reorganization of AT&T; new top management at WorldCom, Qwest, AT&T and, more recently,\u00a0Sprint and\u00a0BellSouth; the shift of major assets such as Genuity to\u00a0Level 3; and the bankruptcy of WorldCom.Fast growthForgent Networks and Level 3 close 2002 as the fastest growing NW200 companies.In 2002, the Network World 200 saw its second consecutive year of revenue drop-off - this time, revenues were down 13% from last year to $785 billion. Still, not all NW200 companies posted lower revenue. Some, such as growth-list-toppers Forgent Networks and Level 3 Communications, bumped up revenue by more than 100% in 2002. MoreWhat a messAlthough the poster child, WorldCom, hopes to get acceptance for its reorganization plan soon, its emergence from bankruptcy later this year might cause even more market disruption. After all, the company - now called MCI - will be shorn of debt and aggressively trying to regain share, conditions that might lead to a damaging price war.Combine that with efforts by the regional Bell operating companies to steal long-distance share and core regulatory shifts, and you have a potent recipe for more turmoil in 2003.The Big Kahuna that stands to gain the most in this environment is\u00a0Verizon, the new king of the telecom heap. At $68 billion, Verizon is now $30 billion larger than the once-almighty AT&T.A legion of equipment suppliers hope these and the other telecom players can settle down soon. They are all in a world of hurt, starting with the biggest players.\u00a0Lucent's revenue was down 42% in 2002 to $12 billion, dropping the company to No. 19 on the list. At its height in 1999, Lucent was No. 5 on the NW200 with three times the sales - $39 billion.Nortel's revenue was off a similar amount, 40%, to $11 billion, and it reported a loss of $3.5 billion.Others fared even worse.\u00a0Sycamore Networks, which makes optical network products, saw sales plummet 83% to $65 million, dropping it from 96 on the NW200 to 176. Sonus Networks dropped from 130 to 180, and Corvis dropped off the list altogether, going from 126 last year to 222.Sector summaries2002 was a test of survival for many companies within the enterprise applications, infrastructure and service provider sectors. Yet analysts remain bullish that promising technologies will secure each segment's recovery. MoreKevin Mitchell, directing analyst with Infonetics Research, says these companies won't get much relief this year. "For [capital expenses] to ratchet up, top-line revenue has to grow," he says. "That's hard to envision in the next few years because of line losses to broadband and cellular."The 2003 outlook for the whole NW200 is rather glum. But one can only hope that some of the industry high shenanigans are behind us.