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Counterfeit Part's Impacts on the Semiconductor Industry

1. Ferreting out the fakes in the chip supply chain

2 Under the Hood: Counterfeit parts, legitimate woes

3. Under the Hood: Counterfeit parts Part 2 -- Baiting the trap

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1. Ferreting out the fakes in the chip supply chain

Bruce Rayner 8/15/2011 9:01 AM EDT

Catching chip counterfeiters is a high-stakes game requiring sophisticated tools, legislative oversight and heavy-handed diplomacy.

How do you tell if a component is authentic?

Eyeballing the chip is a start, but it won’t be enough. These days, you’ll need a digital camera, a laboratory-grade high-powered microscope, a binocular stereo-zoom reflected-light microscope and, to be on the safe side, an X-ray inspection system. You’ll also need to be trained in the fine art of decapping semiconductor packages, both mechanically and chemically. 

As the criminals become more sophisticated, catching bogus parts is becoming increasingly difficult and costly. But catch them you must, especially if your company makes equipment for the auto, aerospace, medical or military markets, where bad parts could mean lost lives. Indeed, if you skimp on due diligence or “knowingly” buy counterfeit parts, you may be held liable.

Conviction for an individual carries a fine of up to $2 million, prison time of up to 10 years or both.

The sheer number of counterfeit parts entering the supply chain is rising at an alarming rate. For example, in June, $852,000-worth of counterfeit SanDisk portable memory chips were discovered and seized by federal agents at the Port of Long Beach/Los Angeles, according to the Los Angeles Times. Agents from U.S. Customs and Border Protection (CBP) found the chips hidden inside 1,932 karaoke machines shipped from China. 

In Guiyu, China, some residents scrape out a living dipping pc boards in open vats of acid to harvest parts and materials.

Counterfeit computer hardware, including chips, was one of the top commodities seized in 2010 by U.S. Immigration and Customs Enforcement (ICE). Seizures in the category were up fivefold over 2009, ICE reported.

Between 2007 and 2010, ICE collaborated with CBP on more than 1,300 seizures involving a total of 5.6 million counterfeit semiconductor devices. The fake parts bore the trademarks of 87 Asian, European and North American semiconductor companies. More than 50 of the seized counterfeit shipments contained devices that were falsely marked as military- or aerospace-grade.

A 2010 U.S. Department of Commerce study of counterfeit electronics in the defense industry corroborated the trend. Based on responses from original component manufacturers(OCMs), the Commerce study found an increase of more than 150 percent in counterfeit parts in military and government applications between 2005 and 2008.


National security threat

The expansion of counterfeiting into the military and aerospace sectors is particularly worrisome. Many of the parts that contractors and government agencies buy are for electronic systems on aging planes, tanks and ships. Redesign is too expensive, so the only option is to purchase decades-old, obsolete parts in the aftermarket. It’s an accident waiting to happen.

Indeed, the obsolete-parts market is particularly appealing to counterfeiters because of the high margins on the hard-to-find components and the anonymity of the gray-market distribution channel.

The gray market comprises unauthorized brokers, traders and distributors that match up buyers and sellers around the world. Most of these middlemen are aboveboard; some are not. Gray-market parts are acquired from a variety of sources, and some market participants neglect to authenticate the parts they buy.

“It’s a national security issue,” said Leon Hamiter, president and founder of Components Technology Institute Inc. (CTI; Huntsville, Ala.). Hamiter’s company has been conducting training workshops for independent distributors, OEMs and EMS companies in the United States and the United Kingdom since 2006, and it provides tools and resources to help clients ferret out counterfeit parts. CTI also offers a certification program for independent distributors (see sidebar).

Numerous counterfeit versions of parts and equipment have already found their way into military and government systems. In a high-profile 2008 case, the Federal Bureau of Investigation reportedly seized $3.5 million of counterfeit Cisco routers and switches that were made in China, illegally shipped and then installed in U.S. government computer networks.

Earlier this year, two Southern California counterfeiters pleaded guilty in a federal case to an elaborate scheme to manufacture and sell counterfeit chips, including to the U.S. Navy. The Navy reportedly was issued a Certificate of Conformance for the chips it bought. Among other things, the indictment accused the counterfeiters of “harvesting” IC dice from scrap electronics and repackaging them to appear new, including adding fake OCM markings indicating the devices were new and authentic components.

According to industry sources, the operation ran for nine months in 2009 and produced 400,000 components, of which more than 200,000 are suspected of still being in the supply chain. The most popular part the pair counterfeited was the Intersil ICM7170 IPG, an obsolete microprocessor compatible real-time clock. They paid 2 cents apiece for the scrap ICs, repackaged them as ICM7170AIPG and resold them for around $38 apiece. The potential gross sales value was $15 million.

Of course, buyers of components—primarily OEMs and EMS companies, but the government as well—share some of the blame for the counterfeiting boom. Procurement staff are often under pressure to buy the lowest-priced components with the shortest lead times, and many companies don’t have adequate controls in place to guard against buying counterfeit parts.

Even component manufacturers and franchised distributors contribute to the problem. Some component makers don’t help customers authenticate obsolete parts purchased from independent distributors. And franchised distributors have been known to accept OEM returns without checking and validating the authenticity of the parts. As a result, franchised distributors unknowingly have sold counterfeit parts; indeed, 21 percent of respondents to last year’s Commerce Department study on military electronics listed franchised distributors as a source of counterfeit goods.

Survey of 83 OCMs was conducted in 2009; results shown are for those that reported encountering incidents of counterfeiting.
Source:"Defense Industrial Base Assessment: Counterfeit Electronics," U.S. Department of Commerce, 2010

While it may not be foolproof, authorized distribution is still the safest bet for minimizing the risk of buying counterfeits. Two organizations provide resources to identify authorized distributors and certified original parts. The Electronic Components Industry Association (ECIA) launched a Web site earlier this year that provides inventory availability from authorized distributors (www.eciaauthorized.com).

And a collaboration between the Semiconductor Industry Association and distributor Rochester Electronics Inc. offers the Authorized Directory (www.authorizeddirectory.com), which lists franchised distributors for more than 230 original semiconductor manufacturers and guarantees the traceability of their products.


Chain reactions

The government is increasing the pressure on counterfeiters as part of its broader objective of cracking down on intellectual property violations. In March, the Obama administration issued a white paper that calls on Congress to strengthen the laws protecting IP. Specifically, the paper recommends increasing the statutory maximum prison term for economic espionage from 15 years to at least 20 years.

The U.S. Senate responded at the end of May by introducing legislation that targets rogue suppliers and Web sites that violate IP laws and sell counterfeit products. Vermont Democrat Patrick Leahy introduced the Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011, which would empower the U.S. Department of Justice to take action against Web sites that infringe on IP and that sell or promote counterfeit goods.

If the bill becomes law, the Justice Department’s reach would extend to Web sites outside the United States and would include companies that do business with the offending Web sites.

But the government isn’t waiting for the passage of new legislation to ratchet up the pressure on counterfeiters.

In June, ICE’s National Intellectual Property Rights Coordination Center announced Operation Chain Reaction, targeting counterfeit parts in the supply chains of the Department of Defense and other U.S. government agencies.

The operation is a collaboration with eight other agencies, including the FBI; the Defense Criminal Investigative Service; the Defense Logistics Agency; and U.S. Army, Air Force and Navy investigative units.

“Pooling our resources will allow us to more effectively disrupt and dismantle criminal enterprises,” said James Burch, DOD deputy inspector general for investigations.

Focus on China

While Operation Chain Reaction has its sights trained on the nation’s borders to catch counterfeits as they enter the supply chain, the Senate Armed Services Committee is looking farther afield in a bid to stop counterfeiting at the source.

A group of investigators representing the committee had planned a March trip to Shenzhen, China, a short hop by train from Hong Kong, to investigate operations that have allegedly been supplying counterfeit components for U.S. weapons systems. According to sources, counterfeit parts that ultimately ended up in F-15 fighter jets and U.S. Missile Defense Agency systems had come from Shenzhen. But the Chinese government denied the investigators’ visa applications, asking that the team postpone its trip.

Senate Armed Services Committee chairman Carl Levin (D-Mich.) responded to the request by saying Chinese government officials could “not help themselves by denying access to their country for people on an official Senate mission.” Rather, Levin said, the action would “hurt them.”

Why the focus on China? And why Shenzhen? “Because between 75 and 80 percent of all counterfeit components come from China,” said ECIA president Robin Gray, “and most of those come from Shenzhen.”

Component makers agree, judging by the findings of the Commerce Department study. By a wide margin, China led the list of the top five sources of suspected or confirmed counterfeit parts as identified by respondents.
Source: "Defense Industrial Base Assessment: Counterfeit Electronics," U.S. Department of Commerce, 2010
 

Several factors make Shenzhen a hotbed of counterfeit activity. First, the city is a primary manufacturing hub for China’s vibrant electronics industry, hosting many of the largest international electronics companies. Second, it has a sophisticated network of independent electronics distributors and traders. And third, it has a ready supply of discarded electronic equipment, the source of many counterfeit parts.

The United Nations Environment Programme estimates that China is the second-largest generator of electronics waste, after the United States. Ground zero for China’s e-waste is Guiyu, Guangdong province, a four-hour drive west of Shenzhen along the South China Sea coast.

Some Guiyu residents scrape out a living dipping pc boards in open vats of acid to harvest components and reclaim metals such as lead, copper and gold from the boards. The materials make their way to cities like Shenzhen for refurbishment, repackaging and resale. Some of the packages are remarked, hidden in, say, karaoke machines and sold to unsuspecting buyers in the States.

Some shipments, such as the contraband-laden karaoke machines, are intercepted and seized before their substandard contents make it into the supply chain. But industry insiders increasingly fear that such cases are just the tip of a large and growing iceberg of counterfeits.

About the author
Bruce Rayner is founder and chief green officer at Athletes for a Fit Planet, and a contributing editor and Webcast host with EE Times.

 


Sidebar: Protecting yourself

Counterfeiting is epidemic and has infiltrated the entire supply chain, so equipment manufacturers need to mount a strong defense.

The first step is education. A few companies provide training for independent distributors, OEMs and contract manufacturers. Components Technology Institute Inc. (CTI), for example, offers a “counterfeit components avoidance” workshop that provides companies with the tools to inspect and detect counterfeit parts; it includes a certification program for independent distributors.

Organizations and trade groups offering similar or complementary services include the Independent Distributors of Electronics Association, ERAI Inc., SAE International and Tech America. Searchable directories of authorized distributors include www.authorizeddirectory.com, from the Semiconductor Industry Association, and www.eciaauthorized.com, from the Electronic Components Industry Association.

In the government and defense sectors, the Government-Industry Data Exchange Program (www.gidep.org) is a resource for reporting and sharing information about counterfeit components.

According to Don Trenholm, president of Custom Analytical Services and a CTI Workshop presenter, detection starts with visual inspection of the packaging of incoming shipments for anomalies in the shipping documentation, barcode labels, packaging, country of origin or part codes. Next, the investigating company needs to check the components themselves for indications of previous use, marking alterations or other anomalies in the component’s packaging.  Documenting anomalies is essential and requires a high-resolution camera and high-powered microscope.

Some counterfeits are relatively easy to identify. Typical examples include a wrong part number, a suspect company logo, missing serial numbers, scratches on the packaging, or the wrong type or misalignment of leads.

Others are more difficult to detect and require destructive testing. One such counterfeiting practice is the harvesting of dice from decapped scrap ICs. The dice are repackaged in military-style packages with new wirebonds attached on top of the original bond. Such chips require X-ray inspection, decapping of the package and electronic testing.

 
Counterfeiters are getting sophisticated. An increasingly common practice is to remove the wire leads from a low-cost reclaimed chip and bond new ones on top of the old bonds.
 
"At one point, I could detect 85 percent of all counterfeits optically, but it’s getting harder,” Trenholm said. “The counterfeiters are doing a great job.” — Bruce Rayner
Web resources

Report high-risk parts:
www.erai.com/information_sharing_high_risk_parts.aspx

Search authorized-distributor directories:
www.authorizeddirectory.com; www.eciaauthorized.com

Sign up for training programs:
www.cti-us.com/training.htm

Independent Distributors of Electronics Association:
www.idofea.org

Government-Industry Data Exchange Program:
www.gidep.org

SAE International:
www.sae.org

Tech America:
www.techamerica.org

Administration white paper on IP enforcement:
http://tiny.cc/6vpbj

Commerce Department study on counterfeit electronics in U.S. government and military markets, January 2010: http://tiny.cc/ti944

“About the Office of the U.S. Intellectual Property Enforcement Coordinator (IPEC),” Office of Management and Budget: www.whitehouse.gov/omb/intellectualproperty/ipec

“Federal agencies launch Operation Chain Reaction,” U.S. Immigration and Customs Enforcement:
http://tiny.cc/09aqy

S. 968: Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011:
http://tiny.cc/lyyvt

Intersil data sheet for the ICM7170, identifying the real-time clock as an “obsolete product” with “no recommended replacement.” The Intersil device is just one example of the of many discontinued parts that require users to source from independent distributors or brokers, where the risk of counterfeiting can be high:
www.intersil.com/data/fn/fn3019.pdf

“Agencies Join to Target Counterfeit Military Parts,” Bloomberg BusinessWeek:
http://tiny.cc/uhfux

“Initiative nets $143 million in Cisco goods,” Immigration and Customs Enforcement:
http://tiny.cc/sx1jc

“E-waste,” thatsmags.com:
http://tiny.cc/5e49o

“At Long Beach port, karaoke machines containing nearly $1 million in counterfeit memory chips are seized,” Los Angeles Times:

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2. Under the Hood: Counterfeit parts, legitimate woes /

Gregory A. Quirk, Semicondutor Insights
 EETimes                                                                                   Aug 06, 2007

Editor's Note: Semicondutor Insights got a flood of responses from readers of this Special Report. One of the recurring questions was why Semiconductor Insights did not go through authorized distribution channels to ensure it didn't put itself at risk. That seems logical enough, but in a follow-up piece, SI explains how this can happen to any designer.

Semiconductor Insights (SI) helps other companies protect their intellectual property (IP) and document-infringement rights. But we have found—as countless designers have discovered—that counterfeit parts can really put a damper on our business. Indeed, we've been seeing more counterfeit devices coming in over the past few years, which could indicate an alarming trend.

In the business of analyzing devices, SI purchases thousands of components each year. Sometimes they are bought directly from the manufacturer, sometimes through well-established channels; often they are purchased from other countries, including China. In the past year, SI has seen an increase in the number of counterfeit parts from China.

Semiconductor sales are projected to reach $252 billion in 2007, according to the latest numbers from the Semiconductor Industry Association. As consumer interest grows in electronic products, so too does the volume of counterfeit devices.

In consumer electronics, cost is king; lowering the bill of materials even by a few cents can drastically affect margins and revenue. Suppliers dealing with counterfeit components are willing to offer the parts at prices that are lower than legitimate competitors can match. The low prices are very appealing to OEMs, particularly smaller companies that don't have an agreement with the manufacturer itself. The drawback is that the parts may not function as well as they should.

Unfortunately, selling counterfeit parts is relatively easy. Someone buys a bunch of parts. They find out what the customer needs, etch off the current markings and then restamp the parts with legitimate part numbers and logos. With today's technology, even putting the devices back into a reel to replicate official production is not too difficult.

Counterfeiting components has a significant negative impact on the semiconductor industry. First, it can hurt the reputation of a manufacturer. For example, a company buys a device and tries to design it into a system. Unbeknown to the company, the part may not be legitimate. When the part doesn't work correctly, the company will either blame its design or blame the component manufacturer. Revising the design can delay time-to-market and drain engineering resources. That can have a big impact, especially on smaller companies, which are typically the ones that would buy parts on the open market as opposed to directly from the vendor.

Counterfeiting can go way beyond components. In May 2006, for example, EE Times ran an article headlined, Fake NEC company found, says report. Instead of creating fake devices, someone counterfeited an entire company with about 50 products, including home entertainment systems, MP3 players, batteries, microphones and DVD players.

In addition to copying NEC products, the bogus company had developed products of its own that were not in the legitimate NEC lineup.

Counterfeit devices also pose a threat to consumer safety, since they are not likely to have been tested to the standards of the industry. If a semiconductor overheats, for instance, it can destroy the product. If a counterfeit DVD player overheats, it could start a fire and destroy a home. What if a counterfeit part was used in a car? The potential impact of a failing component here could be catastrophic.

SI is always scouring the world for the latest and greatest semiconductor components. In the NAND flash market, that would mean sub-60-nanometer technology. We have successfully sourced both Samsung 51-nm and Toshiba 56-nm devices, but it took a few tries before we were able to get legitimate components.

The first part we expected to receive was the Toshiba 56-nm 16-Gbit multilevel-cell NAND flash. We received a purchase order for the part with a part number that was identical to the one we had requested, which had Toshiba markings. The part arrived, but we noticed something fishy on the package marking. The part number was TC58NVG4D1DTG00. A quick Web search showed hits on the 16-Gbit 56-nm MLC NAND flash. The Toshiba title looked a bit odd, but not so unusual that it was flagged. A decap of the device was done and photos of the die and die marking images were taken, per standard SI protocol.

To our dismay, the die markings were not Toshiba's, but Samsung's. After comparing the die markings (K9G4G08U0A) in our database, we were able to match the markings to the Samsung 4-Gbit 65-nm MLC NAND flash.

If we had ordered the part in question for system design purposes, our system would have failed, since the device was only a 4-Gbit model and not the 16-Gbit version we had ordered and expected.

While the number of pins was the same on both the legitimate and the counterfeit parts, the pin configuration was different. The counterfeit parts, which use the Samsung die, have a 2-kbyte page size. In contrast, the Toshiba device has a 4-kbyte page size. Designing-in the counterfeit part would only result in partial functionality—if it would even work at all, given the pin configuration—when trying to utilize the entire expected memory space.

Speaking from design experience, there is nothing more frustrating than knowing that your design should work, checking countless times, and still having things consistently fail.

The next part we were expecting was IM Flash Technologies' 50-nm NAND flash. We first analyzed this device back in July 2006 and wrote an article about it in September (50-nm device revs NAND race). The Micron marking on the package was definitely odd compared with the original samples we received, but the part number was accurate. We do not see pictures of the devices prior to their being sent in, so while the marking was odd, there was no way to determine that it was counterfeit when we placed the order.

Analyzing the die in this package revealed Samsung yet again. This time, it was the 8-Gbit version of the same device that was found in the counterfeit Toshiba part.

 


 
(Click on image to enlarge)

 

The remaining part we expected was Samsung's 51-nm 16-Gbit MLC NAND flash. It was received from a different supplier than the previously mentioned counterfeit parts. This time, it was a bit easier to flag the part as having an issue, but the problem could have easily been overlooked. There was a single character missing from the package marking. The counterfeit part bore the part number K9GA08U0M; the legitimate part is the K9GAG08U0M.

More interesting were the X-ray images that were taken. The nine parts that were received all had multiple dice inside. So not only did we get counterfeit parts, but it seems someone grabbed whatever was lying around, retagged all the pieces as Samsung devices and sealed them in a strip.

Organizations such as the National Electronic Distributors Association , or NEDA, have been formed to prevent and control counterfeit devices in the industry. They recognize that counterfeiting is an escalating threat to all supply chains, especially for electronic components.

A quote from a discussion with a Toshiba executive serves as an appropriate close. "We realize that there is an ongoing issue with counterfeit chips," said Scott Nelson, vice president of memory products for Toshiba America Electronic Components Inc. "It's a 'buyer beware' situation, in which we encourage customers to make sure that they are really receiving the product they think they're buying.

"One way buyers can help protect themselves from counterfeit parts is to purchase products only through manufacturers' authorized distribution channels."

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3. Under the Hood: Counterfeit parts Part 2 -- Baiting the trap                                                                                           
Gregory A. Quirk and Allan Yogasingam, Semiconductor Insights
 Oct 08, 2007

A number of people read and commented on the Under the Hood Special Report: Counterfeit parts, legitimate woes story published at the beginning of the August. One of the recurring questions was why Semiconductor Insights did not go through authorized distribution channels to ensure we didn't put ourselves at risk. Though our situation may be a little different from a typical engineering firm (we generally buy in small quantities and are interested in a combination of the most advanced parts as well as older devices that may be difficult to source), a majority of the world's purchasing departments use independent part brokers as a way of acquiring the components they need for production. And therein lies the problem, as most counterfeit components make their way into the global supply chain through the channels created by the independent broker.

Take a fictional example of a small to medium sized MP3 player design company. They want to design a next generation system capable of competing with the newest iPods that are soon to be released. During their design phase, a press release is issued about a new NAND flash part. They decide that they best way to compete is to use the latest and greatest density devices to offer superior memory space and a small footprint. The press release says that the company is sampling to customers. So using the appropriate channels, they contact the authorized distributor for the manufacturer of this new NAND flash. The authorized distributor is authorized because they look out for the best interests of the manufacturer; which not only includes getting their components designed into products that will sell well, but also determining if the applying design company has the potential to use more of their products. In this case, unfortunately, the company is not considered a big enough player to warrant getting such leading-edge samples.

Desperation as bait
The poor MP3 player design company is left with three options: 1) create a design using commercially available components, which they feel will put them in the same category as other competing players in the market and gives them no real edge on their competition; 2) delay their design project until the rest of the design world (aside from the big players like Apple) are able to get parts, which ultimately may give Apple the head start on their next design; 3) source the parts in any way they can, from anywhere they can, so that they can create and test a prototype and be ready for mass manufacturing once the memory components are available, which will likely be at the same time as when they have finalized their design. Why wait until the authorized distributor 'allows' you to buy the part on the open market when there is a broker in China who can sell you the part today?

This is just one of the many different scenarios for why companies risk getting counterfeit devices. Also consider companies that are using obsolete parts. When a design has been in production for a long time, there is always the possibility that one or more of the key components will be either phased out or replaced with a new and improved revision. Their authorized distributor typically warns companies when this is going to happen, and the purchasing department takes action by developing a stockpile of the parts currently being used. When they run out of parts, they have two main choices - redesign or find more parts. Chances are that the system as designed now is a cash cow for them. They have likely moved onto their next design, but considering the average length of a product development cycle, the new design could be months, maybe years, from seeing the light of day. There is a very good chance that the parts they are using will be long gone before version 2.0 comes out.

There is also the situation of an original equipment manufacturer (OEM) whose clients use their product in their plans and a redesign of said product would require a process review that could cost them significant amounts of money. Those clients would be very opposed to any migration to a new product because of all the work involved. Situations like this make a redesign of older systems often not worth the time and effort to re-spin and redesign using a new part.

This leaves the option of finding samples somewhere else. Enter the independent broker, one who is showing a large inventory of obsolete parts that any company can use until it can release their next revision. As the parts have been around for a while there are likely many available from somewhere, just not from the authorized distributor(s) of the original manufacturer. By sending out requests for quote to the independent brokers, many sources can be identified. These parts are usually at a higher price, as they are no longer being manufactured.

Unfortunately, the designer is between a rock and a hard place. They can choose not to buy the parts and be unable to service their existing clients, which in turn could damage their relationship with them and thereby reduce the chances of getting further sales or design wins; or they can bite the bullet and buy the parts. Whether it be buying leading-edge components that are just sampling, or obsolete parts that can only be sourced through them, a company is taking a risk that the parts they buy could be counterfeit.

Counterfeit roads lead to China
So why do counterfeit parts infiltrate the global supply chain and why is it usually through the independent broker? Two reasons why counterfeit parts are seeping their way into the chain: The economic boom of China and the subsequent shifting of many manufacturing operations to China and the growing use of the Internet as an acceptable tool in supplier development.

As China is going through an economic renaissance, many semiconductor manufacturers are shifting their production operations to China. As more and more leading edge or state-of-the-art components are being made in China, the chances that these products disappear off the assembly line and into the hands of the counterfeiters increase significantly. The counterfeit operation can either remark existing semiconductor packages to match that of the new part or, for the more insidious operations, reverse-engineer the entire product, manufacture it and sell it as the original. There is also a small makeshift industry of salvage that is growing in China where people dig through the refuse of manufacturing companies to find parts, which they hope to sell to prospective buyers. These parts are usually damaged in production and are useless.

There is also the rise of the Internet as a trading tool. Over the last few years, the Internet became a great place to buy and sell anything to anyone anywhere. Naturally, the day would come along where it would be possible to purchase components the same way. There are numerous web pages on the Internet that allow suppliers to post their inventory online and in real-time so that buyers, or independent brokers acting on behalf of buyers, can quickly find sources for the parts they need.

The Internet helps counterfeiters out in that it affords sellers a chance at complete anonymity. It eliminates the need for meeting face-to-face with whom you are buying parts from. You're desperately seeking a part so you search online and see that "JA Components" is showing inventory. JA could be a large international part brokerage with offices around the world or it could be a garage in China. If you are in a bind and they claim to have the inventory you will probably take the chance on buying it. Meanwhile JA Components has produced a counterfeit part to meet your demand and ships you said product. By the time you have discovered its counterfeit and you want to recoup your investment, it is too late and JA Components has closed up shop. Strangely enough, you do another search for those same parts and another store "AJ Components" with a different email and address is showing inventory.

These unscrupulous part brokers use their anonymity to spy on the marketplace and see what parts are in demand. As demand increases, and the supply is not available, the cost rises exponentially and a counterfeiter sees a golden opportunity. Suddenly a part that was not available a few hours ago is available in the thousands. In the global supply chain all it takes is an Internet connection to set up shop as an independent broker or distributor. For counterfeit parts, it opens the gateway from one side of the world to the other.

Countering the counterfeiters
This is not a personal attack on the independent brokerage scene. Semiconductor Insights still buys a good amount of components from independents, even though we have been a victim of buying counterfeit inventory though that method. These brokers are honest retailers, looking to fill a supply need. Many independent brokers are now taking action in trying to get counterfeit parts out of the supply chain. Counterfeit parts affect them greatly because the strength of their business operations comes from developing trust with their clients. Selling them a counterfeit component is a virtual "kiss-of-death" for their business as it could adversely affect the client's production line and spell the end of their buyer-seller relationship.

These brokers have formed the Electronic Resellers Association International to improve quality control and report within their network on parts they have received as counterfeit from brokers overseas. Flagging the disreputable brokers is their way of policing themselves. It is an uphill battle though, because like I mentioned earlier, a lot of these disreputable brokers close up shop once they have been rooted out and open up again under another name. But at least they are trying, right?

Visually, a counterfeit part is hard to distinguish from the original to the untrained eye. These parts are sold on the open market as legitimate parts and can make their way as components in legitimate products wreaking havoc for a company. These parts often make their way into downstream products because most large-scale manufacturing operations do not have the resources to inspect every part and component going into their final product.

Unfortunately, there is no easy answer to protect yourself from buying counterfeit parts. Organizations like the National Electronics Distributors Association (NEDA) and the Coalition Against Counterfeiting and Piracy (CACP) in the US, try to educate buyers and purchasing groups to buy strictly from authorized distributors. The problem with this approach is that it is unrealistic. Every buyer is eventually going to find a situation where the authorized distributor is unable help them while an independent broker can. Because of that circumstance, there is always a chance that counterfeit parts will find an unwilling home. The onus will be on the supply chain, the buyers and the sellers, to determine methods to stop the influx of these fake components.

Gregory A. Quirk (gregoryq@semiconductor.com) is technical marketing manager and Allan Yogasingam (allany@semiconductor.com) is sourcing manager at Semiconductor Insights.

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