On the trail of counterfeit chips

Seven to 10 percent of all the high-tech products sold worldwide are counterfeits, it's estimated. In 2004, U.S. Customs seized $200 million in counterfeit goods, $134 million of which originated in China. Trade in counterfeit goods cost U.S. businesses an estimated $2 billion per year in copyright losses alone.

Both consumers and manufacturers are adversely affected. The flash memory card that someone bought on eBay for a too-good-to-be-true price is likely to be just that: too good to be true. Internet forums abound with stories of people purchasing flash cards only to find that their memory capacity is less than claimed. In other cases the card simply does not work at all.

Over the years, counterfeiters' sophistication has increased to the point that it is difficult to visually identify the fakes unless you compare them side-by-side with the genuine article. In some cases, spelling mistakes in the packaging give it away. In other cases, it may be the way in which the plastic case is sealed.

Manufacturers see counterfeiters as a problem for different reasons. The obvious problem is loss of revenue. Sales of counterfeit parts are, to an extent, lost sales for the manufacturer of the genuine device. Though no one knows for sure, it is estimated that every year $1 billion to $10 billion of sales revenue is lost to counterfeit goods.

Another cost relates to customer service and support. When a counterfeit fails or does not perform up to standards, the unwitting consumer may return the device for replacement or repair. Though manufacturers are not responsible for the counterfeits, it still takes time to service the customer. Some manufacturers will replace the counterfeit with a genuine product to improve customer relations. In any case, if a large number of counterfeits from a manufacturer are known to be circulating in the marketplace, it can seriously damage a company's reputation and its brand value.

Companies invest years of time and large sums of money developing the value of their brand. BusinessWeek and Interbrand tracked the value of corporate brands and published a list of the top 100 global brands in 2005. Topping the list were such household names such as Coca-Cola at $76 billion and Microsoft, $60 billion. Electronics manufacturers include Intel, Samsung and Sony (see table).

Dollar values attributed to each brand were calculated from publicly available data, projected profits and such variables as market leadership. It takes into account the company's reputation for reliability and quality. Reputation is hard to nurture and develop and can be easily hurt by the bad publicity caused by significant numbers of counterfeit devices in circulation.