U.S.: Fake parts threaten electronic market

The counterfeiting of electronic components continues to rise despite increased efforts at corporate and governmental levels to fight the crime and is threatening the health of the industry supply chain, according to the U.S. Bureau of Industry and Security.

Incidents of parts counterfeiting reported by component suppliers, including companies in the semiconductor sector, shot up "dramatically" to 9,356 in 2008, up about 142 percent, from 3,868 in 2005, according to the Bureau, which said China, Taiwan, the Philippines, Malaysia and India were identified as the primary sources of counterfeit products by suppliers surveyed recently.

"The number of counterfeit incidents original component manufacturers (OCMs) encountered shows the seriousness of the counterfeiting issue," the Bureau said in a report. "OCMS that experienced counterfeits most frequently cited parts brokers as a source of counterfeit parts, followed by independent distributors and Internet-exclusive suppliers."

In 2007, the U.S. Defense Department commissioned the Bureau of Industry and Security's Office of Technology Evaluation, part of the Commerce Department, to conduct a survey of the electronic industrial base following concerns rising incidents of component counterfeiting could endanger the military equipment supply chain.

The Bureau subsequently survey five segments of the U.S. electronic supply chain, including component vendors, distributors and brokers, circuit board assemblers, contractors and subcontractors and agencies of the DoD.

The survey of 387 companies and organizations revealed extensive problems in the electronic industry supply chain and showed counterfeiters are targeting discrete products as well as microcircuit with "fake non-working parts" or "working copies of the original designs." Some counterfeit parts were also "new products re-marked as higher grade product," the Bureau said, adding that many of the new parts would work "but not at the desired level of functionality."

"The majority of counterfeit parts are being discovered because they are returned as defective, exhibit poor performance, or have incorrect markings or physical appearance," the Bureau said in a report. "A significant number of counterfeit incidents were uncovered because the customer suspected the parts were counterfeit."

Counterfeiters are lured by the easy profit they can make from pouring fake or substandard products into the supply chain and also because it is often very easy to introduce their counterfeit products into the system.

Many manufacturers, for instance, have limited resources for testing returned parts while OEMs who buy from the secondary markets often have no way of identifying counterfeit products until customers returned finished equipment because they either failed or performed below expectations.

Furthermore, "sixty seven percent of OCMs producing discrete components and 33 percent of OCMs producing microcircuit products do not maintain databases on either the counterfeit parts encountered or the incidents reported to them," the Bureau said.