Antenna Systems and Technology Magazine and Conference

Antenna Systems & Technology

Eliminating Counterfeit Semiconductors from the Supply Chain
By George Karalias, Director of Marketing & Communications • Rochester Electronics

The distribution of counterfeit and substandard products is a growing problem throughout the electronics industry. Counterfeit semiconductors can potentially be found in any electronics end product, from mobile phones and video game systems to advanced military weapon systems and telecommunications infrastructure equipment. As counterfeit semiconductors continue to work their way into critical systems, the entire industry must understand the root of the problem, find ways to eliminate substandard product from the supply chain, and ensure only authorized, genuine devices are used in the manufacturing of end products.

According to the November 2009 US Department of Commerce, Office of Technology Evaluation, Counterfeit Electronics Survey, the proliferation of counterfeit devices is increasingly present at every level of the supply chain. The semiconductor supply chain is susceptible and vulnerable to counterfeit components for many reasons, including the global nature of the industry, lack of traceability, insufficient accountability, inadequate inventory practices and incomplete device testing and verification.

Established in June of 2006, the Semiconductor Industry Association Anti-Counterfeiting Task Force (SIA ACTF) works to educate the industry about the dangers of counterfeit and substandard devices, and fight against the increase in their manufacture and distribution. The SIA ACTF established the definition of a counterfeit part to be: a substitute or unauthorized copy of a product, a product in which the materials used or the performance of the product has been changed without notice by other than the original manufacturer of the product, a substandard component misrepresented by the supplier.

Semiconductor EOL announcements can create costly inconveniences for OEMs. OEMs that sell into markets with longer product life cycles, such as government, military, aerospace, space, medical and telecom, often find that original semiconductors’ end-of-life (EOL) schedules do not support all of their continuing needs. Accurately forecasting last-time buy requirements and absorbing the additional inventory and storage costs associated with last-time buys can be taxing on an OEM. In addition, if last-time buy estimations are inaccurate, an OEM can have difficulty locating new authorized sources for critical semiconductor devices to fulfill its long-term semiconductor supply requirements. OEMs should have long-term supply plans in place early in the game in order to avoid using unauthorized sources of semiconductor devices for continuing manufacturing or in-field support services.

Because the semiconductor industry is global, with manufacturers, subcontractors, distributors, and customers worldwide, there are many ways counterfeit devices are produced and entered into the supply chain. In the November 2009 US Department of Commerce, Office of Technology Evaluation, Counterfeit Electronics Survey, OCMs cited unauthorized sources as the primary supplier of counterfeit and substandard devices. China, India, and Russia were identified as the leading regional producers and distributors of counterfeit parts.

The majority of counterfeit semiconductors reported are either devices that are re-marked to imitate higher-grade product, fake non-working products, or working copies of the original designs. Counterfeiters identify certain factors in the market that allow them to capitalize on selling their substandard devices wherever they can identify a demand.

There are three major situations where counterfeiting occurs:

Obsolete and discontinued devices — Counterfeiting operations find ways of delivering counterfeit parts to replace those that have been discontinued by the original semiconductor manufacturer.
Manufacturing shortfall/product shortages — Counterfeiting operations identify where they can sell counterfeit parts when there are device shortages caused by insufficient manufacturing output.
High-value products — Counterfeiting operations identify where they can sell counterfeit devices that cost them little to source, but can be sold at the high market price of the genuine devices
In each of these cases, the devices delivered are unlikely to operate as well as genuine parts and often by the time the user has identified there is a problem, the source of the device has vanished or is untraceable.

Traceability
Procurement organizations at times cannot trace purchased parts back to their points of origin with any degree of certainty. This is further compounded by the fact that many components are provided by offshore suppliers, making verification even more difficult. This lack of traceability within the industry, and particularly with unauthorized distributors, creates a haven for counterfeiters. The inability to ascertain where a product came from should be an immediate red flag for buyers. Without traceability, a device must be subjected to the fullest extent of legitimate, supplier-approved testing, especially for mission-critical applications.

Accountability
Few OCMs or OEMs have designated people who are specifically responsible for addressing the risks posed by counterfeit parts, or for handling identified counterfeit parts. This can lead to a lack of centralized data within an organization and inconsistent counterfeit avoidance practices. The insufficient chain of accountability within organizations tends to limit counterfeit incident record keeping and/or reporting at best. Because most organizations do not keep records of counterfeit incidents, it is difficult to identify patterns of counterfeiting and predict potential future problems. Those that do keep records typically track limited data points. The lack of accountability, recordkeeping, and reporting leads to a less-informed company and a less-educated industry, which makes adopting anti-counterfeiting strategies more difficult.

Inadequate Inventory Practices
Inventory practices have a significant role in the infiltration of counterfeit electronic parts into the US supply chain. Accepting returns and buying excess inventory back from customers can potentially compromise an original semiconductor manufacturer’s inventory, as customers can purchase counterfeit parts from another source and, knowingly or unknowingly, return those parts to the OCMs. The risk of counterfeit parts entering the supply chain is greater if returned parts are placed into inventory without proper testing and inspection. Many original semiconductor manufacturers now have implemented strict controls on products they accept as returns or buy backs, such as only accepting product in its original, unopened packaging.
Original semiconductor manufacturers have good reason to conduct inventory audits to detect counterfeit parts. Problems can arise if unauthentic parts are returned or reacquired. In these instances, inventory audits can be a useful tool for OCMs to discover and trace counterfeit devices.

Device Testing and Verification
Identifying and detecting counterfeit semiconductors is an increasingly difficult task because of their complexity and small size. The packaging of many devices is too small to allow sophisticated marking techniques, and, even with the older, larger-packaged devices, it is relatively easy for counterfeiters to replicate original manufacturers’ markings. It is virtually impossible to screen every device for high-reliability, high-performance and high-temperature qualification. In addition, paperwork intended to guarantee compliance is easily forged. Semiconductor testing is time consuming and expensive and as a result, many companies rely on others within the supply chain to test and verify the authenticity of parts. Unfortunately, the reality of this philosophy is that little testing is done on critical semiconductor parts. To reverse this trend, more and more companies are starting to require in-depth visual inspections of discrete electronic components, microcircuits, as well as bare and assembled circuit boards after purchase.

Three types of testing are required to check for counterfeit product:

Visual Checking — Inspecting the device paperwork/documentation, device packaging, and device marking and appearance. Initially, the buyer can carry this out but if there are inconsistencies or uncertainty, the original manufacturer must be involved. Only the original manufacturer can confirm specific details such as the certificate of conformity data, date and lot code markings, chip layout and assembly materials. Some disassembly of a product may be necessary to check the last two items.
Electrical Testing — This typically requires help from the original manufacturer. While there are independent test houses that can check electrical performance, they are unlikely to be able to test a device exactly the same way it was tested by the original producer, preferably using the same test equipment and protocols.
Reliability Testing — A complex exercise and one that takes considerable expertise, equipment and time.
Some unauthorized sources claim testing and screening as protection from counterfeit product; however, more often than not, they don’t have the proper equipment or original test programs to guarantee device performance. Testing can’t guarantee a part’s origin, and “spot testing” can never guarantee an entire lot. Because testing is only sporadically performed, if at all, especially within the gray market, a good rule is to only purchase semiconductors from the original manufacturer or their authorized distributors.

Anti-Counterfeit Identification Technology
Development of identification technology is an emerging process. Original semiconductor manufacturers are working on various sophisticated techniques for the marking of semiconductor devices. One example is hidden, encrypted, on-chip performance designation and more sophisticated coded marking. Another example is radio frequency tagging of devices and packaging.

The Solution
Purchasing only devices sold directly from the original manufacturer or the original manufacturer’s authorized and franchised sources is the most secure way of ensuring that only genuine product is delivered. Equipment manufacturers need to take steps to limit the impact of counterfeiting on their manufacturing and equipment operation to ensure they don’t jeopardize relationships with their customers. To do this, an effective procurement process must be established and managed.

For the industry to be successful in fighting the practice of counterfeiting, it is essential that everyone is made more aware of the problem and that companies disclose counterfeit events. OCMs and OEMs need to be more open with each other and be prepared to work together to identify counterfeiting instances and prosecute offending sources and manufacturers. Until recently, original semiconductor manufacturers have been reluctant to disclose counterfeit information, fearing the news might affect customer confidence or stock price. Equipment manufacturers have also been reluctant to admit they have purchased counterfeit devices; as such a disclosure could impact confidence in their ability to manufacture and deliver high-quality and reliable equipment. With both buyers and sellers equally reluctant to disclose counterfeiting instances, authorities have rarely been able to shut down counterfeiting operations. Until the industry openly admits the problem is occurring, makes the enforcement authorities aware of the problem, and works with the authorities to address the problem, counterfeiting will continue to grow.

In addition, customer feedback is a key means by which OCMs learn about counterfeit versions of their products. Many counterfeit parts are discovered because they are returned as defective, exhibit poor performance, or have incorrect markings or physical appearance. OEMs need to have formal mechanisms, such as a dedicated Web page, e-mail address, or phone number, for customers to report suspected and confirmed counterfeit parts. OEMs also need to diligently track encounters with counterfeit parts to identify patterns such as product type, part number, country of origin, distribution channel, and other variables that will provide insight into products that may be counterfeited in the future. Trade associations and data reporting authorities such as the Government-Industry Data Exchange Program (GIDEP) can help in raising awareness of the issue by establishing databases of validated counterfeiting instances.

In the US, the SIA, National Electronic Distributors Association (NEDA), and government authorities such as the Department of Defense (DoD) recognize counterfeiting as a major threat to the industry. Since the counterfeiting epidemic is a global phenomenon, it is vital for trade associations and legal authorities worldwide to communicate and support the fight against counterfeiters.

Conclusion
Counterfeit products enter the market supply chain in a variety of ways. OEMs purchasing semiconductors from unauthorized sources take a great risk, as there is no guarantee of authenticity, quality, traceability, reliability or the continuous availability of the devices. There is no easy way to ensure that the devices purchased are genuine or if they have been properly stored and handled to ensure quality and reliability. As counterfeiters become more sophisticated, the probability increases that buyers will receive re-marked devices with falsified part numbers or company logos, empty devices with no die, falsified paperwork regarding RoHS compliance and counterfeit components.
Buyers can limit their risk of obtaining a substandard part by following some simple practices. Only buy parts from component manufacturers and their authorized distributors. And, consider cost instead of pricing – you might think you are getting a bargain on a component purchase, but the cost of manufacturing downtime or failure of the end-product if the device turns out to be faulty or counterfeit far outweighs front-end savings. Check with suppliers about critical devices that are unavailable from the original manufacturer, as authorized distributors such as Rochester Electronics are given the opportunity to buy up EOL lots. Companies such as Rochester are also authorized to build legacy devices using the manufacturer’s original die to provide continuing customer support for the discontinued products.

George Karalias is the director of Marketing and Communications for Rochester Electronics and has worked with the company for 10 years. His experience in the high tech and computer industries started in 1983 when he graduated from Boston College. He can be reached at gkaralias@rocelec.com.