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Fake chips on rise: IHS

Posted: 14 May 2012     Print Version  Bookmark and Share

Keywords:semiconductor  counterfeits  counterfeiting  fake ICs  piracy 

As the semiconductor industry begins a new growth cycle, counterfeiters can be expected to increase to unprecedented production levels, according to market analyst IHS.

When semiconductor industry revenue rebounded by a hefty 33 per cent in 2010, reports showed that counterfeit reports surged by a whopping 152 per cent. However, this year the semiconductor industry is entering a new expansion cycle, with revenue growth accelerating to 4.3 per cent, up from 1 per cent in 2011. In 2013, growth is even expected to rise to 9.3 per cent.

With supply chain participants in 2011 reporting 1,363 separate counterfeit-part incidents worldwide—a record level—conditions now are prime for counterfeit reports to reach new highs in 2012, the research firm said.

"The semiconductor industry is exhibiting the classic signs of the start of a new growth cycle, with tightening supplies, broad-based price increases and a lengthening of lead times for the delivery of products," said Rick Pierson, principal analyst for semiconductors at IHS. "These are prime conditions for suppliers of counterfeit parts, which are eager to fill supply gaps with their fake goods."

Most electronic components appear to be experiencing a tightening of supply along with an increase in pricing and lead times. Price increases are expected to continue rising throughout 2012. IHS now forecasts that demand will exceed supply in the third and fourth quarters for many widely used components, including capacitors, NAND flash, DRAM, power semiconductors and logic chips. These shortages represent a prime environment for counterfeiters to thrive.

"Counterfeiters have gotten more sophisticated," Pierson noted. "They watch the market and know where the weaknesses are. They know which products are in short supply and can generate profits. And they also know when market conditions are shifting in their favour."

Amid the strain of keeping production lines running, the issue of counterfeit parts is sometimes neglected. However, companies that fail to pay attention to the issue face a range of risks.

"To reduce counterfeit incidents, electronics buyers strive to restrict their purchasing activities to their customary supply chains, sourcing parts directly from their suppliers or from franchised distributors," Pierson said. "However, the mandate for electronics makers is to keep their production lines running at all costs. And sometimes to do that—especially during a time of rising demand and short component supplies—they go outside of the supply chain to obtain parts."

Even franchised distributors sometimes buy excess inventory from other companies that could introduce counterfeit parts to the supply chain, Pierson noted.

To mitigate the counterfeit problem, electronics buyers must develop a plan to ensure continuity of supply. Such plans, similar to companies' contingency preparations for disasters, require firms to update their listing of suppliers, parts/materials, life cycles, logistics and internal operations. For every supplier, buyers must create and update the supply profile of that entity.

Doing this is more important in times when counterfeit activity is on the rise. It's also critical to identify which parts and markets are more susceptible to counterfeit activity.

For more statistics and forecasts, click here.





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