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Avoiding Counterfeit Electronics: The Role of Component Manufacturers, OEMs, and CEMs


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By Lev Shapiro, M.Sc. E.E., Component Master Ltd.

Counterfeit electronics have rapidly become a serious issue for electronics manufacturers. Supply chain management is a crucial aspect of counterfeit prevention. Collaboration with parts makers to identify authentic markings and other specs can help eliminate counterfeits at incoming inspection. End-of-life electronics disposal also needs to become more secure to prevent reuse as counterfeits. This article covers the statistics on counterfeits, detection and prevention, and do's and don't's in the global supply market.

Origins of CounterfeitsCounterfeit components rapidly became a dominant concern of the modern electronics manufacturing industry. Sales of counterfeit electronic components are rising exponentially. Statistics places electronics fourth in terms of total counterfeits seizures by category. Product counterfeiting accounts for more than 8% of global merchandise trade and is equivalent to lost sales of as much as $600 billion, which could grow to $1.2 trillion in 2009.1 In 2006, 8% to 10% of all technology goods (IT industry) sold worldwide were counterfeit, representing revenues of around $100 billion.2 Counterfeiting and piracy causes damages equaling about $250 billion to the U.S. economy higher than the GDP of more than 150 countries.3 The cost to industry in terms of product failures and negative impact on returns and/or brand reputation, including possible litigations, is much more. The rapid emergence of many clones of the Apple i-Phone in Asia is a classic case of counterfeiting at the system level. MP3 players with NEC's logo have been sold in the grey market even though NEC does not make an MP3 player.

Counterfeiting of electronic components exists from inexpensive passive parts to costly memories and microprocessors. The majority are counterfeit integrated circuits (ICs). Complicated proprietary chips are difficult to fake but easy to refurbish.

Several factors favor the counterfeiters.* A major boon is weak legislation and enforcement in countries with low-cost economies, especially China. Enforcement of anti-counterfeiting legislation in these areas is lax; China has a conviction rate of approximately 5%.4 Regulation of exports in China has been relaxed significantly in recent years, causing a significant increase in counterfeiting. About 80% of counterfeit goods originate in China, with supporting casts in India and southeast Asia, the ports of the United Arab Emirates, and Turkey, Brazil, South Africa, Ukraine, and Russia.

The huge accumulations of electronic scrap or e-waste have become a source of used components. Verification of responsible scrapping is not simple and many scrapped components find their way onto the grey market. The growth of Internet commerce also allows buyers and sellers to make fast trades without meeting face to face. By the time a shipment of components is proven faulty, the counterfeiter's Website has closed down and the company disappeared. The Internet has become the preferred distribution channel for counterfeit and grey market goods because of the low barrier to entry, ease of use, and worldwide coverage.

DetectionOEMs and contract electronics manufacturers (CEMs) are in the front line of defense against the counterfeiters. It is important to detect counterfeit components as early as possible. Timely identification will help decrease cost damages. The "Rule of 10" defines that it costs 10 times more to find and repair a defect at each subsequent stage of assembly (Table 1).

60615-smtatab.jpgTable 1.

It is unlikely that the industry will ever completely eliminate counterfeiting, but we can eliminate the risk of using counterfeit components. Legislation, industry/government collaboration, improved parts selection practices, prevention practices implemented at procurement, detection, transparent supply chains, distribution guides and certifications, and scrap control all can help reduce the infiltration of counterfeits.

Deliberate forgery by remarking is perhaps the most obvious counterfeiting method. Unlike making complicated copies of parts, remarking the packaging or component body is simple. Such components may be superficially convincing as a genuine part, as remarking is difficult to spot. Detection methods include:

  • • Visual Inspection. Such inspection may not definitively distinguish authentic parts from counterfeits without comparison to known authentic examples and assistance from the original manufacturer. Special attention should be paid to external packing, its condition and marking. Be careful with incomplete or non-original packing. Careful visual inspection may reveal incorrect labeling, logos that are not quite right, inconsistency of date and lot codes, or different textures part-to-part.• Resistance-to-solvent permanency marking tests to authenticate OEM markings (part numbers, logos, date codes).• X-ray inspection may detect inauthentic die, different sizes die inside the package, bad bond wire layout including missing or broken wire bonds, and absent or incorrect die.• Electrical parametric test and functional testing. While testing components may not prove a component to be genuine or not, it can verify functionality and reliability. Functional testing can be expensive and time consuming, so the size of the sample depends upon the complexity of devices and how critical the component is.• Destructive physical analysis (DPA) uses microscopic scrutiny to check die condition and identify internal damage. Such analysis is particularly important when it is impossible to verify a part via the broker.

The Supply ChainIn certain product lines, there is so much counterfeit and so little information available to distinguish real from fake product that companies will unknowingly buy or sell fakes. This reinforces the importance of free access to all details related to top marking on the component itself and to label identification on external packing (top mark, date code, lot number, manufacturing location, RoHS compliance, safety marking for parts with safety approvals).

As the electronics supply chain grows more complex, with parts coming from many different suppliers all over the globe, it becomes correspondingly more difficult to manage the problem. The more partners that are involved, the more vigilant a company must be. It is a vital to keep a close watch on outsourcing partners.

Components from original part manufacturers or franchised distributors (FD) have an original manufacturer warrantee; offer product integrity via proper handling, storage, and shipping procedures; come with failure analysis and corrective action support; and offer traceability via certificates of conformance and related documentation. When you purchase components from independent distributors or brokers you will lose these important advantages.

Original parts manufacturers must make available information about all authorized (franchised) distributors. They also should provide necessary information regarding attributes of the authentic parts, such as marking technique (laser, ink, etc.), part number marking, date code/lot number on the part, and plating materials used in the part terminations (finishes).

Better disposal methods are needed for scrapped parts. Parts makers also need to help OEMs and CEMs in checking suspect components. It is only the original manufacturer who has detailed knowledge of the device and will be able to confirm specific information such as certificate of conformity (CoC) data, date and lot code markings, or chip layout and assembly materials for deeper analysis with disassembly of device.

To counter the growing grey market, component manufacturers and authorized distributors must begin to supply smaller quantities, especially where the manufacturer's minimum shipment multiple is high. Another idea is to label semiconductor shipments with secure encrypted codes. The scheme would let buyers check the contents of individual shipments against information on secure servers at the component's manufacturer. Standardized practices must be promoted by groups such as the Semiconductor Industry Association (SIA), international trade organizations, and government agencies for enforcement of existing laws against fraud. Anti-counterfeiting measures are only effective with worldwide cooperation.Prevention PracticesSeveral methods are available to CEMs and OEMs trying to curtail the inclusion of counterfeits in their stocks.* The most reliable way is to buy parts only from FDs or through other authorized channels. Establish and maintain a reference library of known genuine markings for all parts. When time, quantity, or budget restrictions mandate purchasing from independent distributors and brokers, demand the documents for identification and tracking of a component, checking its history; perform a careful visual inspection of component and compare with a known authentic part; and require regular audits of brokers' activities and quality inspections, paying special attention to how they purchase components, sources, incoming inspection, handling and storage conditions, CoCs and shipping documents, etc.

Correct and reasonable planning with sufficient lead time will encourage purchasing from original manufacturers and FDs, as will proper obsolescence and inventory management. Continuously monitor the BOM for obsolescence and review all new design BOMs for obsolescence. Treat redesigns as new designs.

These measures require active participation of OEMs and CEMs to be effective, and may introduce a lot of extra paperwork and complexity to the procurement process. The reward is reduced returns, liability risk, and damage to brand.

*To see the full list of factors that contribute to counterfeiting, the costs of counterfeit, and methods to prevent counterfeits in your supply chain, request Shapiro's Pan-Pacific Conference 2009 presentation, "Counterfeit Electronics: Threats, Risks, and Prevention Practices," from the SMTA.

REFERENCES:1. U.S. Department of Commerce, www.commerce.gov.2. Alliance for Grey Market and Counterfeit Abatement (AGMA).3. The U.S. Patent and Trademark Office, www.uspto.gov. 4. China State Administration of Industry & Commerce Annual Statistics.

Lev Shapiro, M.Sc. E.E., may be contacted at Component Master Ltd., Tel Aviv, Israel, lev@compmaster.co.il.

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