Is the chip shortage leading to more counterfeit components? -

Is the chip shortage leading to more counterfeit components?

As the chip shortage persists, manufacturers must stay on a heightened alert for fake parts.

The world is in the middle of a persistent semiconductor shortage that affects electronics manufacturers and everyone who buys or uses their products. Evidence suggests that the lack of supply is not the only pressing concern.

More specifically, evidence suggests that the chip shortage is leading to an influx of counterfeit components. Here’s a closer look at this issue and the factors that created it.

Semiconductor Scarcity Is Not Short-Term

The first notable point is that scammers of all types see opportunities in desperation. As the chip shortage continues, enterprising criminals see chances to fool — and profit from — buyers who believe they have few other options than to take their chances with unfamiliar sellers.

Relatedly, analysts agree there’s no quick relief in sight for the supply chain strain. Gartner analysts released data anticipating the associated device shortage could last until the second quarter of 2022. Additionally, substrate capacity issues could continue until 2022’s fourth quarter.

Other people familiar with the industry think it may last even longer. For example, a blog post from Glenn O’Donnell, vice president and research director at Forrester, discussed how he and his colleagues expect the chip shortage to go on into 2023.

As electronics manufacturers find themselves facing fewer options to cope with the supply chain problems, some may decide they’ll buy whatever they can get. That push raises the risk of unwittingly purchasing fake components.

The Chip Shortage Affects Numerous Industries

Computers and smartphones are two of the product categories that often come to mind when typical consumers think of how the lack of semiconductors hurts item availability. Those offerings do, indeed, contain chips. But the supply chain crunch spreads to products and services that people don’t typically expect. It can then cause multiple effects.

CCSI International is a case in point. It’s a family-run business in Illinois that makes electronic dog-washing booths. Dog park managers are among the company’s clients, as is the U.S. military, which buys them to install on its bases. However, the organization’s circuit board supplier recently mentioned that its usual chips were not available. Although there was a substitute, using it meant changing the company’s circuit boards, which raised consumer costs.

Russell Caldwell, the company’s president, said, “This particular problem affects all aspects of manufacturing, from little people to big conglomerates,” and mentioned how he lives in a small town surrounded by cornfields. Besides the major manufacturers feeling the pinch, the problem hinders much smaller operations, too.

It also disrupts timelines. In one recent case, Nissan held off with its Ariya electric car launch due to the chip shortage. The automaker intended to introduce it in summer 2021, but that’s now not happening until the winter.

The COVID-19 pandemic also exacerbated an existing lack of semiconductors, due in large part to the national lockdowns imposed by leaders to curb the spread. It didn’t take long for suppliers to feel the effects, either. One Singaporean electronics component maker had approximately 8,000 item shortages per day in February 2020.

An Inevitable Side Effect?

Faced with difficulties like these, manufacturers seek to find new sources. They don’t intend to purchase counterfeit components, of course. However, people familiar with the matter say that’s an increasingly likely consequence of supply and demand discrepancy associated with semiconductors.

A common practice for sourcing semiconductors — particularly at smaller establishments — is to purchase from entities that do business in open online marketplaces where goods may change hands repeatedly before a final sale occurs. That increased activity makes it difficult to trace the product back to the source and verify its authenticity.

Some electronics company representatives also agree to purchase parts they highly suspect are fakes and hope they’re wrong. In one recent case that got widespread media attention, BotMaker, a 3D printer manufacturer, could not source microchips from its usual supplier and proceeded to buy from an unknown seller.

The parts arrived wrapped in plastic rather than the usual protective bags. BotMaker representatives assumed the parts were fake before buying them but went ahead with the purchase anyway. That pre-purchase doubt came to pass, since most of the microchips did not work. BotMaker submitted a third-party dispute that ultimately resulted in a refund. It also found legitimate components elsewhere.

However, those eventually positive outcomes don’t always — or even usually — happen. Also, the ramifications of counterfeit parts can be widespread and damaging. As the chip shortage continues, though, other companies will inevitably follow the path of BotMaker, engaging with unfamiliar sellers and hoping to get lucky.

The Real Risks of Counterfeit Components

Electronics manufacturers quickly become familiar with numerous industry standards. For example, SEMI F47 requires semiconductor power supplies to tolerate certain voltage sags commonly associated with AC lines. More specifically, they must meet one of two criteria, plus provide full power at the rated output voltage during brownouts. Semiconductors also go through testing for things like radiation hardness and electrostatic discharge.

Standards and quality assurance give purchasers a greater sense of reliability when buying their goods. They feel confident that reputable sellers will put their semiconductors through the necessary tests. In turn, the people offering the products know how crucial it is to meet buyers’ high expectations.

That’s not the case with counterfeit parts, though. Sellers don’t care about their reputations and merely prioritize making quick profits. There’s plenty of money generated from successful parts fraud, too, especially when the scammers trick multiple targets.

Money Wasted and Lives Risked

One example involved an unidentified group or individual with 18 fake websites and more than 20 aliases to engage with electronics components buyers. When potential purchasers asked for references, the scammer directed them to one of the false businesses set up to mislead people. The elaborate fakery paid off, though. The criminal or criminals ended up with more than $300,000 from manufacturers who fell for the illusion and got more than $58,000 during one week in February 2021.

Beyond the risk of counterfeit components hurting organizations’ bottom lines, they could harm consumers and negatively affect company reputations. For example, some people who purchased lithium-ion batteries from Amazon Marketplace sellers complained that the parts exploded, causing chemical burns and property damage. Amazon insists it primarily provides an e-commerce platform but does require sellers to meet minimum standards.

Still, poorly made and counterfeit merchandise ends up on Amazon, and it’s not necessarily the fault of the person selling the item. That individual may have gotten it from a sprawling and convoluted sourcing network and received assurances along the way of legitimacy.

Fewer Quality Control Measures

Electronics manufacturers use numerous screening methods to detect counterfeit parts. They range from X-rays to heated solvent testing. However, the chip shortage understandably puts manufacturers under immense pressure. Then, as the supply chain stress worsens, companies may be less likely to carry out stringent quality checks.

As Diganta Das, a counterfeit electronics researcher at the Center for Advanced Life Cycle Engineering (CALCE), explained, “You won’t keep to your rules of verifying the vendor or going through test processes” when a company needs thousands of parts per week to keep its supply chain operational.

He clarified that it’s too early to verify increased counterfeiting activity through official reporting databases used by the electronics industry. However, he and others suspect it’s on the rise. Additionally, a recent report discussed how fake chips have become rampant in the Chinese market. Some such components get mixed in with the genuine ones, making them harder to spot.

Chip fakery also comes in a variety of forms. Some components never work as expected. Others demonstrate the proper performance initially but falter after the end products reach consumers’ hands. Debadging also occurs after the unlawful removal of a manufacturer’s emblem. In such cases, scammers often remove original markings and replace them with those of a well-known brand.

Such variations pose challenges when finding the inauthentic parts. The obstacles are particularly significant for smaller businesses that lack the infrastructure and time for rigorous tests.

Counterfeit Components Pose Concerns

As the chip shortage persists, manufacturers must stay on a heightened alert for fake parts. They may not spot every instance, but recognizing the elevated risks helps keep quality levels high, supporting the creation of products that work safely and meet performance standards. Increased awareness of the issue will make you and other professionals more able to take proactive steps in mitigating it.

Emily Newton is a technology and industrial journalist who enjoys discovering how the IoT is impacting different industries. Emily is editor in chief of Revolutionized – an online magazine exploring trends in science, technology and industry. Subscribe to her newsletter to keep up with the latest.

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