The Financial Risks of Counterfeit Semiconductors

2011 was a record year for counterfeit parts, with five semiconductors accounting for over two thirds of the 1,363 reported fakes, according to a recent release from IHS iSuppli. The risks of counterfeit semiconductors are both financially high and potentially fatal. The components represent $169 billion in potential annual risk for the global electronics business, IHS said in their statement. The $169 billion comes from an in-house market forecast, apparently the combined value of the five semiconductor markets.

Counterfeits are generally cheap substitutes or salvaged waste components that didn’t meet quality standards. The components themselves are used commercially in cell phones, PCs, and other consumer electronics. But they’re also used in industrial, military, and medical equipment. Rory King, the director of supply chain product marketing at IHS, emphasized the commercial use of the semiconductors in an 4April release, only briefly touching on bloodier risks. “A faulty counterfeit analog IC can cause problems ranging from a mundane dropped phone call to a serious tragedy in the aviation, medical, military, nuclear or automotive areas,” King said in the release.

But a February 2012 IHS release called the situation “ominous.”

“The counterfeit issue is serious, it’s growing and it’s a major problem for electronics makers—especially military and aerospace companies,” King said in the February release. IHS found that “the bulk” of all counterfeit parts reported between 2001 and 2011 were found by US-based military and aerospace electronics firms, places where faulty semiconductors could mean lives lost. A precise number for “bulk” was not included in the release.

Of the top five counterfeit semiconductors, analog ICs were the most common, accounting for a fourth of reported incidents. Microprocessor ICs and memory ICs were a close second and third at 13.4 and 13.1 percent respectively. Programmable logic ICs accounted for 8.3 percent, and transistors came in last with 7.6 percent.

It’s important to note that the counterfeit numbers are not the total number of fakes, but the number of fakes found and reported.

Counterfeit technology is advancing, but so is the tech that detects frauds – including how companies can use plant DNA to mark chips as they’re produced. Keep an eye out for more on that tech and the Department of Defense’s crackdown on suppliers.

We’ll also be asking IHS for more concrete numbers and explanations of financial risk.

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