Chip shortage: counterfeit electronics hit the market

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Counterfeiters are exploiting the current shortages of semiconductors and electronic components for their illegal trade. Experts raise an alarm that companies might neglect their due diligence measures when purchasing.

Due to the global supply shortages in semiconductors, numerous potentially counterfeit electronic components and integrated circuits (ICs) might be traded, say current media reports. According to that, companies are coming under increasing pressure in meeting their demand for semiconductors – and might then be tempted to resort to dubious suppliers and products.

Particularly worrying, according to experts, is that new, previously unknown suppliers on the market are suddenly offering large quantities of chips that are otherwise in short supply. “What sounds too good to be true is too good to be true,” warns Steve Calabria, of the distribution company PC Components and member of the Independent Distributors of Electronics Association (IDEA); this was not the first time that supply shortages of electronic components had caused the number of counterfeits to rise sharply.

Typically, fraudsters use one of two methods for counterfeiting electronic components: When cloning chips, they rebuild original products from scratch. Or they use old components, which e.g. had been discarded, removing the original markings on the chips and repackaging them as alleged new products. This way, older and slower chips could for example be sold at high prices. Such counterfeits can be of inferior quality, become unusable prematurely, or fail completely in certain conditions.

Due to the pressure to supply their production lines with electronic components, companies might now limit their due diligence in vetting vendors or testing purchased parts, potentially becoming a gateway for fakes, thinks Diganta Das, expert on counterfeit electronics at the Center for Advanced Life Cycle Engineering (CALCE). As an example, the Wall Street Journal (WSJ) and Electronics360 have reported on a manufacturer of 3D printers that bought components from an unknown supplier – and only a small portion of the delivered goods actually worked. Reportedly, even under normal circumstances, companies might come across counterfeit goods about three times a year, which are usually identified by the companies’ quality assurance processes.

Experts warn that many businesses might not be sufficiently aware of the risk of counterfeiting. “I don’t think there is awareness in the industry at all,” fears Michael Pecht, professor of mechanical engineering at the University of Maryland and founder of CALCE. He thinks that manufacturers from critical, security-relevant industries such as healthcare, defense, and automotive could be affected too. Counterfeit electronic components are far from being a new problem – last year alone, for example, fake storage media traded on the internet and a warning from chip giant Intel about counterfeit computer processors caused a stir, as did the sale of fake chips to the US military the year before.

For months, the demand for electronic components has been by far exceeding the supply. This is partly due to a strong increase in demand for electronic products during the Covid-19 pandemic – since the outbreak of the coronavirus, the demand for PCs, smartphones, tablets, and game consoles has soared. Smaller manufacturers or manufacturers of commercial and industrial equipment might be particularly affected, which do not buy directly from chip manufacturers. However, large multinationals can also come under increasing pressure: for example, car manufacturers such as Ford, the Opel parent company Stellantis, or the Daimler group with its Mercedes-Benz brand have already had to cut back or partially stop their production lines due to a lack of the required chips. Analysts at Gartner assume that the semiconductor crisis will continue well into 2022.

Sources: ZDNet; Electronics360, Epoch Times, Handelsblatt, Toms Hardware, Wall Street Journal (WSJ)

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