Fake Electronics Take Tech Toll

There is a growing worldwide epidemic of counterfeit microchips, routers, and computers costing the electronics industry billions of dollars annually, and the problem has serious implications not only for business but for national defense and homeland security, analysts say.

The number of bogus electronic products has more than doubled, from 3,868 in 2005 to 9,356 in 2008, according to the U.S. Commerce Department. Counterfeit electronic parts cost the information technology industry about $100 billion a year, according to the not-for-profit National Electronics Distribution Association.

Typically, counterfeit electronic parts are less reliable than original design ones and may not work. Fake parts can highly compromise originally designed applications such as those involved with data storage, computer operations, and automotive functions.

A Saudi Arabian citizen was convicted earlier this year of purchasing and selling counterfeit Cisco components intended for use by the Marine Corps. These parts were intended for monitoring troop mobility in Iraq, according to the U.S. Justice Department.

“Counterfeiting is a very serious issue that impacts the entire high-tech industry on a global level, ’’ a Cisco public relations spokesperson said. “Cisco and other leading IT companies have been actively addressing this issue for several years now.”

U.S. Homeland Security Secretary, Michael Chertoff, recently raised the subject at a briefing attended by reporters from around the globe. Clearly, with the threat of increased terror activity globally, authenticity and integrity of electronic parts are growing concerns at all levels, Chertoff said.

Well-known brands hit hard by counterfeiting in recent years include OEM companies such as Intel, Advanced Micro Devices, NEC, Hewlett Packard, Xerox, and IBM. It’s so bad that distributors worldwide must now examine every part they receive. One distributor, PCX, headquartered in Huntington Beach, Calif., takes the defensive position that “a part is considered suspect until we prove otherwise.”

China is where the bulk of counterfeit electronic parts originate. The economic giant supplies many of these parts to the United States, according to a recent report by the Commerce Department. In many instances, parts are “recycled” from electronic waste sent to China as scrap.

It works this way: Workers dismantle mother boards, recover components, and remove part numbers and other corporate identification. Then the workers imprint forged dates, brand names, and other bogus product codes. These parts then make their way to electronic marketplaces and other brokers before being distributed globally by “knock-off” suppliers.

Besides China, other places responsible for this illegal practice include Taiwan, Singapore, Malaysia, and Eastern European countries, U.S. officials say.

Knock-off components even may be infiltrating traditional distribution channels. Within lots, parts may be “contaminated” with counterfeit components, all from the same authorized dealer. Ultimately, dealers must provide refunds in an effort to salvage their image and brand.

Many of the bogus parts are of such high quality that it is becoming increasingly difficult to ascertain “original” from “counterfeit.” To take it a step further, some dealers are affixing “anti-counterfeit” labels to verify authenticity. In order to stem the flow of these illegal components, potential victims are banding together.

The Defense Department and National Aeronautics and Space Administration are creating standards that help users avoid buying counterfeit parts, according to the Independent Distributors of Electronics Association, a nonprofit trade organization which teaches members how to detect bogus products. Many times when distributors have been known to sell fake parts they are blacklisted.

The process of detecting counterfeit parts is increasingly difficult since hardware is getting more complex. Many of these parts require a microscope to determine their authenticity. Under a microscope, examiners determine the placement of the logo, the quality of the vacuum seal, and the depth of the etchings to help identify potential fraud.

The counterfeiting game also is moving to a higher level, with some culprits saving shavings and material coatings from original parts to make it even more challenging for suppliers to detect differences.

Even so, turnabout is fair play. Some suppliers de-pot or de-encapsulate ICs, processors, and memory chips to inspect the interior die for markings and dates. Other suppliers are even X-raying their incoming parts to determine authenticity.

Chipmakers, like Intel, have developed software to help customers identify the processor inside a computer to make sure that it’s performing up to OEM standards.

Experts in the electronics industry warn that supply chains are becoming more global and less transparent. No one can be sure which parts are going into which computers. These computers can affect everything from national security, to air traffic control towers, and weapons systems.

This post is courtesy of TechMan who tracks trends and issues in business, industry and technology.