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Cover story: Hot Chips

Counterfeit components are so widespread that there is every chance you will unknowingly already have some in your home gadgets.

The UK Intellectual Property Office estimates that counterfeiting and piracy costs the UK at least £9billion a year, while the US Patent and Trademark office has revealed that 9% of all counterfeit goods seized are electronic in nature. Taken together, these figures indicate that the value of counterfeit electronic goods entering the UK could be up to £1bn.

The figures make for uneasy reading, but what exacerbates the problem is the fact that sources are nigh on impossible to trace. And, even if they are, the penalties – until now – have been lenient.

The literal definition of a counterfeit item is 'one whose identity or pedigree has been deliberately altered or misrepresented by its supplier'. Already, the term becomes clouded: how does one differentiate between a deliberately constructed counterfeit component and one bought from a broker in good faith?

With environmentally friendly legislation increasingly being enforced, adhering to green standards creates further problems. Electronic waste is sent to landfill in Asia, where counterfeiters dismantle the waste, remove through hole and surface mount components and repackage them. Often, these make their way back to where they were sent from.

Thankfully, this level of counterfeiting is easier to detect than the more 'professional' copies by organised gangs. David Akhurst, component engineering manager at General Dynamics, says that by running through a few check lists, many fakes can be detected at an early stage. "Check the printing of a part number or underside markings. The details may look blurred or don't comply with the manufacturer's format. They may be a different colour or orientation and there may be signs of overprinting on the component's external packaging," he said.

Akhurst added that, by checking the month and year that the manufacturer made the component, date codes can be verified. "Alarm bells should immediately ring if the manufacturer's logo is incorrect," Akhurst warned. "And look for signs of scratching, which indicate that the package has been sanded or abrased. Similarly, are the package dimensions correct according to the manufacturer's datasheet? Is the colour is the same at the top and bottom of a component? If not, chances are it will have been 'black topped' - painted over and stamped with fake markings. Check the condition of pins to ensure they are straight and aligned. Are there signs of the components being removed from a pcb?"

While most components end up in consumer devices, there is always the concern that they could find their way into safety critical pieces of equipment. Roger Rogowski, UK Electronics Alliance (UKEA) executive, observed: "Many of these systems are robust and often contain double or triple redundancy on critical functions so we have to put the risk in context – but it is there."

The UKEA, along with the Electronics Component Supply Network (ECSN), has attempted to unify the industry to face up to the problem with the launch of the Anti Counterfeiting Forum website. When it found there was no single online resource in existence, UKEA started its own. Rogowski observed: "We found a huge amount of material on the problem; some overlapping, some contradicting and competing – even if unintentionally. Unfortunately, many of these initiatives are not as coordinated as they might be and this appears to be leading to confusion. As a consequence, this might be acting as a barrier to adoption – in particular, with regard to which suppliers are safe to deal with and what best practice to adopt. This website acts as a signpost to the various organisations and initiatives that can provide support."

There is a belief in the industry that stricter legislation and directives should be enforced to prevent counterfeit components arriving from regions such as Asia and Eastern Europe. But would it really have an effect on global supply networks?

Rogowski commented: "While the UK Government and the EU can do more, there are some operational issues. The EU is currently as secure as its weakest border and, to make matters worse, counterfeit components are extremely difficult to detect." Markedly, he noted that UK Revenue and Customs has been receptive to UKEA's offer of training for selected border inspectors, but Rogowski insists more needs to be done.

"More component manufacturers need to work more closely with the Intellectual Property Office to make their marking more enforceable in law, while more distributors and OEMs need to share intelligence on known counterfeits." He added that distributors and OEMs also need to be more aware of their obligations under law when they identify counterfeits.

A range of industry leaders recently met at the Anti Counterfeiting Forum organised by UKEA and the ECSN. A Q&A panel and discussion saw delegates call for a united front and for the industry to focus on the problem along the supply chain. Adam Fletcher, ECSN chairman, warned: "The problem is getting the message out there. The Government has tried, but I don't believe that enough people are in 'receive mode'."

Fletcher pointed out the problem was made worse by OEMs outsourcing – particularly to the Far East – where traceability is a problem. "Most of these counterfeits are so sophisticated, they can often pass undetected through testing procedures," he noted. "There is no 'silver bullet' to solve the problem and, while the Government is making some improvement, I believe it must increase the penalty for those who get caught." It seems that enforcement officers are taking the problem more seriously than before and penalties are getting more severe. At the beginning of October, three people were charged with selling counterfeit chips to the US Navy and – if convicted – could face prison sentences, along with fines of more than $5million.

Retronix offers what it describes as unique cost reducing services to OEM and CEMs by recovering components for reuse, at a margin of the cost of new components. The test and inspection arm, Retronix Certified, offers not only counterfeit component testing, but also identifies refurbished components that may have been sold as new. Clearly, there is a market for legitimate refurbishing, as Bill Goldie, Retronix' managing director pointed out.
"Retronix has been audited and approved by many global OEMs and all global CEMs. Unauthorised refurb houses focus on the cosmetics, trying to ensure the device looks like new. Retronix does not enhance the look of the device, rather it focuses on the functionality."

Goldie has witnessed first hand the conditions in which some of the counterfeit components are made. "I've seen devices being processed on the streets, while another batch of components arrives, delivered in a plastic bag. It is very difficult to find out where these devices are being refurbished, although I have seen the activity in Shantou and we regularly get asked to test devices that have no ESD protection."

"Much of it is rebranded stock," Goldie added. "It has nothing inside it and has been laser etched to specify another – legitimate – component. But there's no die! We also see a lot of regraded stock, for example 16Mbyte memory chips re-etched as 128Mbyte parts. Recovered stock is a major concern, comprising approximately 90% of counterfeit components in Asia."

According to Goldie, the purchasing process can add to the overall problem. "Everyone says, 'we never buy from China', yet lots of components are mysteriously sold from China. A purchaser's bill of materials may say that components must not be bought from China, so they go to a broker, who may have bought from another broker and traceability gets clouded. If an OEM is looking to cut costs and has the choice of a component for $60 or for $5 on the grey market, he could well be tempted to go for the latter. There are too many people burying their heads in the sand."
To add to the uncertainty, more unscrupulous counterfeiters will often sell fakes at a similar price as the legitimate components.

The grey market
The recession has put many OEMs in a 'Catch 22' situation. Reduced budgets mean there may not be funds to invest in bench top scanners, optical inspection equipment or X-ray scanners. Further down the line, if the bill of materials calls for expensive components, these may be purchased from independent brokers who have little or no traceability. One delegate at the Anti Counterfeiting Forum said when he asked for an authentication photograph to be sent from a broker, he was merely emailed a picture copied from the manufacturer's website.

So is there a place in today's supply chain for independent non franchised distributors? Goldie stated: "I firmly believe there is a place for brokers and the vast majority offer a much needed service. There is no doubt the issue of counterfeit components and illegal rebrands is clouding the issue of authorised refurbs. There are hundreds of thousands of unauthorised refurbs sold each month and it is clear the current system of stating on a purchase order that parts must be new and not purchased in China is not working. There must be a better way and we would certainly welcome the opportunity to work with organisations such as ECSN to find a solution."

UKEA's Rogowski observed: "Organisations are very reluctant to disclose instances where counterfeits have slipped through the net. It exposes their procurement and materials handling systems and impacts their reputations, especially in the eyes of their customers. However, organisations are often prepared to share information on counterfeit parts they have detected, which is the basis on which the counterfeit components database works on the Anti Counterfeiting Forum website." Since the site was launched in July 2009, there are more than 350 different parts on file, but Rogowski reiterated the importance of more companies getting involved in sharing intelligence on counterfeits they have found.

"It is hugely important that as many levels of the supply chain in as many geographic areas as possible collaborate, as difficult as that might be. While we shouldn't wait until we have a single movement before taking action, it is vital that organisations working on similar initiatives join forces.
"To take an example, there are already several codes of practice, standards or certification systems to address counterfeit components, which we would like to see coordinated into a single standard recognised by the electronics industry worldwide."

But what, if any, effect does legislation have on global supply networks? Goldie remains cautious. "I believe the legislation is already in place, in much the same way as it is for counterfeit dvds and handbags, but the issue seems to be so huge that the authorities can't stem the flow."

Rogowski concluded: "There is still a great deal of ignorance, not only of the problem, but also, more importantly, of how companies should be managing the problem within their supply chains and materials management systems. I would probably liken this lack of knowledge to that of obsolete components 15 years ago before the Component Obsolescence Group was formed. There is still a great deal to make our supply chain more secure and there is a lot we can learn from other sectors who have been dealing with the problem for some time."

Image: David Butow

Author
Chris Shaw

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