The Electronics Source Book
March 9, 2005
Do you know where your parts were made? The parts you buy out on the gray market may not actually come from the supplier whose label is on the component. A marketing executive from a well-known semiconductor company was at a trade show in Beijing. A well-dressed woman approached him with a portfolio of labels. Each label was from a prominent component supplier. Her China-based company could make components – cheap – and label those components with the name of a major supplier.
Manufacturers turn to the gray market for any number of reasons – they need the parts quicker than the supplier’s lead time, or the components come with a very good price break. But when the manufacturer isn’t buying direct from the supplier or from a trusted distributor, there is danger that the parts may be substandard counterfeits. Counterfeit components are often detected only when a company returns failing components only to discover that the supplier whose label is on the parts didn’t actually make them.
Watchdog websites are filled with stories of fake semiconductors and transistors, complete with photos showing the counterfeit component next to a genuine one. Sometimes the counterfeit is obvious, but often it’s nearly impossible to tell the difference with the naked eye. The difference between the real component and a knock-off is usually detected when the component fails, it’s returned to the supplier, and the supplier says, “We didn’t make this.”
According to those in the business of buying and selling components, the problem of counterfeit parts is growing. “I’m not sure how to quantify it, but we’ve noticed a growing amount of counterfeit parts in our military business over the past year or so,” says Jim Ferry, director of Avnet Electro-Air, the division at Phoenix-based Avnet Inc. that handles avionics components. He notes that he’s alerted to counterfeit parts when he starts to lose business to companies that he’s never heard of.
Recent research from Business Week indicates that counterfeit products probably make up at least 7 percent of world merchandise trade. The total for counterfeit merchandise may have been as much as $512 billion during 2004. While there’s no way to tell how fast the counterfeit business is growing, in 2004, U.S. Customs counterfeit seizures were up 46 percent from 2003. Counterfeiting affects a wide number of industries, from luxury goods to auto parts, consumer electronics, motorcycles, pharmaceutical drugs, even golf clubs.
The counterfeiters profit in a number of ways. They don’t have the costly research and development costs or the hefty marketing expenses. Plus, counterfeit goods are typically manufactured with deficient raw materials and substandard manufacturing processes. Phony electronic parts tend to come from Asia, with China accounting for nearly two thirds of all counterfeit parts. Other countries involved in the trade of fake goods include the Philippines, Vietnam, Russia, Ukraine, Brazil, Pakistan and Paraguay.
Government officials in Beijing have tried to fight the business of fake goods, but the high profits that come with counterfeiting has attracted organized crime, which has been resistant to government crackdowns. Plus, counterfeiting is not the highest priority among government crime fighters. Business Week reports that the Beijing government is much more concerned with preventing the smuggling of arms and drugs.
Many component suppliers believe that the counterfeit problem won’t be solved until buyers begin to scrutinize the source of their components. Semiconductor executives say that buyers are rarely penalized for buying counterfeit parts. Their job is to purchase parts at the lowest possible price and to make sure there are enough parts on hand to keep the line from shutting down.
Some suppliers have recently alerted their customers that counterfeit components are on the rise now that worldwide demand for semiconductors is trending back up. Alpha Micro recently sent its customers tips to avoid buying phony parts. Among the suggestions:
· Don’t buy from suppliers in China unless you know you can trust the legitimacy of their parts
· Before trading with an unknown supplier, check trade references
· Build strong relationships with suppliers you trust
· Avoid buying batches of components with different colors, dates or batch codes
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3. IDT: 99 percent lead free already
4. Actel goes green on 100% of its FPGA products
5. Lead-free parts: Welcome to the messy supply chain
6. Are the military and telecommunications industries off the hook on RoHS?
7. Will
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