I am so sick and tired of this never ending, snowballing, plague, business ruining, sometimes can be life threatening, money costing, annoying, time consuming, issue of counterfeit electronic components! Now that I have that off my chest consider yourself warned, researchers and analysts at saying we hav not even seen he tip of he iceberg for this supply chain nightmare.
SAN FRANCISCO—The counterfeiting of semiconductors is expected to become a more prevalent problem in the future as the semiconductor industry enters a phase of accelerating growth, according to market research firm IHS iSuppli.
The number of reported counterfeit-part incidents—which reached a record high of 1,363 worldwide last year—is expected to continue to rise to new highs, according to an analysis of trends conducted by IHS.
The number of counterfeit parts reported in the electronics supply chain historically has risen and fallen generally in concert with the annual performance of the global semiconductor industry, IHS said. Counterfeiting grew from 2001 to 2007 as the semiconductor industry expanded, but then plunged in 2008 and 2009 amid the global financial crisis and corresponding chip industry downturn, IHS said.
But when semiconductor industry revenue rebounded by a hefty 33 percent in 2010, reports showed that counterfeit reports surged by a whopping 152 percent, according to IHS. The firm projects that the semiconductor industry is this year entering a new expansion cycle, with revenue growth expected to accelerate to 4.3 percent, up from 1 percent in 2011. Growth is expected to rise to 9.3 percent in 2013, according to IHS.
"The semiconductor industry is exhibiting the classic signs of the start of a new growth cycle, with tightening supplies, broad-based price increases and a lengthening of lead times for the delivery of products," said Rick Pierson, principal analyst for semiconductors at IHS. "These are prime conditions for suppliers of counterfeit parts, which are eager to fill supply gaps with their fake goods. For semiconductor purchasers, the rise in counterfeits represents a major risk, bringing downsides in terms of financial losses, damage to company reputations and even safety concerns in some products."
According to IHS, most electronic components appear to be experiencing a tightening of supply along with an increase in pricing and lead times. Price increases are expected to continue rising throughout 2012, the firm said. The firm now predicts that demand will exceed supply in the third and fourth quarters for many widely used components, including capacitors, NAND flash, dynamic random access memory (DRAM), power semiconductors and logic chips. Such shortages represent a prime environment for counterfeiters to thrive, IHS said.
"Counterfeiters have gotten more sophisticated," Pierson said. "They watch the market and know where the weaknesses are. They know which products are in short supply and can generate profits. And they also know when market conditions are shifting in their favor."
For example, IHS said, counterfeits surged in the wake of the Japan disaster when concerns regarding supply shortages prompted panic buying of semiconductors and other components.
"It’s critical to discuss the counterfeit issue, to understand the reasons why incidents of fake parts are on the rise and to identify the markets where these phony parts are appearing," Pierson said. "This is because the counterfeiters are certainly analyzing the electronics market, probing for weak points and seeking opportunities to exploit opportunities as they arise."
According to IHS, the issue of counterfeit parts is sometimes neglected amid the strain required to keep production lines up and running. But companies that fail to pay attention to the issue face a range of risks, IHS said. A 2009 survey conducted by the firm showed that electronics buyers have an array of concerns.
While buyers in the defense and aerospace industries are concerned about failures in aircraft safety and compromises to systems that are critical to national security, while buyers for commercial electronics firms worry about damage to company image, erosion in customer trust and loss of revenue and increasing risk of legal action, IHS said.
"To reduce counterfeit incidents, electronics buyers strive to restrict their purchasing activities to their customary supply chains, sourcing parts directly from their suppliers or from franchised distributors," Pierson said.
But Pierson acknowledged that the mandate for electronics makers is to keep their production lines running at all costs. To do this, they are sometimes forced to go outside of the supply chain to get parts, particularly in times of rising demand and short component supplies. Even franchised distributors sometimes buy excess inventory from other companies that could introduce counterfeit parts to the supply chain, Pierson said.
IHS recommends that electronics buyers develop a plan to ensure continuity of supply in order to mitigate the counterfeit problem. Such plans, similar to companies’ contingency preparations for disasters, require firms to update their listing of suppliers, parts/materials, life cycles, logistics and internal operations, IHS said.