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Counterfeit parts represent $169B annual risk

April 05, 2012 // Dylan McGrath

Counterfeit parts represent $169B annual risk

The five most prevalent types of semiconductors reported as counterfeits represent $169 billion in potential risk per year for the global electronics supply chain, according to market research firm IHS iSuppli.

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The five most commonly counterfeited semiconductor types are analog integrated circuits (ICs), microprocessors, memory ICs, programmable logic devices and transistors, all of which are commonly used in commercial and military applications, according to data provided by IHS. Together, these five component commodity groups accounted for slightly more than two-thirds of all counterfeit incidents reported in 2011, IHS said.

The sum total of the application markets where these five most reported commodity groups are used represented $169 billion worth of semiconductor revenue in 2011, according to data derived from the IHS's application market forecast tool. These commodities are used widely throughout all major semiconductor applications.

There has been a great deal of focus on the issue of counterfeit parts in the defense industry, but the majority of reported counterfeit incidents are for commercial components which have broad use across both military and commercial applications, said Rory King, director of supply chain product marketing at IHS, in a statement.

King said that one of every four counterfeit parts reported is an analog IC, a component that is used in everything from industrial and automotive products to wireless devices, computers and consumer electronics."A single counterfeit could impact end products in any of these markets and the potential problem is pervasive, amounting to billions of dollars of global product revenue subject to risk," King said.

The total global analog IC market was worth $47.7 billion in 2011, according to IHS. The consumer electronics segment in 2011 consumed $9.8 billion worth of analog ICs, or 21 percent of the global market, IHS said. Automotive electronics amounted to $8 billion, or 17 percent; computing represented $6.7 billion, or 14 percent; industrial electronics was at $6.5 billion, or 14 percent; and wired communications was $2.9 billion, or 6 percent, according to IHS data.

"A faulty counterfeit analog IC can cause problems ranging from a mundane dropped phone call to a serious tragedy in the aviation, medical, military, nuclear or automotive areas," King said. The excessive cost of rework, repair and customer returns for component failures is significant, he said. "For the global electronics supply chain, tackling the problem of counterfeit and fraudulent components has become an issue of paramount importance," King said.

IHS said in February that 2011 was a record year for counterfeit reporting. Incidents of counterfeit parts have tripled during the past two years, according to the firm. Counterfeit parts often are cheap substitutes or salvaged waste components that fail to meet quality requirements, leading to potential failures, IHS said.

While the top five most counterfeit or fraudulent parts represent a major portion of the counterfeit problem, other types of devices also are vulnerable to counterfeiting and fraud, IHS said. In all, IHS has data for more than 100 types of integrated circuits, passive components, electro-mechanical devices and other parts with counterfeit incidents reported against them, the firm said.

"The industrial segment, which includes both military and aerospace devices as well as medical components, is a relatively minor consumer of the most prevalent parts that are counterfeited," King said. "However, a failure of a substandard counterfeit component in this area can have catastrophic consequences."

King said organizations can use the reports of counterfeit incidents reported by others to be alerted of problematic parts in circulation throughout the supply chain.


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