Component Counterfeits Down, But Is It a Trend?

Red Stamp - Counterfeit

Source: EBN news

by Barbara Jorgensen.

ERAI Inc., a global organization that monitors and investigates issues affecting the supply chain, reported a total of 771 suspect counterfeit and nonconforming parts in 2017. This is a marked decline from prior years, the organization said.

At the same time, the ERAI is cautious about drawing conclusions from a one-year trend. Global semiconductor sales have increased, ERAI notes, and the decline could be associated with robust anticounterfeiting efforts adopted by procurement organizations. Fewer counterfeit parts may be entering the U.S. due to customs seizures and detentions. There could also be a lack of enforcement of government and industry counterfeit-reporting requirements.

So far, ERAI is not seeing the same trend in 2018.  From Jan. 1 to June 30, 2017, ERAI reported 361 nonconforming or suspect counterfeit parts.  From Jan 1 to June 20, 2018, ERAI has reported 462 parts.

Source: ERAI

“We are closely monitoring various variables to help us determine the actual basis for the rise and fall of reported part incidents, but at this time we are merely speculating,” said Kristal Snider, ERAI group owner and partner at InterCEPT.  “We should expect widespread allocations will result in more counterfeit activity.  It will be interesting to see how the year unfolds.”

It’s also possible some counterfeiters have reduced their activities due to improved and new counterfeit detection techniques, added Damir Akhoundov, ERAI IT manager. “On the other hand, it may also indicate that more sophisticated counterfeiting techniques are resulting in fewer counterfeit parts being detected and, therefore, reported to ERAI.”

“It will be interesting to see if this trend persists through 2018 or whether the decline was only temporary,” Akhoundov said.

Historically, incidents of counterfeits increase during times of component shortages. When the authorized supply chain reports long lead times and allocation, manufacturers turn to independent distributors that buy and sell devices on the open market. Independent distributors also have a unique perspective on parts that are in short supply.

“We are still seeing strong demand with passives leading the pack,” said John McKay, president of sales for distributor Freedom Sales. “The demand is from all regions. Asia specifically has increased demand and is more willing to design in alternates to second source the AVL. We are seeing longer lead times and decommits from our supply chain,” added McKay.

Many independents have taken significant steps to reverse the impression they are vulnerable to counterfeits. Others, however, still actively push counterfeits into the supply chain.

Orange County distributor PRB Logics Corp. has been charged by the U.S. Department of Justice (DOJ) for sale of counterfeit ICs that could have been used in military applications. The indictment alleges PRB principal Rogelio Vasquez acquired old, used and/or discarded integrated circuits from Chinese suppliers that had been repainted and remarked with counterfeit logos. The devices were further remarked with altered date codes, lot codes or countries of origin to deceive customers and end users into thinking the integrated circuits were new, according to the indictment. Vasquez then sold the counterfeit electronics as new parts made by manufacturers such as Xilinx, Analog Devices and Intel.

Military equipment is a significant target for counterfeiters because components are costly and military-spec components are increasingly rare. Military equipment – along with devices used in marine, medical and aerospace applications – outlasts many of the components used in their design. These industries frequently turn to commercial off-the-shelf parts that become obsolete relatively quickly.

Lansdale Semiconductor is one of several distributors that specializes in mil-spec aftermarket parts. These businesses are a key line of defense against counterfeits. Lansdale and similar companies buy inventory of end-of-life components as well as their masks and die. Original component manufacturers (OCMs) authorize these distributors to re-manufacture their products.

Dale Lillard, president of Lansdale, notes that measures such as the National Defense Authorization Act continue to push military OEMs and subcontractors to procure from OCMs, franchised distributors, and the authorized supply chain.

“If you are talking about purchasing, all is well and good until a production line is down and the only authorized parts you can get are 26 weeks out,” Lillard said. “Or they could buy off the internet — historically this is the easiest solution to get program management off purchasing’s back. But if the parts are counterfeit the liability is on that [procurement organization].”

Lansdale is currently experiencing an uptick in business, said Lillard. “These are parts that we have but haven’t supported in a long time. But the government has realized if it isn’t careful it could have an [Apollo 1-type] disaster on its hands, so they are coming to us more than in the past.”

Lansdale has bought EOL inventory, component dies and masks, and has been licensed by OCMs to re-manufacture their devices. “We can manufacture the same part – we are part of the authorized aftermarket – and if you are concerned about counterfeits you should come here.”

Authorized distributors have been leading industry anti-counterfeiting efforts for decades. SiliconExpert, a division of Arrow Electronics Inc., is using its data-gathering and- analytics capabilities to develop anti-counterfeiting tools. SiliconExpert helps companies by identifying components with the greatest potential risk of counterfeiting and actual counterfeits in the market– based on a proprietary algorithm and industry reports and provide the information through multiple tools including:

Independents such as Freedom have staked their reputations on providing quality parts. “Because of the allocated market there are more instances of product failing testing,” McKay said. “Freedom initially stopped taking passive orders if we didn’t have traceability until we could implement a test policy to protect our customers. Over the past three years we have increased our focus on quality, hiring Sally Arno as Director of Quality, a 30-year employee of Plexus. She was tasked with implementing better vendor qualifications and inspection processes in our SOP. Arno is an active member in numerous Counterfeit Standards Committees, including G-19, G-19A, G-19CI, G-19D, G-19AD, G-19T, AIA – Counterfeit Parts Integrated Project Team, and SMTA/CALCE committee.

Despite many improvement, the electronic supply chain is far from perfect and many companies continue to rely on reputable independent distributors.

“I was recently seeing a large [contract manufacturer] who expressed frustration with a percentage of customers that had a “no broker” policy,” said McKay. “He stated they would wait until they shut the line down to finally agree only to find out that the inventory was no longer available. The only thing that will make independents go away is the lack of quality. My point is, with all the consolidation, mergers and acquisitions, we aren’t going anywhere, regardless of market conditions.”

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