Electronics counterfeiting is gaining attention as evidenced by the recent IEEE International Symposium on Hardware Oriented Security and Trust chaired by Professor Mark Tehranipoor. More than 250 industry and academic leaders attended the conference to address the growing threat that counterfeit devices are posing to the security of the electronics supply chain. Inadvertent use of recycled, refurbished, or re-marked components can result in significant business risk for a manufacturer’s customers, resulting in unwanted returns and damage to their brand value.
The gray market & easy counterfeiting in the electronics supply chain
Because there are so many different companies involved in the electronics supply chain, there is ample opportunity to sell counterfeit chips to the “gray market.” Industry research from KPMG and the Alliance for Gray Market and Counterfeit Abatement (AGMA) shows that gray market sales account for $40 billion in revenue each year and cost IT manufacturers up to $5 billion annually in lost profits.
The “gray market” thrives because of over-orders within the supply chain. For example, a contract manufacturer (CM) may order more parts than were actually needed for an original equipment manufacturer (OEM) and then dispose of the excess inventory by selling them to anyone who will buy them, especially if the value of those devices can decline rapidly over time (e.g. high performance memory or CPUs). If those devices are purchased by a non-authorized distributor, those devices are now in the “gray market” and can be resold without regard to the original performance specifications of the device.
They may be purchased by a company that has no access to the devices through normal channels (e.g. a company in North Korea) or by a company that needs the functionality of the device (regardless of performance or quality) and will use it in a product line that competes against the real OEM but as a counterfeit product with a performance level that is claimed but not achieved. Other nefarious practices in the “gray market” include overproduction at the foundry level, where foundries produce more parts, manipulate the yield and production data and sell excess chips to the market. And in some cases, simple theft of chips or selling recycled and refurbished chips adds to the counterfeiting problem.