Top 5 counterfeited parts pose $169bn challenge for global semiconductor market

Looking across the entire industry, 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 IHS iSuppli. These commodities are used widely throughout all major semiconductor applications, i.e., computing, consumer electronics, wireless and wired communications, automotive and industrial.

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

“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, supply chain product marketing at IHS. “Take analogue ICs, for example. One out of every four counterfeit parts reported are for analogue ICs, components which are used in everything from industrial and automotive situations to wireless devices, computers, or 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.”

According to the IHS iSuppli the total global analogue IC market was worth $47.7 billion in 2011. These components are critical to all major application markets, evident in the sales percentage taken by analogue ICs in individual segments. For example, the wireless market generated 29 percent of global analogue IC sales in 2011, amounting to $13.8 billion in revenue.

The problem is almost as massive in the other market application markets. The consumer electronics segment in 2011 consumed $9.8 billion worth of analogue ICs, or 21 percent of the global market. 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.

“A faulty counterfeit analogue 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 noted. “Furthermore, the excessive cost of rework, repair, and customer returns for component failures is significant. For the global electronics supply chain, tackling the problem of counterfeit and fraudulent components has become an issue of paramount importance.”

For many organizations, addressing the costs and risks associated with counterfeits is not just important, it’s also regulated. On December 31, 2011, President Barrack Obama signed the H.R.1540: National Defense Authorization Act for Fiscal Year 2012. The act mandates that participants at all tiers of its global defense supply chain implement processes and systems to analyze, assess and act on counterfeit and suspect counterfeit electronic parts.  

While the top five most counterfeit or fraudulent parts represent a major portion of the counterfeit problem, multiple other types of devices also are vulnerable to counterfeiting and fraud.

“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, in order to be proactively alerted of actual problematic parts in circulation throughout the supply chain. This can help organizations to avoid, quarantine, or act upon counterfeits in time.”

IHS iSuppli

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