A $100B counterfeiting problem

Manufacturers are facing increasing dangers from the gigantic semiconductor gray market as the shortage continues

In the electronics industry, counterfeiters are taking advantage of a gigantic criminal opportunity to sell to unsuspecting electronic manufacturers desperate to get their lines back up and running.

The semiconductor gray market is worth approximately $25B, more than the global music industry. It is estimated to be growing speedily at about the rate of the semiconductor industry, 14% last year.

Meanwhile, the global lost revenue for electronics companies from these counterfeiting operations is believed to total a growing $100 billion annually. Costs associated with identifying and replacing bad parts, maintenance, failed operations and derailed logistics increase this even more. We may not even know the full total of the losses. Even if a counterfeit part works initially, without quality assurance to guarantee its continued functionality, the long term performance of the product could be at risk.

Counterfeiting is a pervasive problem in nearly every market, from clothing to machinery to food additives. But counterfeiting is exceedingly worrisome for electronics because just a single counterfeit component among hundreds could present enormous repercussions for the safety and security of the entire product. The final manufacturer will be held liable for a faulty product and could face legal action if devices fail to perform as expected. Environmental and safety concerns also plague counterfeit materials when parts are falsely claimed to be RoHS compliant.

With an estimated 30% counterfeit components on consumer marketplaces like eBay, sourcing electronics in shortage can be a stressful free-for-all of sifting through thousands of potentially bogus materials. Distinguishing counterfeits from genuine materials requires meticulous quality control, a time-consuming, tedious job in itself. Validating authenticity of purchased parts is rarely an option as sending materials to a counterfeit lab is prohibitively time consuming and expensive.

While continuing to balance the needs of the chip-starved production line and quality control won’t be easy, it is possible. Companies will need to develop strong trusted partners in the spot market and internal capabilities to electrically test chips before mass production. Chip manufacturers will need to continue to push forward on adding security into the design phase to help protect their customers.