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The counterfeit electronic component issue is serious. Most don't want to admit it, but the facts have been accumulating for years. In 2011, there were nearly 1,400 reported instances of counterfeit parts. This does not include unreported cases.
The issue can't be “swept under the rug” anymore. Finally, enforcement agencies are getting tough: There have recently been seizures by the US Customs Patrol and several arrests and convictions stemming from counterfeit activity.
Back in 2005, when Rochester Electronics was planning its first-ever anti-counterfeiting symposium, there was little attention given to the seriousness of the problem. Slowly, the industry became aware that lives are at risk and that national security is being threatened. As a result, identifying and combatting the problem became a priority.
But nobody is entirely immune. In 2009, a Department of Commerce study found that counterfeits can be found anywhere in the channel, EBN contributor Tam Harbert writes. (See: Distributors & the Mystery of Counterfeit Parts.)
It probably surprises no one that 50 percent of the OCMs that have gotten a counterfeit part reported getting one from a broker, and that 45 percent reported getting one from an independent distributor. But the chart also shows that 21 percent of OCMs reported a counterfeit incident involving an authorized distributor. That has raised many an eyebrow.
Counterfeiting activity represents upward of $300 billion in revenue worldwide. Because of this, it's not going away any time soon. How can the electronics industry tackle its share of such a massive problem?
Anti-counterfeiting measures rely on all parts of the supply chain pulling together. Buyers can't take shortcuts and make excuses. Suppliers can't ignore the problem. And OEMs have to be aware that faulty parts can and will be built into their systems. A little effort by all members of the supply chain can ensure that even hard-to-find items are authentic.
Join us September 12 at 2:00 p.m. EST as we host this interactive Webinar, The Holistic Approach to Anti-Counterfeiting, with EBN and we'll tell you more about some compelling research related to counterfeit components in the supply chain.
Agreed. Its important that everyone involved in the supply chain and related to the product development must stand against counterfeiting. The worst that can happen to a project schedule that designers get the counterfeited part and program suffers and at the end the whole organization suffers. I remember way back back in 2000 when we were designing around 8 bit controllers, once out 50 microcontroller we ordered 20 were not working. The production gets severly affected and so much time gets wasted. But sometimes the project delivery pressures are so high that buyer just have to give in just to get the parts in. But one can imagine the seriousness of the problem if these counterfeited parts find their place in medical or space application. Definitely it cannot be ignored. But how do one ensure that they are not getting these parts?
Dan, Exhaustive testing by LMI, Idaho National Labs, the Department of Defense, Altera, SMT, Micron, Raytheon and a host of other world class players support the Defense Logistic Agency recent mandate to use DNA Authentication solutions for counterfeit protection. I do not understand your objection, as expressed in another recent blog, to this technology and would appreciate further explaination. Thank you
Owen, I'd like to add to your message by asking if anyone has done any studies on the financial case for DNA authentication. This industry is happy to consider anything that would further its cause as long as it makes financial sense. Is the case strong enough financially for DNA authentification and if it is not, what would make it more compelling?
Bolaji, The cost of DNA Authentication, from what I have gathered from Douglas Alexander in his June EBN article titled: “Calm Down, Counterfeiters can be stopped “, appears to me to make financial sense, here's an excerpt:
“My next question concerned the cost of applying the marker to the materials and the cost of authentication. The cost for applying the DNA impregnated ink, adhesive, or spray is less than a penny per application. A hand-held scanner can quickly detect the presence of the DNA, but if an OEM wishes to authenticate the sequence, the part has to go back to Applied DNA Sciences' Labs for a full lab workup. “Aha,” I said. Here is where things get costly.
In my own research, I discovered the cost for sequencing to be about $1,000. However, because Applied DNA has its own labs and labor force and are interested in high volume deployment, they are able to control costs to make it very affordable”.
My guess is the DLA has done their own cost/benefit analysis but unfortunately I haven't been able to get info from them. Given the mandate is scheduled to be effective by September 30, 2012, I'm sure more details will be available soon.
The primary issues with DNA authentication are logistics and financial issues, but there are many more. The SIA has thoroughly documented all concerns directly back to DLA.
From a financial perspective, any cost added must be justified and fully understood. To date, the financial costs are neither justified nor fully understood. Adding $.01 to a part that costs less than $.05 or less makes no financial sense….so now what do you do? Exceptions for low-cost parts? Who makes this call? From a market perspective, long-term system markets contribute less than 1% of the total semiconductor revenue in the world. Long-term markets (DLA purchased parts and all of DoD) do not significantly influence the semiconductor OCM's. There's no way 1% of the market should be increasing the price for the other 99% of the market – it just makes no financial sense.
From a logistics perspective, this is where it gets really interesting. The 1% market is relegated to buy almost exclusively through distribution channels and not on a direct basis. Their revenue is simply not high enough to warrant direct sales most of the time. This means that the DLA mandate is mostly a logistics burden place on distribution and not the semiconductor OCM's. To add to the logistics issue, take into account most of the components that DLA will buy for the next 10 years have already been manufactured and are sitting in authorized (or non-authorized) storage. We have over 5 billion finished devices from over 50 different manufacturers…..the source for many DLA purchases……sitting at Rochester Electronics. Which DNA marker is used? Should the parts go through testing again once they are handled for marking? What does that DNA marker really do to combat counterfeit when we already know the parts at Rochester are FULLY AUTHORIZED to begin with?
In essence, the DLA mandate turns into a penalty (both financially and logistically) for a fully authorized source like Rochester Electronics. We know our inventory is fully authorized and direct from the manufacturer. We go to great lengths to ensure this and it is fundamental to our business model. The SIA and Rochester Electronics remain committed to anti-counterfeit, but this mandate is not the way to go.
Dan: I think that is the same argument that applies to RFID tags. It is one thing to put tags on a lot or a pallet; quite another to ID each and every component. Yet, if you can't track each component, how can you prove it is authentic, particularly if lots are broken up or kitted? In terms of the value of the component, a failure in a .05-cent part or a $100 part is still a failure, especially if the failure is in the end-product.
Barbara,
If an authorized source doesn't go out and mix customer excess purchased product with original product, authorized sources will have original and authorized product ONLY. When you buy from these types of authorized sources, you never get counterfeit…..no DNA marking necessary. The value of the component matters when the 1% market (DLA and DoD) tries to increase the price to the other 99% market.
Dr. Das at CALCE has brought up the fact that original product has a built-in signature just by how it has been constructed. Each and every single part has a unique signature consisting of die attach material, package material, die size, die material, etc…. This is but one example where industry could be involved to come up with a solution instead of a mandate. There are other ways too.
You bring up an interesting point about tracking and it relates to my logistics argument. Who is really doing the tracking here? What I see is somebody selling DNA and nobody tracking. Applied DNA is selling to anyone, not just authorized sources (SMT for example). ANYONE can put DNA on a product and Applied DNA gets to decide who that is. DNA marking says nothing about product authenticity or long-term reliability (handling), just who marked the product.
Dan
Dan: I think we may be beating a dead horse here, however, with regard to the esteemed Dr. Das of CALCE, as I've pointed out before, he has in the past supported marking of parts and material at its manufacturing point as a means of authentication. No doubt the Doctor has said many things which can't be ignored. For me, I'm a firm supporter of DNA verification, I believe it is a disruptive technology that will have a profound impact, not only in electronics, but throughout the counterfeit world we live in. In the meantime, I look forward to your Webinar. Best of luck.
http://www.calce.umd.edu/seminars/cws20120124.htm
” It is highly unlikely any company, even Samsung, can afford to tell Apple to take a hike.”
It seems that the two companies despite their patent-war are close connected as buyer-seller. Do you think that there is a possibility to see that to happen ?
It used to be that top management at enterprises respected their counterpart at competitors. The air has been so polluted between Apple and Samsung I bet these guys won't even shake hands if they can help it. They are still business partners but the phrase “healthy competition” seems to have had a fatal seizure.
I agree. I can't think of anyone in this industry whose entire passion is tracking counterfeits and making money from doing this. Tracking fake parts cannot be a part of a company's business at least not until this problem because so gargantuan someone sees an opportunity to make money from it.
Wow its amazing to learn that if Apple is one of the big customers of Samsung for displays and memories, how Samsung has gone for legal battle. May be the thought of being a winner in market share for iphone or smartphone is what would have lured them. In any case Samsung would loose something.
Well I feel the war between Apple and Samsung is good for the users and all the others who are willing to go for one of these products. It will give them an insight on how things will happen and what services they will get.
Also this will be some sort of a plus factor for others like Nokia, Sony Ericsson, HTC, etc..
@Nemos: As much as I'd like to think Samsung will walk away, it's just not feasible for a publically traded company. Apple is just too big and too powerful. About 20 years ago, companies such as Motorola–which still made TV equipment, radio/wireless equipment, chips and a host of other devices–had that kind of clout. But since Moto has split itself up into a half dozen different businesses, no single division can dictate to its partners. Moto drove the electronics industry toward six sigma. Apple is driving the industry toward something…but only for its own benefit.
It does seem silly when put that way. Not having to track stuff seems to be the better option. But I don't think OEMs, EMS companies are anyone, for that matter, won't mix products. Moto tried that when it founds its chips were being sold in the gray market for 2x their price: it declared anyone selling to the gray market will be 'cut off.' It never happened. So, given the reality of the market, what are the options? I know some of that will be covered tomorrow on the Webinar.
Very true Barbara. Apple has the edge in my view since they have the resources to bring things back to normal. Also the innovative ideas of Apple has made people thing differently when it comes or Apple products. I feel this war will continue but will not affect the Apple market in any big way as such.
Did you never thought that this war is, for sure, about patents rules, but for another part, also fomented as implicit promotion for both actors involved?
Both Apple and Samsung are too big and too busy. It is nice to have good business for mutual interest. However, this relation lasts long if both are willing. If either is not interested for any reason, they should depart for meach other. This will not much hurt either.
mfbertozzi,
The amount of money these companies are spending in the courtrooms is too much to simply be for promotion. They both have all the means they want for buying excellent campaigns, if that would be what they want. However, that's not the case.
-Susan
Nice perspective Susan, you have convinced me, although within the community I have heard around some small doubt still remains.
mfbertozzi,
You see, not even if the whole world would have a small doubt about it, as you say you have heard, I would believe it from two companies of the magnitud of Apple and Samsung. I am applying pure logic here, and logic rarely is wrong, if ever. 🙂
-Susan
To take Susan's point on step further, logic would dictate that there will be a winner and loser in this battle. So while the PR for the winner is no doubt good, the PR for loser would be bad. That's an awful lot of risk for a marketing campaign that hinges on 12 people in San Jose…
But I'm not exacty known for my logic 🙂
The winners and losers are being sorted out in this market already. Companies like HTC, Sony and Motorola aren't really competitive currently in the wireless market. In the case of Apple and Samsung, the real winner will not emerge in my opinion from the legal tussle. A winner will be selected by consumers. The technology is available and can't really be claimed by a single “patent holder.” So, if Apple wins in court, Samsung will find a way around the patents and be back in the market within months with similar products that aren't in violation. They will have to duke it out in the market.
True. I still wonder if the consumer really cares who holds the patent, as long as the product they buy is authentic
Apple, with its iOS 6 also parted ways with Google in some key apps: Maps and YouTube. I read that Google is already submitting a Maps app, and the YouTube app is already there.
Are they trying to break every relation? Will Apple eventually develop a search engine?
When we talk about counterfeits in brokers… are they buying those parts at very discounted prices? The buyer must know that there's something weird going on when a part costs 50% less than the original.
Shouldn't buyers be trained as well?
Apple dropped Google Maps because of its adversarial relationship with the company in mobile operating system. Any company that crosses Apple or that is seen as a significant competitor will see its products shunned by Apple even if this had previously contributed to its success. Will it result in Apple becoming more like a cradle-to-grave provider? Possibly. If it seems to make sense to the company.
It not easy to tell about what will happen in future, even speaking for myself, I could say that attitude from Apple, sooner or later, will become a sort of boomerang for them.
Will it make sense for them to seek an alliance with a search engine in order to split the revenues? I don't see how they will maintain a relationship with Google, where Google is getting all the benefits (from the search results) and using that to create more competition for Apple.