'Is the threat of fraudulent and counterfeit electronic components about to get worse?



In January 2016, IHS Markit reported that, in the previous two years, ‘two thirds of the reports on counterfeit components are for parts that have already been discontinued by the original component manufacturer.’ It’s easy to see why. When components are obsolete, there is no inventory to be had from authorised sources and the grey market is the next port of call. While grey market sources provide a valuable service, extended and complex supply chains in the grey market involving relatively unknown sources, provides the opportunity for fraudulent or counterfeit components to enter the system. At the same time, the counterfeiters, in their terms, are fulfilling a demand that can’t be fulfilled by authorised sources.

So far so mundane except that the spate of mergers and acquisitions among electronic component manufacturers over the last eighteen months has led many to speculate that this would result in widespread product rationalisation as the merged OCMs seek to reduce costs and, with it, a wave of component obsolescence. However, the widely predicted product rationalisation hasn’t happened, as it should have done by now given that the first of the current wave of mergers and acquisitions took place in early 2016. The thinking that it won’t has now gained traction. Not so long ago, when applications were designed around often multi-sourced commodity products, TTL, CMOS and MPU chip sets and the like, mergers and acquisitions often resulted in duplicated lines that were ripe for culling. However, the increased level of function integration in recent years has meant that most chips on the market are unique in form, fit and function.

So far so reassuring. Unfortunately there is another cloud on the horizon. Component manufacturers and distributors have reported a significant increase in sales growth in the last two quarters, at the highest level since 2010. Many are now predicting that lead times will increase and even that some products will go on allocation while supply catches up with demand. If that happens, many OEMs will turn to the grey market to make up the shortfall and the counterfeiters will take the opportunity to help fulfil it. This potential widespread shortage signals a change in the sectors under potential threat. Counterfeit and fraudulently marked components are more likely to pose a threat to manufacturers and users of systems whose life expectancy is longer than the life expectancy of the critical components built into them, such as in aerospace, defence, healthcare and process control systems. Most organisations in these sectors have had obsolescence and counterfeit management plans in place for some time.

However, counterfeits and fraudulently marked versions of components on long lead times or on allocation pose a threat to all sectors, including organisations who will have considered the threat minimal or non-existent up to now and who will have no such plans in place. Organisations with no formal counterfeit management plans in place, or with very little or no experience of counterfeit components, should at least evaluate the potential threat before lead times start to harden and component supply starts to become scarce. www.anticounterfeitingforum.org.uk is a free-to-access online directory for searching all significant public domain information relating to the threat and how to mitigate against it. 

Good background information can be found on the ‘read more’, ‘useful reference material’, ‘counterfeiting and the law’ and ‘best practice’ pages on the website, while sources of more detailed advice can be found on the ‘organisations combating counterfeiting’ and ‘solution providers’ pages. The online counterfeit component database on the website, containing over 3,000 separate cases of counterfeiting, can be accessed after first registering on the website, which visitors can do free of charge. 

No one can know when the tipping point in component supply will arrive but anyone reading this article, in an organisation with no prior experience of counterfeit components, should at least evaluate the threat as soon as possible because, by the time they get the appropriate processes in place, the tipping point may have arrived. 

  • Jul 03, 2017

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