Electronics Grey Market Flooded with Counterfeit Chips Amid Shortage

Sweeping demand for 200mm and 300mm wafers has officially outpaced supply—as device makers scramble to procure both low-cost and highly-advanced semiconductors for their products. Consequently, millions of chipset-dependent electronics are growing scarcer and costlier. COVID-related production halts and slowdowns have only worsened the situation.

This predicament arrives in lockstep with increased adoption of 5G, electric vehicles, IoT devices. Gamers in the console and custom PC markets are also driving consumption. 

Shortages have even led companies like Toyota, GM, Sony, and others to slash production. Even perennial silicon buyers like Apple are bearish on their upcoming sales projections. Supply chains worldwide are ailing. While governmental restrictions on production and distribution have compounded the issue, chipmakers are struggling to rapidly add capacity. What fallout has been observed from these developments? 

Image courtesy of Yogesh Phuyal, via Unsplash.

Introducing the Gray Market

Never has the adage “when there’s a will, there’s a way” rang so true. Suppliers who can’t reliably make factory-direct purchases have started exploring alternative avenues. Additionally, this production vacuum has given exploitative fabricators opportunities to flourish.

We’ve seen a new “gray market” for semiconductors arise as a result. Numerous counterfeit chips threaten to infiltrate supply chains—as desperate companies hope to bolster their component stores, while consulting third-party marketplaces. We call this gray, because while the purchase mechanisms are legal (unlike via the black market), the chips sold are clearly misrepresented as genuine. False packaging, serialization, and hardware markings are designed to swindle buyers. 

Eventually, these components may make their way into commercial and consumer devices. While not all counterfeit semiconductors perform poorly, there’s no data to support their long-term dependability. Consider notable customer complaints levied against authentic components. You might recall the cellular-reception gremlins that once plagued Apple’s iPhone—which had owners seeking devices containing Qualcomm modems over Intel equivalents. For a time, benchmarks suggested that TSMC-supplied CPUs bested those provided by Samsung. The resulting PR was a major thorn in the company’s side. What public fallout might ensue if counterfeit chips invaded large batches of devices? 

The issue even transcends counterfeiting. Many dishonest sellers are passing off damaged, aging chips as brand new. Given that consumers are now keeping their smartphones for 2.5 to 3 years, this can significantly hamper longevity. Gray-market components impact users and producers. They can lead to increased warranty claims, replacements, and expense for all parties involved. 

Counterfeiters often use laser engraving and chemical thinning to replicate OEM markings. These can melt bonds and degrade the overall package. Underlying metals may be exposed and become susceptible to corrosion. Acid treatments aimed at cosmetic improvements also damage pins and solder—especially when their use is liberal, or when counterfeiters don’t properly wash away excess residue.

Understanding the Scope of the Problem

Many experts believe that shortages could extend deep into 2022—only fueling existing concerns over semiconductor availability. The problem isn’t going away anytime soon, and especially given that many complex dynamics are at play. Companies who’ve resorted to in-house fabrication have a leg up, though even that advantage isn’t foolproof.

Considering that U.S. global semiconductor market share has plummeted 25% in the past 20 years, it’s clear that domestic production must accelerate to counteract these challenges. The architects behind the recent CHIPS for America Act have argued this same point. Funding is critical. Additionally, giants like TSMC and GlobalFoundries are pouring billions into American manufacturing expansion. 

Those movements take time, unfortunately, and will provide little immediate relief. Alarmingly, the counterfeit chip market now exceeds $75 billion in global value; counterfeiters therefore are massively incentivized to cash in. How can device makers foil them in the meantime?

Catching Counterfeiters Red-Handed

Testing and inspection are vital processes when it comes to catching fakes. While engineers and assembly workers may be trained to spot inconsistencies, some hardware problems can evade the naked eye. That’s where machine-based QA comes into play. Companies like Creative Electron and others have developed imaging techniques designed to catch bad chips. X-ray fluorescence analysis and energy-disruptive spectroscopy probe deeply into chip structure. While expensive and most suitable for larger yields, this is a reliable way to spot internal inconsistencies. It’s then somewhat easy to confirm whether a chip is genuine. 

There are also two types of functional testing that manufacturers can use. The first involves simply running voltage through components and assessing truth-table conformity. Though exceptionally effective at uncovering glaring issues, it doesn’t dive deeply enough to test tolerances. The second variant, curve-trace testing, aims to solve this by applying voltage currents between IC pins. 

The resulting I-V curve is plotted and analyzes a dynamic current’s relationship with voltages and potential differences. Specific chips should perform to a certain spec. This is a reliable way to weed out any imposters. Modern detectors have multiple channels, and can concurrently test all pins on an IC. Non-destructive methods like these are vital when every chip matters. 

Non-technical approaches are also essential. Component tracing across all links in the supply chain—and regular compliance checks—will help ensure that real semiconductors are used. That removes plenty of burden from designers and engineers, who might otherwise be apprehensive about their device internals. 

Future Considerations for Designers and Distributors

What if you’re an individual designer? The waters become understandably muddied by comparison, as hobbyists and smaller shops might lack the resources or expertise required to spot fakes. Their purchasing avenues are more retail-based, and it’s not unreasonable to approach these electronics outlets with greater skepticism. The gray market is almost omnipresent, and knowing what to look for—plus asking the right questions—is key to minimizing your risks. 

The onus is also on distributors to conduct ethical business practices. It might be tempting to look the other way and sell counterfeit chips to unsuspecting customers. Independent suppliers to these franchises are also contributing to the growing counterfeiting problem, either knowingly or otherwise. It’s rare to find a method with 100% reliability in detecting fakes. However, companies and individuals have additional legwork to do in undermining bad actors.