One Counterfeit Part Every 15 Seconds
May 25, 2012
This is an IHS News Flash from information and analytics provider IHS (NYSE: IHS) covering events on the second day of the 2012 ERAI Executive Conference.
More than 12 million parts have been involved in counterfeit incidents during the period spanning the start of 2007 through April 2012, according to Rory King, director, supply chain product marketing at IHS, citing data from ERAI. King delivered the news here on Friday to an audience of electronics industry participants attending the ERAI Executive Conference, co-hosted by IHS.
In his presentation, King noted that reported incidents of counterfeited parts amounted to 1,363 in 2011. However, each incident can include thousands of separate parts, adding up to 12 million over the past five-and-one-quarter years. This equates to slightly more than 1 counterfeit part every 15 seconds.
"Last year there was a record number of counterfeit incidents reported," King said. "Altogether, the last five years has seen an all-time high in counterfeit reports."
While the rise in semiconductor counterfeiting is often laid at the feet of China, King noted that the country actually is not the location where most counterfeits are reported.
"Companies in two countries accounted for two-thirds of counterfeit incident reports in 2011," King said. "China was actually No. 2, while the United States was No. 1. The two countries were neck and neck, with China at 32 percent and the U.S. at 33 percent. So, in terms of counterfeiting, the enemy is also within."
The figure below presents the top countries ranked by location of counterfeit reports.
While the U.S. and China dominate in terms of reports at a combined 65 percent, the countries of origin accounting for the counterfeit parts is more disparate, with the four nations of Malaysia, South Korea, Japan and the Philippines collectively accounting for 64 percent of reports, according to ERAI data. However, the accuracy and value of this data is limited, King noted, given that counterfeiters are highly skilled at disguising the true origin of their wares.
Obsolete Parts: The Hidden Counterfeit Challenge
For many companies, particularly those in the defense and aerospace industries, much of the counterfeit risk lies in obsolete parts.
"Slightly more than one out of every two counterfeit parts shipped during the decade from 2001 to 2011 are obsolete," King noted. "Obsolete parts are where a lot of counterfeit activity is occurring. This underscores the importance of obsolescence management and lifecycle planning. Although obsolescence management is critical, more than one-third of counterfeit incidents are for active components underscoring that this issue is not exclusively a matter of obsolescence management. Vigilance in managing continuity of supply is very important, and companies need knowledge of actual counterfeit parts that are currently in circulation in the supply chain."
Defense Against Counterfeit
King's presentation also highlighted the international impact of new U.S. Department of Defense (DoD) regulations on foreign suppliers to the U.S. government. The U.S. National Defense Authorization Act (NDAA), which was signed into law on Dec. 31, imposes strict regulations and severe criminal penalties on counterfeits supplied for government military and aerospace programs.
"The answer to the question of whether the NDAA counterfeit regulations will impact companies outside the U.S. is yes," King noted. "International companies participate extensively in supplying to the DoD, with the Middle East accounting for the largest portion. There are thousands and thousands of suppliers all over the world that are impacted by NDAA through flow-down. These companies are receiving inquiries on counterfeit avoidance and need to know how to understand and accommodate the issues related to fake parts and compliance with NDAA."