Counterfeit-part risk expected to rise as semiconductor market shifts into higher gear, says IHS

May 10, 2012 // By Julien Happich
With the semiconductor industry entering a phase of accelerating growth, the number of counterfeit-part incidents also is expected to rise to new record highs, according to an analysis of trends conducted by information and analytics provider IHS.

The number of counterfeit parts reported in the electronics supply chain historically has risen and fallen generally in concert with the annual performance of the global semiconductor industry, as presented in the figure below. Chip sales and component counterfeits expanded in tandem during the period from 2001 to 2007—a time of expansion for the semiconductor industry. Counterfeits then plunged when semiconductor revenue contracted in 2008 and 2009 as the global economy went into recession. However, when semiconductor industry revenue rebounded by a hefty 33 percent in 2010, reports showed that counterfeit reports surged by a whopping 152 percent.

This year the semiconductor industry is entering a new expansion cycle, with revenue growth accelerating to 4.3 percent, up from 1 percent in 2011. Growth is expected to rise to 9.3 percent in 2013. With supply chain participants in 2011 reporting 1,363 separate counterfeit-part incidents worldwide—a record level—conditions now are prime for counterfeit reports to reach new highs in 2012.

“The semiconductor industry is exhibiting the classic signs of the start of a new growth cycle, with tightening supplies, broad-based price increases and a lengthening of lead times for the delivery of products,” said Rick Pierson, principal analyst for semiconductors at IHS. “These are prime conditions for suppliers of counterfeit parts, which are eager to fill supply gaps with their fake goods. For semiconductor purchasers, the rise in counterfeits represents a major risk, bringing downsides in terms of financial losses, damage to company reputations and even safety concerns in some products.”

Prime breeding ground for counterfeits

Most electronic components appear to be experiencing a tightening of supply along with an increase in pricing and lead times. Price increases are expected to continue rising throughout 2012.

IHS now predicts that demand will exceed supply in the third and fourth quarters for many widely used components, including capacitors, NAND flash, dynamic random access memory (DRAM), power semiconductors and logic chips.

Such shortages represent a