Black and Gray Markets for Microchips Are Thriving in the Ukraine Crisis

The Ukraine-Russia conflict has revealed many shortcomings and bottlenecks in the global supply chain, and over one year in it is still revealing new wrinkles that, in some cases, will permanently alter how electronics manufacturers evaluate supply chain risk. One such wrinkle is the revealing of just how sophisticated black and gray markets for microchips are becoming, and how risky operating (knowingly or unknowingly) in these markets can become.

The latest example of this is recent discovery that a “surge” of chips and other electronic components has been detected going to Russia. According to senior tax and trade officials from the U.S. and European Union, these components are “deemed as critical to the development of weapons, including Russian cruise missiles that have struck Ukraine.”

While this does not have a direct impact on traditional electronics manufacturers, it does highlight the ability of gray markets operating outside of traditional channels and authorized distributors. They have become so sophisticated, in fact, they have managed to bypass a large number of sanctions levied on Russian imports by the U.S., the EU, and other major countries such as Denmark. In January 2023, for example, a Dutch investigation revealed that millions of microchips made by Dutch companies ended up in Russia since at least February 24, 2022.

The culprit, said the investigations, was a small number of Chinese companies that obtain sanctioned inventory such as microchips, and then export them to Russia through trade channels in Armenia, Kazakhstan, and other countries.

The appeal of such channels is obvious. In a marketplace that has experienced significant disruption, delays, and shortages in recent years, turning to unauthorized channels where inventory seems to be plentiful — and often at discounted pricing — is tempting. However, when operating through these channels, lack of traceability means the risk of incorporating counterfeit or refurbished chips into designs drastically increases. Should these chips go into life-saving healthcare equipment or military technology, the oversight could very well cost lives.

Despite such temptations, it is critical that electronics manufacturers maintain ties to direct chip manufacturers and authorized distributors for inventory sourcing. This ensures that each chip and part incorporated into a design is in optimal condition and performs to established expectations. At Partstat, our solutions involve direct purchasing from authorized distributors, so our customers can rest assured that the inventory they receive through Partstat is exactly what they intended.

For more information on the supply chain protection our Inventory Ownership Solution offers, contact a Partstat representative today!