The Normalization of Counterfeit Chips and Components

By Logan Wamsley

One of the major and unfortunate consequences of a global supply chain disruption like the one still being felt today is that it opens up opportunities for bad actors. And almost like clockwork, recent reports have been circulating through the news cycle that the number of counterfeit chips and components within supply chains has exponentially increased in 2021.

The source of the vast majority of these counterfeit chips is, as it has consistently been in recent years, China. Additionally, while what most people think of as counterfeit — alternate chips and components branded to resemble a notable brand — has been an element in this trend, the number of OEMs and EMS providers unknowingly purchasing refurbished, substandard chips is also on the rise.

China, for its part, has done little from a legislative level to curtail this issue. In fact, in some respects it has appeared to support the trend. Sun Zhenxiang, a Shenzhen-based chip trader, was recently quoted in the Global Times that secondhand products or defective chips should function normally and, like any other chip, be replaced in three to five years. “These chips are imported into China in electronic waste, and they are removed and sold,” he claimed.
The process of refurbishing a chip is inexpensive and relatively straightforward. Once the chip is reclaimed from e-waste, it is then cleaned and all identifying logos are removed. Substandard or defective chips, meanwhile, while “new” in the basic sense, are immediately packed at the assembly line and might not have any identifying differences from a normal product.

According to the China Economic Observer, some major chip suppliers are in fact being open about their counterfeiting practices, The Epoch Times reports. While Chinese law itself explicitly states that it is illegal to sell substandard products, the term “substandard” carries enough ambiguity for chip providers to continue uninhibited. In some cases, chip factories are creating completely separate production lines to expedite the sales of their counterfeit or refurbished products, many of which are sold at full market value.

While some counterfeits are discovered through some form of validation process done either in-house, through a third party, or authorized vendor, many are not discovered until the product they are placed into malfunctions, commonly when placed under some degree of stress such as extreme weather conditions. Only very rarely does the counterfeit provider receive any form of consequence at this stage, and the blame usually falls on the OEM manufacturer or customer. In extreme cases, such malfunctions, it could even impact the health and safety of the product users.

To mitigate such concerns, it is strongly recommended that OEMs and EMS providers make every effort to make chip purchases from either an authorized distributor or direct from the component manufacturer.