Gregory A. Quirk and Allan Yogasingam, Semiconductor Insights
TechOnline

A number of people read and commented on the Under the Hood Special Report: Counterfeit parts, legitimate woes story published at the beginning of the August. One of the recurring questions was why Semiconductor Insights did not go through authorized distribution channels to ensure we didn't put ourselves at risk. Though our situation may be a little different from a typical engineering firm (we generally buy in small quantities and are interested in a combination of the most advanced parts as well as older devices that may be difficult to source), a majority of the world's purchasing departments use independent part brokers as a way of acquiring the components they need for production. And therein lies the problem, as most counterfeit components make their way into the global supply chain through the channels created by the independent broker.

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Take a fictional example of a small to medium sized MP3 player design company. They want to design a next generation system capable of competing with the newest iPods that are soon to be released. During their design phase, a press release is issued about a new NAND flash part. They decide that they best way to compete is to use the latest and greatest density devices to offer superior memory space and a small footprint. The press release says that the company is sampling to customers. So using the appropriate channels, they contact the authorized distributor for the manufacturer of this new NAND flash. The authorized distributor is authorized because they look out for the best interests of the manufacturer; which not only includes getting their components designed into products that will sell well, but also determining if the applying design company has the potential to use more of their products. In this case, unfortunately, the company is not considered a big enough player to warrant getting such leading-edge samples.

Desperation as bait
The poor MP3 player design company is left with three options: 1) create a design using commercially available components, which they feel will put them in the same category as other competing players in the market and gives them no real edge on their competition; 2) delay their design project until the rest of the design world (aside from the big players like Apple) are able to get parts, which ultimately may give Apple the head start on their next design; 3) source the parts in any way they can, from anywhere they can, so that they can create and test a prototype and be ready for mass manufacturing once the memory components are available, which will likely be at the same time as when they have finalized their design. Why wait until the authorized distributor 'allows' you to buy the part on the open market when there is a broker in China who can sell you the part today?

This is just one of the many different scenarios for why companies risk getting counterfeit devices. Also consider companies that are using obsolete parts. When a design has been in production for a long time, there is always the possibility that one or more of the key components will be either phased out or replaced with a new and improved revision. Their authorized distributor typically warns companies when this is going to happen, and the purchasing department takes action by developing a stockpile of the parts currently being used. When they run out of parts, they have two main choices - redesign or find more parts. Chances are that the system as designed now is a cash cow for them. They have likely moved onto their next design, but considering the average length of a product development cycle, the new design could be months, maybe years, from seeing the light of day. There is a very good chance that the parts they are using will be long gone before version 2.0 comes out.

There is also the situation of an original equipment manufacturer (OEM) whose clients use their product in their plans and a redesign of said product would require a process review that could cost them significant amounts of money. Those clients would be very opposed to any migration to a new product because of all the work involved. Situations like this make a redesign of older systems often not worth the time and effort to re-spin and redesign using a new part.

This leaves the option of finding samples somewhere else. Enter the independent broker, one who is showing a large inventory of obsolete parts that any company can use until it can release their next revision. As the parts have been around for a while there are likely many available from somewhere, just not from the authorized distributor(s) of the original manufacturer. By sending out requests for quote to the independent brokers, many sources can be identified. These parts are usually at a higher price, as they are no longer being manufactured.

Unfortunately, the designer is between a rock and a hard place. They can choose not to buy the parts and be unable to service their existing clients, which in turn could damage their relationship with them and thereby reduce the chances of getting further sales or design wins; or they can bite the bullet and buy the parts. Whether it be buying leading-edge components that are just sampling, or obsolete parts that can only be sourced through them, a company is taking a risk that the parts they buy could be counterfeit.