Chip Shortage Has Spawned a Surplus of Fraudsters and Fake Parts

dl324

Joined Mar 30, 2015
13,539
You need a subscription to read the entire article. Could you post a PDF?

China has long been lax on enforcing intellectual property rights. Now I'm suspicious of any electronic parts made or from China, especially anything used. I was looking at used disk drives on eBay and most of them were coming from China.

I read an article about companies hiring someone in China to be a bounty hunter for counterfeit parts being passed off as genuine. The guy was actually setting up manufacturing for counterfeit parts that he turned over to the companies who hired him to get the bounty.
 

Thread Starter

SamR

Joined Mar 19, 2019
3,615
Hate when that happens, didn't need sub to read the original article but the link requires one. Article gone from where I found it. sorry!
 

hrs

Joined Jun 13, 2014
351
https://updatem.com/chip-shortage-has-spawned-a-surplus-of-fraudsters-and-fake-parts/

Chip Shortage Has Spawned a Surplus of Fraudsters and Fake Parts

Businesses in need of chips are taking supply-chain risks they wouldn’t have considered before, only to find that what they buy doesn’t work. Dubious sellers are buying ads on search engines to lure desperate buyers. Sales of X-ray machines that can detect fake parts have boomed.


It is a quality-control crisis created by the world’s scramble to land hard-to-find semiconductors at any cost. Without those essential parts, makers of products as varied as home appliances and work trucks are stuck in neutral as the global economy ticks back to life.
This spring, New York-based BotFactory Inc., a maker of 3-D printers that produce electronic parts, couldn’t source microchips at any of its go-to vendors for weeks. Eventually, it turned to an unknown seller on AliExpress, an online sales platform operated by China-based Alibaba Group Holding Ltd. An early sign of trouble: The orders arrived packed in plastic wrap rather than the usual protective antistatic bags.

X-ray machines, in higher demand this year during the chip shortage, can reveal if the inside of a chip is empty—like the second one from the right—or has inconsistent circuitry.
Photo: Creative Electron

“Of course, a bunch of them didn’t work,” said Andrew Ippoliti, BotFactory’s lead software engineer.
Mr. Ippoliti suspects the defective parts were fakes. Before making the purchase, BotFactory had been assured the microchips were legitimate, he said—but the seller went silent after the products failed to work. BotFactory filed a dispute with AliExpress, which issued a full refund.
The company finally procured some 200 microchips by ordering direct from the manufacturer.
At ERAI Inc., which maintains records of misbehavior in the electronics supply chain, new complaints arrive almost every day, said Kristal Snider, vice president at the industry watchdog. Buyers from more than 40 countries have filed reports of wire fraud, she added.
The transgressors are generally opportunistic criminals. They lure victims through targeted ads on search engines, direct them to boastful webpages and then disappear after receiving wire payment. ERAI has flagged dozens of high-risk websites, many based in Hong Kong.

The chip shortage has dented car makers world-wide, with Ford Motor Co. saying last month it would cut output across more than a half-dozen U.S. factories in July.
Photo: Rebecca cook/Reuters

One flagged firm is Blueschip Co., which calls itself one of the world’s “largest and fastest-growing” electronics-components distributors. ERAI said the company’s website shares similarities with those of known bad actors—including some guarantees that use the same wording.
Blueschip, in a written response to The Wall Street Journal, said it couldn’t be bothered to respond to ERAI’s claims. “The innocent know their innocence,” the Hong Kong-based company said.
“The number of websites we see popping up offering hard-to-find, allocated and obsolete parts is alarming,” said ERAI’s Ms. Snider in an email. “After 27 years of investigating and reporting fraud in this industry, it takes a lot to alarm me.”
Instances of chip fraud have historically been underreported, industry participants and experts say, because victims are reluctant to publicly admit that they have been duped. Pursuing criminal charges is difficult, particularly across borders.
For counterfeiters and shady distributors, the possibility of getting caught isn’t great enough to alter their behavior, said Diganta Das, a researcher at the University of Maryland who studies counterfeit electronics. There are so few convictions, Mr. Das said he could recite them all if he tried.
A global chip shortage is affecting how quickly we can drive a car off the lot or buy a new laptop. WSJ visits a fabrication plant in Singapore to see the complex process of chip making and how one manufacturer is trying to overcome the shortage. Photo: Edwin Cheng for The Wall Street Journal

Counterfeit chips existed before the current shortage. The knockoffs range from sophisticated copies to old parts refurbished to look new. Many buyers have improved testing capabilities, lowering the odds that errant parts could end up in finished products, chip experts said, though counterfeiting techniques constantly evolve.
Most companies encounter counterfeit parts about three times a year, estimates Michael Ford, a senior director at Horsham, Pa.-based Aegis Software Corp., who has worked on industry standards for the quality and tracking of electronic parts. In nearly every case, the fake parts go unreported, he added.
“The whole supply chain does not want to appear as though it’s compromised,” Mr. Ford said.
Given the chaos of this year’s shortage, some buyers are tightening their antifraud measures. The Independent Distributors of Electronics Association said orders for its 250-page manual on identifying suspect parts are coming in at twice last year’s pace. Some buyers are companies that had obtained faulty or suspicious components, said Faiza Khan, the group’s executive director.

A little scraping may reveal a counterfeit chip’s original markings.
Photo: Independent Distributors of Electronics Association

At U.K.-based distributor Princeps Electronics Ltd., requests for the most expensive and sophisticated electrical testing have nearly quadrupled this year, said Ian Walker, operations director. Those require a specialized engineer, he said, and in some cases mean a customer is paying tens of thousands of dollars to confirm the authenticity of a $3 chip.
“It is a very difficult thing to totally remove the risk of counterfeit parts in an efficient and cheap way,” Mr. Walker said.
Sales of Creative Electron Inc.’s fraud-spotting X-ray machines, which cost up to $90,000 and can detect whether the inside of a chip is empty or has inconsistent circuitry, have doubled over the past year, according to Bill Cardoso, chief executive of the San Marcos, Calif.-based company.
Astute Electronics Inc., an electronic components distributor, plans soon to buy its fifth X-ray machine for in-house inspection, said Dane Reynolds, vice president of operations. It began the year with two.
As client requests have surged, the firm is analyzing more components, Mr. Reynolds said. “As a result, we are finding more bad parts.”
—Elisa Cho and Jim Oberman contributed to this article.
Write to Stephanie Yang at stephanie.yang@wsj.com
 

nsaspook

Joined Aug 27, 2009
8,908
https://www.wsj.com/articles/manufacturing-microchips-the-equipment-that-makes-them-11636149507

What’s Harder to Find Than Microchips? The Equipment That Makes Them
As the chip shortage has grown acute, bidding wars for used equipment have spiraled, says Mr. Howe. For example, a Canon FPA3000i4, a piece of lithography equipment manufactured in 1995, which is used to etch circuits in chips, was worth as little as $100,000 in October 2014, and today goes for $1.7 million, he adds.

Potential buyers are now left with a difficult choice if they want to expand their capacity to make older chips: either pay exorbitant prices for old equipment, assuming they can even find it, or get on a waiting list for new equipment, which often stretches to six months and beyond.
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https://caeonline.com/buy/wafer-steppers/canon-fpa-3000-i4/9389206
 
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SamR

Joined Mar 19, 2019
3,615
And I bet the surplus equipment dealer (junk man) who had warehouses full of them is laughing his butt off!
 

nsaspook

Joined Aug 27, 2009
8,908
And I bet the surplus equipment dealer (junk man) who had warehouses full of them is laughing his butt off!
He's glum because he'll be broke next year with no sales now that warehouses are empty with little prospect of more inventory being on the market soon. The only thing on the street is leftover junk people are buying just for parts to keep their dinosaurs running.

He's trying to sell stuff older than most of the wafer chip operators.
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MrSalts

Joined Apr 2, 2020
733
The plastics, aluminum, leather, glass container and pigment & dye industries are all very thankful for the "chip shortage" because it keeps the media off of their backs.

I was at a manufacturing conference and an auto industry rep explained that custom color matches in paint and plastics are key to their brand and designs. Color approvals are done under full-spectrum lights but spectroscopically and by designers eye. Now, they are essentially telling plastics companies, "if it looks forest green to you, send it to us". If they don't lower their standards, they don't get any material and don't get to build a car.

Sadly, some manufacturers have suspended inspections of foreign suppliers to check their iso9001, use of child labor and environmental impact. Reason 1) they would rather have any material if they can't get ethically made material if good quality. Reason 2) they can't find enough employees to manage the vendor qualification / vendor audit processes.
 

Thread Starter

SamR

Joined Mar 19, 2019
3,615
A lot of the "junk men" actually get the old stuff free or even paid for just hauling it away so their only real overhead is just that, the warehouse to store it in. Until either someone wants to buy it or he sells it to the scrapyard. It's actually one of the reasons the company I worked for didn't buy computers. It was cheaper to buy a rental contract with capital from GE Capital and pay the percentage than to buy them outright and have to pay to have them hauled off later. It also forced the area supervisors to replace old out of date equipment when the rental contract expired instead of complaining they "couldn't afford to upgrade and it wasn't in their budget for this year." It became a yearly cost item for their budgets by renting and saved them money to boot. A lot of that expired contract stuff that we thought was outmoded was sold overseas to very eager buyers. It didn't matter to us what they did with it just as long as it was gone to make room for the new equipment and we didn't have to spend money for our very expensive hours to dispose of it ourselves.
 

nsaspook

Joined Aug 27, 2009
8,908
A lot of the "junk men" actually get the old stuff free or even paid for just hauling it away so their only real overhead is just that, the warehouse to store it in. Until either someone wants to buy it or he sells it to the scrapyard. It's actually one of the reasons the company I worked for didn't buy computers. It was cheaper to buy a rental contract with capital from GE Capital and pay the percentage than to buy them outright and have to pay to have them hauled off later. It also forced the area supervisors to replace old out of date equipment when the rental contract expired instead of complaining they "couldn't afford to upgrade and it wasn't in their budget for this year." It became a yearly cost item for their budgets by renting and saved them money to boot. A lot of that expired contract stuff that we thought was outmoded was sold overseas to very eager buyers. It didn't matter to us what they did with it just as long as it was gone to make room for the new equipment and we didn't have to spend money for our very expensive hours to dispose of it ourselves.
It's not all negative.
Line processing equipment is rarely junked to total scrap in the semi industry as most machines are contaminated with decades of toxic dangerous chemical use. The used Capital equipment Companies were warehousing at low cost a toxic wasteland of old equipment that now is finally being refurbished for good use.
 
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