The global information organization IHS recently confirmed that one out of every four counterfeit parts reported last year was an analog IC. While the media focus on counterfeiting has been primarily military/aerospace, as it relates to national defense and homeland security, IHS revealed that most counterfeiting involved commercial-grade products. That should scare you.
The Size Of The Problem
Analog ICs were a $47 billion market in 2011. They pervade every market application, major and minor. The failure of a fake IC might cause a minor glitch, or a major loss of life and property. There’s no way to calculate the probability.
If my cell phone dies because a fake low-dropout regulator (LDO) loses its mind, well, I’d never know. I’d just replace the phone. Who really cares why it died? If it’s under warranty, I’m lucky if I get a replacement. Otherwise, I have an excuse to buy a new toy with the latest features. It’s a win-win for me.
While driving to work the other day, I was thinking about my electronic steering and my antiskid braking system and my electronic suspension control system and my engine management computer and all the sensors connected to them. I’m beyond the 36,000-mile, three-year warranty, and I certainly wouldn’t replace my car if one of these systems failed because a counterfeit device died. I would, however, have to shell out hundreds (if not thousands) of dollars for repairs. Knowing that somewhere along the supply chain someone decided to cheat the system makes me an unhappy camper.
Then my mind wandered to the hospital where my father-in-law lay, attached to devices dispensing medication through an IV or monitoring his bodily functions, all connected to a central nursing station. The thought of a counterfeit chip-related malfunction was probably more troublesome for him than me, but still of great concern.
My boss recently flew to India to qualify a supplier. As he left for the airport, I wished him a safe journey and hoped his plane was counterfeit-free. As his eyes glazed over, I realized this was not the proper sendoff.
Counterfeiting is big business for people who don’t think of themselves as criminals. (“It’s a free market. We provide an alternate source at a lower price.”) No one reports revenue from criminal activity, so we don’t have an exact figure.
However, Brian Toohey, president of the Semiconductor Industry Association (SIA), testifying before the Senate Armed Services Committee, pegged the costs at $7.5 billion annually. He cited this as SIA’s estimate of losses to U.S.-based semiconductor companies. That figure doesn’t include Samsung, Toshiba, Renesas, STMicroelectronics, Hynix, Sony, NXP, and other non-U.S. based companies. Could the actual cost be closer to $15 billion?
Let’s not forget the OEM whose product fails and is faced with massive returns and possibly lawsuits. Could the losses be doubled again to $30 billion? Whatever they are, they’re big, and they’re a major problem for the electronics industry.
Why Counterfeit Analog Products?
The story goes that when Willie Sutton was asked, “Why do you rob banks?” he answered, “Because that’s where the money is.” The same argument holds for analog IC counterfeiting. Analog is an easy target, relative to digital technology.
- Analog lithography is 0.18 µm or larger. Parts are easily manufactured using older equipment that’s readily available and relatively inexpensive. Digital lithography (for new parts) is sub-100 nm and shrinking. Capital equipment is expensive, as are masks and design tools.
- Analog designs are typically single-function, on a small die. Digital designs are typically large, complex, and take time to copy.
- Analog product life cycles can be many years, if not decades. The 555 timer has been in production 40 years and is still going strong. Digital product life cycles are short (due to rapid adoption of new standards and features), which works against long-term counterfeiting success.
- A given analog chip might be used by hundreds of customers, many of whom have little experience spotting counterfeits. Digital parts are used by a smaller number of large companies, who are more aware of fakes.
- Analog margins are high, so counterfeits can be sold at low prices while netting large profits. The vigorous competition among digital IC manufacturers tends to drive down profits.
In short, the smart money is on analog counterfeiting. Consider the gross profit margins posted by the major analog IC manufacturers. The analog IC profit leader, for example, had a record year in fiscal year 2011, posting a 78.1% gross profit. (Remember, this is an average for all products sold in one year. Half its sales had a gross profit higher than 78.1%.).
A counterfeiter desiring to copy and market higher margin products could do so at three times the industry leader’s costs and still have a gross profit margin in line with industry averages. With zero investment in R&D, counterfeiting presents a formidable, albeit unethical and illegal, business model.
Reducing The Threat
You don’t have to be a victim. You can take action to virtually eliminate the chance of buying counterfeit devices.
- Buy only from reputable sources. The original chip’s manufacturer will be glad to give you the names of its official distributors. A good online source is the Electronics Authorized Directory, a free, worldwide directory of original semiconductor manufacturers and their authorized distributors. This directory is available online at www.authorizeddirectory.com.
- Avoid unknowns. If you haven’t heard of a supplier, do your homework. Avoid disreputable firms like VisionTech, which from 2006 to 2010 knowingly sold counterfeit ICs to more than a thousand buyers.
- Don’t be suckered by low, low prices. If it looks too good to be true, it probably is.
- The most popular products are the ones most likely to be counterfeited. Pay particular attention to ICs that everyone uses.
Eliminating The Threat
You can eliminate counterfeiting by manufacturing your own custom analog ASICs. With only one source and one customer for each chip, there’s no opening where counterfeiters can penetrate the supply chain. Additionally, reputable analog ASIC suppliers use respected and secure wafer fabrication sources in nations that honor and respect the rule of law and protect intellectual property rights. Insist on knowing where your silicon is fabricated.
Previous papers have cited the economic advantages of combining multiple off-the-shelf analog functions into a single, low-cost analog ASIC. If your design uses multiple analog ICs (op amps, converters, power management, LDO regulators, FETs, etc.), you owe it to yourself and your company to explore the ASIC option.
From a strictly economic perspective, analog ASICs aren’t the ideal solution for every application. However, they can be surprisingly cost-effective, even in low volumes (a few tens of thousands of units) if the new chip can gobble up sufficient value. The math is simple: the more analog functions you integrate, the lower the volume needed to justify the ASIC.
The figure shows a rudimentary analysis of what does and doesn’t make economic sense when considering an analog ASIC. Surprisingly, the product’s lifetime volumes needn’t be high (though maximum savings naturally favor higher volumes). The green and blue lines represent approximate high and low ranges for up-front tooling and non-recurring expenses (NRE) typically encountered. These include all costs associated with getting the ASIC designed and into production. Other variables can include process variations (such as high voltage capability), or unique packaging requirements.