What are Counterfeit Chips?

Mike Borza

Nov 01, 2021 / 6 min read

Here’s what you need to know:

  • From privacy to national security, the global chip shortage has expanded the playing field for criminals
  • Keeping quiet about being duped continues to be a mainstream practice
  • The Golden Egg: Thwarting counterfeiting at the chip design phase
  • More clones and counterfeits expected in the years to come; older technologies that are easier to reverse-engineer will take the lead
Counterfeit Chips

Luxury watches. Sporting apparel. Consumer electronics. Semiconductors. Welcome to the era of counterfeits.

The brains of modern electronics have hit a roadblock. Even in an ideal world, authentic semiconductors are difficult to make and keep up with market demand. Add in the perfect storm of COVID-19, Moore’s law, geo-political issues, and the increasing challenges to keep pace with worldwide competition, and you have a recipe for opportunists to cash in on counterfeiting.

The global shortage of semiconductors is slowing production of everything from personal electronics to automobiles. As in other industries where the genuine item is in short supply (or a reasonable fake can be produced for less), the semiconductor industry is now facing a flood of counterfeit chips.

Both The Wall Street Journal and TechRepublic have recently reported on the influx of fake chips and why companies are keeping quiet about being duped. Some businesses in need of semiconductors are taking supply-chain risks they wouldn’t have considered before, resulting in accidentally engaging with bad actors.

The chip shortage has worsened the problem of counterfeit chips. Procurement teams and systems developers need to be aware of different types of semiconductor scams and why tackling this problem at the design phase can help beat the practice.

Chip Shortage Woes: A Breeding Ground for Con Artists

Chip fraud is a lot like other crimes against enterprises. In the same way that companies didn’t report data breaches until they were required to do so by legislation, companies don’t want to admit that they weren’t savvy enough to detect frauds or don’t have sufficient control over their supply chain. Chip knockoffs range from standard chips in common consumer electronics and to more sophisticated and expensive chips—refurbished to look new—and even used in heavily regulated industries like aerospace and defense.

Amid the struggles of increasing market demands, pricing of components, and businesses being pressured to hoard and take risks they wouldn’t have before, the opportunity for con artists has taken on a new life. According to TechRepublic, fraudsters have stepped up their game to swindle enterprises in need of crucial components, resulting in many companies turning to vendors that don’t have a proven track record for producing integrated circuits yet claim that they can fulfill microchip needs that their reliable sources cannot.

It’s Going to Get Worse Before It Gets Better

While developing a counterfeit chip is a time-consuming process, the impetus to do so has increased. With the market demand for chips unlikely to ease in the near future, the chip shortage will last into 2023 for a couple of reasons.

First, COVID-19 has increased the demand for more computing power in employees’ homes. Distributed access requires more bandwidth in edge networks that connect homes to the internet as well as to centralized data centers. The bandwidth demands increase the volume of existing designs in production, and new designs are being rushed to the market.

Second, the worldwide shortage of shipping capacity and long delays in border crossings slows delivery rates in a globalized industry like chip manufacturing. Before the pandemic, chip fabrication units were already operating near capacity. The current logistical challenges to procure essential materials, equipment, and other supplies have made the capacity challenges for authentic chips worse. Recycled chips or re-packaged failed parts don’t face as many of these production challenges.

Of these factors, the only problem that can be solved relatively soon is getting shipping to work more efficiently as border restrictions ease with the slowing of the pandemic. While products that are set to release in the next few months take chip availability into account, availability today doesn’t guarantee availability for the next six months.

Types of Fake Chips

Counterfeit chips enter the supply chain in different forms:

  • Gray market recycled chips are reused parts scavenged from old boards or products that are represented as new parts. They may be re-marked or otherwise modified to look new. The fact that they are not authentic can be difficult to detect.
  • Fraudulent chips or clones are functionally and visually similar to the original manufacturers’ products. Clones can have security back doors or hidden functionalities designed to create a larger security vulnerability.
  • Over-produced and failed parts include components that fail testing and are pushed back into the supply chain. While they may not lead to catastrophic failures, they may operate incorrectly under certain conditions or fail before their normal expected lifetime. Alternatively, parts may be over-produced by the factory, or some portion of tested-good parts recorded as failed by the test house, with the excess good parts diverted to the fraudulent channel.

Counterfeit chips drive up costs for the victims of fraud, and make products using them more expensive. More ominously, they may cause potentially life-threatening consequences. For example, a bogus chip in a smart home device could present privacy risks, and a fake chip inside an autonomous car could endanger human life.

Thwarting Counterfeiting Begins at Chip Design

Physical surface examination isn’t always enough to spot the difference between fake and real chips. Three techniques at the chip design and packaging stages can help prevent counterfeiting of your next design:

  • Optical and electrical watermarks: Embedding an optical pattern on the chip, or a hidden portion of the circuit that can be electrically stimulated under specific conditions are examples of ways to create a watermark that is unique to the genuine part, making it difficult to produce a counterfeit. A second watermarking technique embeds active components into the packaging that can be excited with a radio signal, or passive feature that can be stimulated optically. Fake parts that don’t possess those features are easily detected during shipping and receiving or in printed circuit board (PCB) or system manufacturing.
  • Embedded cryptographic identity: Embedding each chip with a unique cryptographic identity detailing when and where it was manufactured provides a strong proof of the legitimacy of the chip.
  • Chemical or microscopic structural marking of packaging materials: Marking chip packages with hard-to-reproduce chemical dyes, or etching or engraving unique microscopic patterns and identifiers onto the chip, can make the counterfeiting process more difficult.

Synopsys has been working under a variety of Defense Advanced Research Projects Agency (DARPA) programs to tackle the challenges of counterfeiting, reverse engineering, and validating the authenticity of integrated circuits (ICs) and the integrity of the microelectronics supply chain. These programs will drive future technology developments for efficient ways to secure the industry’s supply chain throughout a chip’s lifecycle.

The Road Ahead

The growth of clones and counterfeits will continue over the next few years. Chips built in today’s advanced process technologies will be cloned more frequently as those nodes become more accessible and mature. Older technologies that are easier to reverse-engineer and manufacture will remain the most common targets. The most financially attractive targets for counterfeiting are those that are in high demand and have good profit margins. For instance, parts that are designed to satisfy a market niche like the industrial internet of things (IIoT), will be more lucrative to fraudsters compared to consumer products, given the long product lifetime and sustainable prices.

Companies need to assess the effectiveness of their anti-counterfeiting strategies over the lifetime of their products. Each organization will need to decide how much security risk they are willing to accept in the supply chain versus building protections into the chip. As we see security features embedded early in the design phase, the industry will witness a spurt in growth of advanced tools that can help to secure the supply chain.

The industry is still in the very early days of addressing the complex challenges of counterfeiting. As Ars Technica notes, counterfeiters are well aware of the time pressure and chip shortages that companies face, and appeal to their victims’ ultimate need to get products out the door in spite of shortages.

While the road to detecting genuine chips and knockoffs won’t be obvious, designers can take advanced measures early in their process to help protect their authentic chips.

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