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Home›Excess Supply›Japanese chip inspectors tackle flood of counterfeit fakes amid scarcity

Japanese chip inspectors tackle flood of counterfeit fakes amid scarcity

By Allison Nichols
November 28, 2021
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An increase in counterfeit semiconductors entering the small Japanese market has spawned a cottage industry of chip detectives.

Inspectors from CoreStaff, a Tokyo-based potato chip trader, examine footage in a room tucked away inside a Nagano Prefecture distribution center. They are surrounded by microscopes, x-ray equipment, and other testing devices.

A magnified image on a computer screen shows fine scratches, signs of aging, and other defects on a semiconductor. What attracts the most attention are the marks indicating that the surface has been filed down, a telltale sign of counterfeiting.

“The surface looks rough,” said an inspector. “The marks must have been crushed. “

As the global chip shortage limits supplies, industrial and consumer electronics assemblers are forced to source semiconductors that once circulated in the market and are now stored as surplus inventory.

It is at this point that the risk of fake chip slipping is high. These previously unsold semiconductors are often acquired without buyers going through the proper channels.

Laxly supervised companies unwittingly accumulate inventory by sourcing fake chips from other suppliers and then sell the defective items to product assemblers. The finished product may break down or malfunction unexpectedly. However, device assemblers have little choice but to use unsold inventory that is difficult to trace and without any guarantees from the suppliers.

This article is from Nikkei Asia, a global publication with a unique Asian perspective on politics, economics, business and international affairs. Our own correspondents and external commentators from around the world share their perspectives on Asia, while our Asia300 section provides in-depth coverage of 300 of the largest and fastest growing listed companies from 11 economies outside of Japan.

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CoreStaff inspectors have seen requests for fake chip checks triple or even quadruple in the past year, creating jobs almost every day.

For fake chips with realistically reproduced logos and engraved stamps, inspectors can determine authenticity by using x-rays or unwrappers to check for differences in lead frames and other characteristics. CoreStaff can also test the quantities of certain materials contained in semiconductors.

“The higher the demand, the harder it is to find semiconductors, so there is a higher potential for counterfeit items manufactured and sold,” said Masaki Tozawa, president of CoreStaff.

There are several ways to bring counterfeit chips to the market. One popular method is to salvage semiconductors from discarded computers and other electronic devices. The logos and product numbers on these semiconductors are forged to make them look like new products.

While the origins of many fake chips are unknown, many are suspected to come from China or Southeast Asia, where much of the supply chain is concentrated.

Meanwhile, there has been an increase in the number of chip trading companies in Japan dedicated to authenticity testing. In the past, many chip vendors tested products without compensation to meet the high quality demands of their Japanese customers.

But the tight supply chain has prompted many chip traders to sell their testing capabilities for a fee. One of them, Ryosan, started the new line of business in April 2020.

Ryosan provides services for a wide range of products, from microprocessors to logic and power semiconductors. The company receives more orders from new customers.

Chip testing “has led to the development of new customers in our core semiconductor sales business,” said a Ryosan project manager.

The Ryosan Technology Center houses X-ray machines, microscopes and equipment for analyzing the electrical characteristics of chips. Engineers inspect chips to see if they are counterfeit or to identify the causes of poor quality. The resulting detailed reports help build trust with new customers, Ryosan said.

But this kind of in-depth analysis can reach as much as 1 million yen ($ 8,700) for a single chip. Semiconductor traders like Ryosan can use idle facilities and charge only tens of thousands of yen for simple tests.

In April, CoreStaff launched a monthly subscription from 100,000 that covers five tests per month. The service generates little revenue, but such contracts lead to new customers who purchase semiconductors, the company said.

Another chip trader, Restar Holdings, is reporting dozens of test inquiries this year, compared to the two or three the company typically receives each year.

According to the Semiconductor Industry Association, US chip companies rack up $ 7.5 billion in losses each year from counterfeit products. It turns into a life or death issue if the faulty chips are installed in airplanes, automobiles, or medical equipment.

The problem has become so prevalent for missiles and other military equipment that the United States introduced a directive in 2013 requiring strict monitoring of the supply chain. European customs officials seized more than a million semiconductor devices during an operation that lasted two weeks in 2017.

A version of this article was first published by Nikkei Asia on November 24, 2021. © 2021 Nikkei Inc. All rights reserved.

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