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Edward Dimmler dips a cotton swab in acetone and rubs it on the surface of a computer chip that was ostensibly manufactured by Samsung. The white tip turns black—the first clue that the part may be fake. Dimmler, director of warehouse operations at electronics distributor PCX, then inspects the chip under a microscope and sees the word Samsung smeared across the top of the chip. Clearly, this memory chip is counterfeit, ineligible for resale. Dimmler quarantines it in the bowels of his warehouse on one of the shelves painted red to denote knockoffs of well-known brands, including Intel (INTC), Advanced Micro Devices (AMD), and NEC. "We now have to question everything," he says in an interview at PCX headquarters in Huntington Beach, Calif. "A part is considered suspect until we prove otherwise."
In the past five years, counterfeit computer chips, routers, and other electronic products have "become an epidemic," says PCX Chief Executive Gil Aouizerat. The number of counterfeit electronic products uncovered in the defense industry alone more than doubled in 2008 to 9,356, from 3,868 in 2005, according to a January 2010 report by the Commerce Dept. Fake gear costs the information technology industry an estimated $100 billion a year, according to the National Electronics Distributors Assn.
A counterfeit product is typically less reliable than the real thing, if it works at all. Fakes can impede tasks as varied as automotive navigation, medicine dispensing, and intelligence gathering. In January, Ehab Ali Ashoor, a Saudi citizen who lives in Sugar Land, Tex., was convicted of purchasing and selling counterfeit Cisco Systems (CSCO) parts intended for use by the Marine Corps. to monitor troop movement, relay intelligence, and maintain base security in Iraq, according to the Justice Dept. "Counterfeiting is a very serious issue that impacts the entire high-tech industry on a global level, and Cisco and other leading IT companies have been actively addressing this issue for several years now," says Cisco spokesperson Kristin Carvell.
In 2007, a malfunctioning router used by U.S. Customs and Border Protection at the Los Angeles International Airport resulted in delays for 17,000 passengers, according to the Homeland Security Dept. The problem was caused by a counterfeit version of a component designed to aid communications with the network, says Peter Hlavnicka, treasurer at the Alliance for Gray Market and Counterfeit Abatement. The anticounterfeit organization was formed in 2001 by 3Com (COMS), Cisco Systems, Hewlett-Packard (HPQ), Nortel, and Xerox (XRX).
Bogus parts in authorized channels?
China is the source of many counterfeit electronics coming into the U.S., according to a January report by the Commerce Dept. In many cases, parts are harvested from electronic waste sent to China for recycling. For instance, workers dismantle motherboards, recover components, and sand the parts to remove markings. They then imprint forged dates, brand names, and product codes. The parts make their way to electronics marketplaces and other intermediaries before being distributed globally by suppliers. Other countries atop the Commerce Dept.'s list are Taiwan, Singapore, and Malaysia.
