Investor's Business Daily, July 9th, 2007
How do you know whether the chip that runs your PC or Apple iPhone is a fake or the genuine article?
Experts say that it's getting harder all the time to tell the real thing from a fake chip -- even for them.
That's why the two biggest trade groups in the chip industry aim to develop a standard for chip-packaging encryption that would make it harder for crooks to pass off fake and mislabeled merchandise.
The Semiconductor Industry Association, which has about 85% of the world's chipmakers on its member roster, is working with Semiconductor Manufacturing & Equipment International, the biggest chip gear group.
Together, the groups have come up with a plan to mark chips and the boxes they come in with an encrypted code that's hard to tamper with or copy.
They'll announce more details July 18 at the Semicon chip gear show in San Francisco.
A few years ago, a counterfeit chip would often come in a package that had odd-looking markings on it. Today, counterfeiters can make the chips and the boxes they come in look so genuine that it's hard for experts to tell the difference.
"They're getting good at their art," said Intel INTC Senior Principal Engineer David Brown. "We need an industry standard for secret codes," that companies can put onto chips and packages that scanners can read, he said.
Brown is head of Intel's anti-counterfeiting efforts. He's also part of an SIA task force formed to tackle the issue.
Intel knows about the problem first hand. About 10 years ago, it found knockoffs of its Pentium chips in the market. It was able to track that down and stop it.
And in 2004, Analog Devices found what it says were copies of its chips in India. The Delhi High Court issued an injunction to prevent the chips from entering India.
Making an integrated circuit device is hard. More often, criminals buy chips on the gray market and falsely relabel them as a more expensive product, the SIA says.
"Products get into the gray market," which is a legal, secondary chip market, says SIA spokesman John Greenagel. "Then unscrupulous people will take the product and remark it," he said.
The problem is big and growing.
Counterfeit goods cost U.S. device makers up to $200 billion a year in sales and security costs and $5 billion in lost profits, says Elliott Grant, CEO of Oakmark. The privately held company makes devices to help electronics companies certify a device is the genuine article.
"Estimates are that as high as one in 10 IT products globally are counterfeit," Grant said. The estimates come from independent industry reports on fake products.
Intel and other chip companies have for many years put circuits into their chips to help companies determine whether it's a genuine Intel chip.
But by the time a computer or consumer electronics maker has tested the chip, it's often too late -- the company doing the testing has already bought the fakes.
Using an encrypted code on the package will let chipmakers and device makers track the chip from the factory to the buyer.Buyers would likely be able to check the codes a variety of ways, including bar-code readers and radio-frequency scanners.
