Japanese chip inspectors combat flood of fakes amid shortage

A surge in counterfeit semiconductors entering the tight Japanese market has spawned a cottage industry of chip detectives.

Inspectors from CoreStaff, a chip trader based in Tokyo, examine images in a room tucked inside a distribution centre in Nagano Prefecture. They are surrounded by microscopes, X-ray equipment and other testing devices.

An enlarged image on a computer screen shows fine scratches, signs of ageing and other defects on a semiconductor. Getting the most attention are marks indicating that the surface was filed down, a tell-tale sign of forgery.

“The surface looks rough,” an inspector said. “The markings must have been overwritten.”

As the global chip shortage limits supplies, assemblers of industrial and consumer electronics are forced to procure semiconductors that once circulated in the market and are now warehoused as excess inventory.

It is at this juncture that the risk of fake chips slipping in runs high. Such previously unsold semiconductors are often acquired without buyers going through proper channels.

Businesses with lax oversight unwittingly build up stock by procuring fake chips from other suppliers, then sell the faulty items to product assemblers. The finished product risks breaking down or malfunctioning unexpectedly. Yet device assemblers have little choice but to use such unsold stocks that are hard to trace and have no guarantees from suppliers.

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

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The CoreStaff inspectors have seen requests to check for fake chips triple or even quadruple from a year earlier, bringing in jobs nearly every day.

For fake chips whose logos and engraved stamps are realistically reproduced, inspectors can determine authenticity by using X-rays or unpackers to check differences in lead frames and other features. CoreStaff also can test for quantities of certain materials contained in semiconductors.

“Demand runs higher the more difficult it is to find semiconductors, so there is a higher potential of counterfeit articles being made and sold,” said CoreStaff’s president Masaki Tozawa.

There are multiple ways to put counterfeit chips on the market. One popular method is to recover semiconductors from discarded computers and other electronics. The logos and product numbers on those semiconductors are doctored to make them look like new products.

Though the origins of many fake chips are undetermined, it is suspected that many come from China or south-east Asia, where much of the supply chain is concentrated.

Meanwhile, there has been a rise in the number of chip trading companies in Japan making a business of testing authenticity. In the past, many chip sellers tested products without compensation to meet the high-quality demands of their Japanese customers.

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

Ryosan provides services for an extensive range of products, from microprocessors to logic and power semiconductors. The company is drawing more orders from first-time clients.

Chip testing “has led to the development of new customers in our primary business of selling semiconductors”, a Ryosan project manager said.

Ryosan’s technology centre houses X-ray devices, microscopes and equipment for analysing electrical characteristics of chips. Engineers inspect chips to see whether they are counterfeit or to identify causes of poor quality. The resulting detailed reports help build trust with new clients, Ryosan said.

But this type of in-depth analysis can run to as much as ¥1m ($8,700) for a single chip. Semiconductor traders such as Ryosan can make use of idle facilities and charge just tens of thousands of yen for simple tests.

In April, CoreStaff launched a monthly subscription starting at ¥100,000 that covers five tests a month. The service generates little revenue, but such contracts lead to new clients that buy semiconductors, the company said.

Another chip trader, Restar Holdings, reports dozens of inquiries this year about testing, up from the two or three the company usually receives annually.

US chip companies rack up $7.5bn in losses yearly owing to counterfeit products, according to the Semiconductor Industry Association. This turns into a life-or-death issue if the faulty chips are installed in aeroplanes, automobiles or medical equipment.

The problem became so rampant for missiles and other military equipment that the US introduced a directive in 2013 mandating strict oversight in the supply chain. Customs officials in Europe seized more than 1m 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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