The High Cost of Counterfeits: 4 Unintended Consequences

Blog Post created by ToddHarmon Employee on Jun 6, 2017

Our small town recently held an electronics recycling day to help families get rid of unwanted printers, laptops, TVs, and other devices. Just bring them to the local school and the devices get recycled for free. Great idea, right? Clean out your garage and promote sustainability at the same time!


Reduce and “re-use” is the prevailing term today, whether for used electronics or grocery bags. However, there’s a dark side to these electronics recycling events with unintended consequences that affect manufacturers and consumers around the globe. Today’s news is full of stories about used and counterfeit components finding their way into supposedly new, state-of-the-art products. In fact, counterfeit goods are everywhere these days, accounting for nearly half a trillion dollars in sales each year, or nearly 2.5 percent of all global imports. Electronic components are the single biggest piece of the counterfeit pie, generating billions of dollars a year for ethically challenged parts suppliers. It’s a pervasive problem with serious implications for original equipment manufacturers and their customers.  Here are the top four impacts of counterfeits.


End-user injuries

If you buy a Rolex watch on a street corner for $25, nobody gets hurt. But if you get an incredible deal on a hoverboard, don’t give it to your kid and definitely don’t try bringing it on an airplane. Last year, over 16,000 counterfeit hoverboards were seized by customs officials in Chicago after a well-documented series of fires injured people using the two-wheeled skateboards. In other news, a report by the U.S. Senate Armed Services Committee was profiled in Forbes a few years ago, citing the presence of counterfeit electronic components in military and commercial aircraft. As the author of the article states, how comfortable would you be on your next commercial flight if you suspected that a key onboard system may contain suspected counterfeit parts? Thankfully airplanes have multiple layers of redundancy, but that doesn’t change the fact that real people and real lives are affected by counterfeit components in our increasingly electronics-centric world.


Critical mission failure

No matter what you make as a manufacturer, mission failure is always bad. However, in the tech-laden aerospace/defense industry, mission failure can be catastrophic. Military and space programs rely heavily on the authenticity and reliability of their electronics. Several years ago, a Bloomberg study reported that military jets bound for Afghanistan were outfitted with counterfeit memory chips, putting missions and lives at risk in a hot war zone. A separate report by WND concluded that high-altitude thermal missile sights delivered to the U.S. Army were compromised by counterfeit electronics components, and that the problem is widespread across U.S. defense systems. It’s one of the reasons the Department of Defense (DoD) implemented the Defense Federal Acquisition Regulation Supplement (DFARS) in March 2014 to detect and avoid counterfeit electronic parts. The DFARS provides specifications for robust counterfeit avoidance and response systems, helping Keysight and U.S. government prime contractors meet the most rigorous standards of counterfeit detection, traceability, and response on the products we deliver. The DFARS continues to evolve, and the latest update by the DoD, in August 2016, introduced even stricter requirements for Keysight and prime contractors. Keysight has invested significant time, energy and resources to demonstrate compliance to this regulation inclusive of a full-blown Aerospace/Defense Customer Assessment in late 2015.


Decreased product reliability

A U.S. Senate report on counterfeit electronic components in defense supply chains contains an eye-opening description of the Shantou, China, counterfeiting district, where used electronic parts are extracted from old devices, washed in a river, dried on a riverbank, and sorted on a sidewalk. According to the report, the parts are then collected in “plastic bins filled with expensive brand-name components harvested from scrap printed circuit boards ready for processing.” Compare that to clean-room operations at reputable semiconductor facilities, where the air is one thousand times cleaner than the air in a hospital operating room. It’s the only way to ensure that components and boards are entirely free of dust and contaminants so they function exactly as intended, day after day.


Increased OPEX

Releasing defective products into the marketplace can be costly in a variety of ways. At the very least, handling a failed product increases operating expense by having to deal with Return Merchandise Authorization (RMA) paperwork and processes. Depending on the product, you may incur the cost of the problem and modify manufacturing processes. In extreme cases, shipments might be delayed while you take your design back to the drawing board to determine the root cause of a defect. If the defect is ultimately traced back to a counterfeit component, you’ll have incurred those costs, and taken hits to your profit and reputation, for no reason. This is why Keysight has implemented and maintains a stringent counterfeit avoidance and response system, which we stress-test internally and with our subcontractors in an effort to continue to provide best-in-class instruments.


Our goal at Keysight is to ensure our customers receive authentic, genuine Keysight instruments. It’s not a trivial task in a global company where supply chains stretch to every corner of the world. But we have processes in place to block counterfeit devices from getting into our ecosystem, and to ensure the authenticity of every electronic component we put in our test systems. Illegitimate materials and fraud are real challenges across the industry, and as the counterfeiters get better, we will continue to work even harder to ensure that we stay one step ahead of the bad guys. In my next post, I’ll share some of the ways we’re doing that. Our best practices for addressing counterfeits have made a difference for us and might be useful for your organization as well.