Semiconductor Gray Market

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Semiconductor Gray Market

Grant A. Crawford, PhD

Asst. Professor

Dept. of Materials and Metallurgical Engineering

SDSM&T


February 17
th
, 2012

School of Mines

What is Semiconductor Gray Market?


Gray Market:
The trade of parts through distribution channels
which, while legal, are unofficial, unauthorized, or unintended
by OCM
1
.


Semiconductor gray market often associated with
counterfeiting.


Counterfeiting makes up 2% of worldwide semiconductor
TAM


$5 billion value in
2011
3
($
40 billion for overall IT
industry
1
)


Counterfeit incidents discovered in military and military
suppliers


3,868 cases (2005) to more than 9,356 cases
(
2008)
2


School of Mines

1

Alliance
for Gray Market and Counterfeit
Abatement

2
Alliance for Gray Market and Counterfeit
Abatement (BIS report 2010)

3
www.rocelec.com (Rochester Electronics, LLC)



Semiconductor Industry


Two major business models:


IDMs


integrated device manufacturer


Fabless


Customers:


OEMs


ODM/EMS


Distributors

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Semiconductor Industry

Value Chain

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School of Mines

Semiconductor Industry

Global Value Chain

Semiconductor industry characterized by global transfer of goods and services.

Source: IDC Manufacturing Insights


Where do gray market ICs come from?


Semiconductor Value Chain


ICs released into gray market by downstream
customer (impacts fabless and IDM)


Surplus parts sold to distributors


IP or IC released by contract manufacturer
(impacts fabless
)


Counterfeiting



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School of Mines

Source: Certicom.com

Where do gray market ICs come from?

Fabless ICs

Fabless IC manufactures has little control of their IP (and ICs) after their
designs are sent to foundries


Recycled / Used ICs


Parts
pulled from boards; leads straightened/cleaned;
original
markings
removed or “blacktopped”; new markings added


Lower
Grade / Inferior “Second
-
Source”
ICs


Parts
may be new or used; original markings removed
or
“blacktopped
”; new markings
added


Parts
typically are functional but out
-
of
-
spec


New
or Used IC Die Assembled in New
Packages


Die
may be removed from “old” packages and assembled
in new
packages; extremely difficult to detect these
counterfeits!


Useless ICs


Parts
are non
-
functional
: no die, bad die, wrong die, wrong
package, etc.

School of Mines

Where do gray market ICs come from?

Types of Counterfeit Chips

1

Analog Devices,
Inc

2
www.SIA
-
online.com (Semiconductor Industry Association)


Source: Analog Devices,
Inc

School of Mines

Source: Analog Devices,
Inc

Where do gray market ICs come from?

Counterfeiting Difficult to Detect

Semiconductor Industry & Gray
Market


Semiconductor Gray Market
becoming an
increasingly large
problem
1,2


Diverse Supply Chain


Cheaper more available
equipment (counterfeiting)


Short product lifecycle


need for EOL ICs
(e.g. military
application
)


Global value chain


low cost geography used with
potential for limited security.


Supply and demand experience peaks and valleys


in times of shortage counterfeiters make large profits


Internet makes marketing easy and anonymous

School of Mines

1

www.rocelec.com (Rochester Electronics, LLC)

2
Alliance for Gray Market and Counterfeit Abatement


Who is impacted?


Semiconductor manufacturer:


Lost profit (reduction in TAM and ASP)

ICs released
to gray market often sold for less than those sold
through intended channels

results in lost profits and
reduction in TAM


Warranty costs (and enforcement)


Brand Name


Electronics Consumer:


Specifically important for consumers using EOL parts
(e.g. Military applications)


Failure of wrong or inferior parts


Failure of parts due to improper storage and handling.


Failure of parts impacted by counterfeiting process


School of Mines

Gray Market Mitigation


Semiconductor Manufacturer


Improved procedures for handling scrap,
overproduction, returns


Improved unit marking and traceability (less
common

$$)


Hardware “keys” (fabless manufacturers)
(less
common

$$)


Improved supply chain security


Improved authentication/identification at time of
purchase


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Semiconductor Manufacturer Unit
Marking and Traceability


Include human readable or 2D
-
IDs (QR codes)


Brand protection


Warranty enforcement


Open market reduction


Customer Excursion Support


Process development


Commonality analysis, RC
identification, excursion containment

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DOD working group
1,2



Improved authentication/identification at time of
purchase


SIA Anti
-
Counterfeiting Task Force (ACTF), NASA, DOD, Jet
propulsion Laboratory


DOJ D.C. Counterfeit Microelectronics Working
Group
1,2



Identification, investigation, prosecution


SIA ACTF, DOD, and other government agencies


Private Industry


A number of companies focusing on helping consumers
and manufactures with counterfeiting security

School of Mines

Gray Market Mitigation


1

www.SIA
-
online.org (Semiconductor Research Association)

2

Alliance for Gray Market and Counterfeit Abatement (BIS Report 2010)

Conclusions


Semiconductor Gray Market is an increasingly
important issue with large economic and
safety impact to consumers and manufactures


A portion of possible mitigation process
includes unique identification and marking
(i.e. security printing) and supply chain
security

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backup

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Example


Vision Tech

School of Mines

From 2006 to 2010,
VisionTech

Components knowingly sold counterfeit integrated circuits to

approximately 1,101 buyers in the United States and abroad, including counterfeit integrated

circuits destined for military applications.
VisionTech

shipped 75 counterfeit chips destined for

naval vessel and land
-
based Identification Friend or Foe system. As the U.S. Attorney noted, “if

the system failed during an engagement and could not identify an approaching threat aircraft

25 miles away, a missile fired from the threat aircraft could hit a ship one minute later.”13 Other

shipments included 1,500 counterfeit memory chips destined for the Harm Testing System

installed
on F
-
16s to track hostile radar systems,14 350 counterfeit ICs intended for an

application in the Beam Steering Control Module board within Multiple Sub
-
Array of Testable

Antenna for the U.S. Navy Cobra Judy Replacement Program,15 1,500 counterfeit chips to

control the braking system in a high speed train,16 and 196 counterfeit chips to be used in a

hand
-
held portable nuclear identification tool, a device offered for sale on the FEMA (Federal

Emergency Management Agency) website as suggested emergency equipment for first

responders.17 For her part in the scheme,
VisionTech’s

administrator, Stephanie McCloskey,

was sentenced to 38 months imprisonment and $166,141 in fines.

www.SIA
-
online.org (Semiconductor Research Association)