Counterfeiters slipping used parts into new gadgets

 

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By Stewart Mitchell

Posted on 2 Jul 2012 at 09:20

The majority of fake components sold into the electronics and technology industries are not manufactured in backstreet factories in Asia, but are reused parts that have been cleaned up.

According to an executive at components dealer Smith and Associates, the counterfeit parts market is a huge problem for the high-tech industry, as suggested recently when iSuppli claimed a fake component was reported every 15 seconds.

But while the impression among consumers is that the fake parts are made in knock-off sweatshops in the Far East, most components were once legitimate and have been revamped and sold as new.

“You have people taking used parts out of products, cleaning them up and making them look new,” said Matthew Hartzell, chief operating officer of Smith and Associates. “That’s where the majority of bad products comes from."

They get absolutely everywhere – no-one is immune from the problem in the electronics or tech industry

“Then you have seconds or engineering samples from factories and they are supposed to be destroyed and they’re not - they’re sold out the back door," said Hartzell. "Lastly, you have nefarious criminals with a seedy factory and a really good laser machine and equipment that are wholesale creating parts that look like the real thing. That’s the classic perception of the counterfeiters, but probably the smallest section by volume.”

According to Hartzell, the only way for manufacturers to protect themselves against the tide of dodgy components is to establish a strong relationship with regular suppliers and test parts often to ensure the kit is really as intended.

Although there are guidelines for how companies procure their parts, it's easy for “bad product” to enter the supply chain at every stage of production, risking reputation damage or costly recalls if things go wrong. “The supply chain is neither totally secure nor static – it’s set up to be both, but daily life intrudes,” says Hartzell.

“The builders a couple levels below the Samsungs or Lenovos of the world have multiple contracts with assemblers and manufacturers and everyone along that chain is under intense pressure to keep down costs. One area they can do that is in parts – it’s an opportunity for profit and mischief.”

Fast-moving fakers

According to Smith and Associates, the flexibility of the counterfeiters is highlighted by the speed at which they can react to surging prices caused by short supply.

“They get absolutely everywhere – no-one is immune from the problem in the electronics or tech industry,” Hartzell said. “Last year, it was hard drives after the flooding in Bangkok, people began to show up with used products that were being passed off as new.

"There are plenty of honest resellers of used product, but it only takes one in the chain to say ‘Hey I’ve got new product’. They did the conversion.”