There is now a severe global shortage of semiconductor parts, caused by a confluence of factors. The pandemic has led to a surge in demand for home computers for remote working and home entertainment systems, especially gaming consoles. Simultaneously the car industry is in transition to electric vehicles.
Semiconductors are a significant portion of the components of electric cars, and may rise to 30 per cent of the cost of a car within this decade.
Last January, the Trump administration in its last days revoked export licences for technology companies supplying components and software to Huawei, a Chinese manufacturer of mobile phones, 5G cellular technology and computer servers. In response, Huawei has naturally hoarded as many semiconductor parts as it can, causing further shortages.
Finally, consumer spending is now rising, particularly in the West, as it emerges from the pandemic, leading to further demand for consumer electronics, white goods and of course electric vehicles.
Within the chip industry, there is a consensus that the global shortfall in supply will last throughout 2022 and well into 2023.
There is concern that the industry may over-correct, leading to a glut of supply and a fall in chip prices. While this may be good news for consumer goods manufacturers, it creates further risk as semiconductor firms would then be squeezed, potentially forcing consolidations, and risking oligopolistic behaviour.
Vulnerability
There is also geopolitical unease about the vulnerability of western technology companies to the physical concentration of semiconductor foundries in Taiwan, at a time when Taiwanese relationships with China are increasingly strained.
While top-tier manufacturers in the computing sector contract their substantial orders directly with chip manufacturers, manufacturers and subsystem suppliers in other sectors, such as medical systems, cars, white goods, and cellular and broadband equipment, have typically not done so. They instead source their own chip supplies and stocks through intermediaries.
The weakness in the global supply of semiconductors has led to a surge in the secondary market, with brokers and unauthorised distributors enthusiastically rising to the opportunity. Faced with the otherwise imminent shutdown of a production line, a desperate manufacturer may accept a pitch of “I have 25,000 of these chips in stock but you need to remit payment to me today, not next week”, and so cut corners and bypass its normal supply chain verification process.
Secondary and counterfeit chips have several origins. "Grey market" chips may in fact be chips that have been reworked from failed tests, or even just duds. They may initially appear identical to the originals but are not guaranteed by the original manufacturer, and may not work at all or deteriorate over time and fail unexpectedly.
Secondary parts may also be “reconditioned”, scavenged and recycled from retired and discarded old circuit boards. The firms involved remove the chips from the old equipment, perform a physical recondition (clean the leads and packaging) and sell as new.
Sometimes, the markings on the surface of the chip packaging are fraudulently changed to indicate different parts numbers. Some of these harvested chips will fail immediately when electrically tested even though they appear to have authentic manufacturer logos and identification numbers, whilst others may fail earlier than expected after a few days or months in the field.
Counterfeit
Some chips are reverse engineered. The top package of the original part is removed and then individual internal layers are peeled off, revealing the intricate silicon structures. Techniques like fault injection and differential power analysis can be used to understand otherwise secret functions inside of the device.
After thorough analysis, a replacement design is built using these discoveries which completely mimics the functionality of the original. The replacement may then be sold as a lower cost alternative, but equally sometimes a counterfeit is sold as fully-priced authentic original with identical packaging, markings, and electrical interfaces.
A counterfeit chip may also be designed as a “Trojan horse”, augmented by circuitry and logic to exfiltrate critical information or to deliberately fail if certain situations are detected. A US government report has stated that more than a million counterfeit components had been discovered across 1,800 separate cases affecting its military aircraft and missile systems.
Acceptance testing to verify every incoming chip has not always been economically feasible for many manufacturers. Fully testing a single unit part may take several minutes at best, even if automated. Full testing of an entire circuit board or subsystem can take even longer. But with the rise of grey and counterfeit chips visually indistinguishable from those under guarantee from original manufacturers, more extensive testing at all stages of a supply change may now be an urgent necessity.
The industry needs innovative solutions to counterfeit chips. Some companies, such as Japan's Oki Engineering and the UK's ABI Electronics offer chip verification services: Oki recently reported that 30 per cent of its chip examinations exposed counterfeits.
California's Rambus Security is promoting tamper-proof unique security numbers during the semiconductor fabrication process. SyncFab in California, India's LTI Consulting and others advocate blockchain technology to audit the lifecycle of each part.
As consumer spending rises again after the pandemic, there is a strong possibility of shortened product lifetimes and of product recalls.
