Which One Is Real?

Answer: The bottom one. The chip above it is a PMC-Sierra knock-off. The gaps between the letters are closed, the letters are uneven, and there are surface scratches from removing the previous markings.

Sources say counterfeiting of resistors, capacitors and tantalum and ceramic chips has been a problem for months. The only way to determine their authenticity is to put the components under a magnifying glass and make sure all the letters of the logo are printed in the same direction, the spacing is right and that the lot numbers are correct. Some counterfeit chips, for example, use numbers that extend beyond the manufacturer's lot numbers. In addition, sources say legitimate chips usually are etched while counterfeit chips are embossed.

"We're wondering what to do about this," said one independent distribution source, who spoke on condition of anonymity. "There's no product now, so we're going to get hit with time-to-market, availability and distribution issues. All the major OEMs are busy now securing contracts for guaranteed delivery."

That could leave many manufacturers high and dry for months, boosting the price of legitimate components, which are surrounded by their own illicit schemes, and making counterfeiting far more attractive.

"A lot of traders buy products out of the back door of manufacturers," the source said. "They figure, why sell it for 2 cents when you can sell it for 10 cents?"

It's also not uncommon for these back-door sellers to request that money be wired into a private account or to ask for a bill that is for less money than the real value to limit customs duties.

One of the more insidious schemes is to buy legitimate chips and return counterfeit ones.

"There is a hole [in policies to protect against counterfeiting parts], and we have a procedure to plug that hole," said John Kump, director of marketing communications at Pioneer-Standard. "It's on the return side. If there are goods coming in from anywhere, say China, a customer may try to sneak it by us. So we only accept returns from customers we sold the goods to. Plus, our return personnel are trained to look for counterfeit goods."

Nor is the problem limited to just chips. As China dives headlong into the IC age with as many as 25 fabs in the works, IP theft is on the rise.

While that country's reputation has long been soiled as a haven for pirated DVDs, CDs and software titles, it has publicly enacted legislation designed to protect IP. But most companies doing business with China don't believe the country can effectively enforce those laws because the problem is too widespread.

That realization hangs heavy over the fabless companies and IDMs building foundries in the Shanghai province and elsewhere in China. This is the downside of a foreign economy that is exploding. While China is absorbing a mass infusion of Western technology, it has yet to fully embrace the concepts of Western capitalism.

"Everyone realizes that China has put laws in place to protect IP to gain acceptance into the [World Trade Organization]," said Peter Hillen, director of U.S. operations for Dongbu Electronic Ltd., Eumsung, Korea. "But it takes a long time for those laws to become the way that things are done in China."

Companies that hold key market advantages because of their IP are particularly concerned about doing business with foundries in China, said Steve Della Rocchetta, executive VP of sales and marketing for Silterra Malaysia Sdn. Bhd., Kulim, Malaysia.

China now has the capability to reverse-engineer devices such as microcontrollers, DSP engines and circuits found in common libraries as well as embedded mask ROMs, Hillen said. The country has talented engineers that understand circuit design. What's lacking in China is the understanding of system designs or SOC methodology, he said, but that capability is also rising in the country.

The IP that Western companies have to protect involves firmware and software, or other differentiators that give their chips value, Hillen said.

In the past, counterfeit chips have emerged from other developing economies as well. Inferior chips starting emerging from Eastern Block countries before the dissolution of the Soviet Union, said Len Jelinek, analyst with iSuppli Corp. At one time a wave of products flooded the market that didn't meet specifications, and it became obvious to the industry that some companies in the region were skimming off rejected circuits and selling them after market, Jelinek said.

The reputation of that region soon became sullied, and as a result the semiconductor industry there found it hard to do business.