Mitigating the Risk

OCTOBER 2014

COUNTERFEIT COMPONENTS

Rory King

DirectorThought Leadership

IHS, Inc.

Rory.King@IHS.com

© 2014 IHS

WHAT WE DO

IHS (NYSE: IHS) is a global informationand analytics company with world-classexperts in pivotal areas shaping today’sbusiness landscape.

Organizations around the world depend onour insights to help them make decisionsabout everything from day-to-dayoperations to long-term investments.

We employ over 8,000 people in more than31 countries around the world.

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ABOUTIHS

ANALYTICS

EXPERTISE

INFORMATION

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5.50%

16.90%

21.30%

25.90%

5.60%

24.80%

Automotive Electronics

Consumer Electronics

Data Processing

Industrial Electronics

Wired Communications

Wireless Communications

Welcome

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Source: IHS Technology, Electronics Equipment and Semiconductor Market Forecast Tool, 2014

Worldwide OEM Factory Revenue will be $2.045 Trillion in 2014CAGR of 3.7% from 2013 - 2018

Worldwide Electronic Equipment Revenue by Market

You are here

© 2014 IHS

Counterfeit components

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Top Impacts of Counterfeits

Source: IHS Technology, 2009

© 2014 IHS

Counterfeit components

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Top Impacts of Counterfeits

Experiences of Engineering, Procurement, and Supply Chain ProfessionalsIn 2009, a study was conducted among electronics supply chain professionals, asking what the impacts

of counterfeits were. These are written testimonials of those participating professionals.

Source: IHS Technology, 2009

© 2014 IHS

Counterfeit Incidents by Component, 2003 - 2013

Analog IC , 19.0%

Memory IC , 14.6%

Microprocessor IC , 13.7%

Programmable logic IC,10.2%

Other, components, 42.4%

Increased counterfeiting

Source: IHS Technology, Parts 2014

© 2014 IHS

Automotive$8.5 billion (15.7%)

Analog IC – the most counterfeited

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Wireless Market$18.9 billion (34.8%)

Data Processing$6.0 billion (11%)

Consumer Electronics$9.0 billion (16.6%)

Industrial Electronics$8.9 billion (16.5%)

Wired Communications$2.9 billion (5.4%)

2014 Analog IC Market (Total Shipment Revenue US$M*)

Source: IHS Technology, Parts 2014* rounded to 1 decimal place

© 2014 IHS

Top four counterfeited could impact$281.5B worth of semi markets

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ApplicationMarket

MemoryIC

MicroprocessorIC

ProgrammableLogic IC

AnalogIC

Data Processing 40.30% 60.10% 23.60% 10.80%

Wired Communications 2.40% 4.00% 10.50% 6.30%

Wireless Communications 43.80% 5.60% 42.50% 34.40%

Consumer Electronics 8.70% 9.60% 15.50% 16.90%

Automotive Electronics 1.70% 11.00% 2.90% 17.40%

Industrial Electronics 2.90% 9.70% 5.00% 14.30%

MCP 0.10% - - -

Total (Percentage) 100.00% 100.00% 100.00% 100.00%

Total (US$M) 59,704 69,133 98,555 54,161

The Top Counterfeited ComponentsOver three quarters of all incidents are for integrated circuits. More than half of reported counterfeit

incidents are for analog integrated circuits, memory devices, microprocessors, and programmable logic.

Component Application Market by Percentage and Total Shipment Revenue (US$M), 2014

© 2014 IHS

Focus on defense supply chain

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Timeline of EventsNovember 29, 2011, the US Senate unanimously approved an amendment to the National Defense

Authorization Act for Fiscal Year 2012 and President Obama signed the NDAA on December 31, 2011.

Excerpts from US SASC Hearing, November 8, 2011

© 2014 IHS

Notable HighlightsOver three quarters of all incidents were IC’s. While the majority of incidents are for discontinuedcomponents, nearly one third were for active devices. Over eight in ten were commercial parts.

Discrete,16.6%

Electro-mechanical,

0.4%

Integratedcircuits,76.8%

Passive,2.9%

Other, 3.3%

Counterfeit Incident Statistics, 2003-2013

Not just obsolete defense parts

Source: IHS Technology, Parts Management 2014

52.8%

32.2%

14.6%

0.4%

Discontinued

Active

Transferred

EOL/Lifebuy

81.5%

18.5%

CommercialPart

Military Part

© 2014 IHS

Military & Civil Aerospace vs. Total Semiconductor Market (Revenue Shipment US$M)

Military/aero is only 1% of market

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0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Military & Civil Aerospace

Rest of Market

Military & Civil Aerospace is 1% of Worldwide Semiconductor Market

Source: IHS Technology, Application Market Forecast Tool, 2014

© 2014 IHS

Regulations are perceived to bespecific but have a global impact

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▲Cost ▲EOL ▼ Supply ▼ Competition

• EU ROHS (2003)

• EU REACH (2007)

• US Conflict Minerals (Dodd-Frank 2010)

• US NDAA FY12 818 (2011)

© 2014 IHS

But what do these really call for?authenticity, traceability, reliability

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The average component manufacturerhas 50+ authorized sources of product

• EU ROHS (2003)

• EU REACH (2007)

• US Conflict Minerals (Dodd-Frank 2010)

• US NDAA FY12 818 (2011)

© 2014 IHS

Mitigate risk

• Counterfeit risk is real and growing

• It’s not exclusive to defense / obsolete parts

• Safety and reliability threaten all end markets

• Regulations are not localized global impact

• Authorized, “trusted” component sources

© 2014 IHS

About Rory King

Rory King is Director, Thought Leadership at IHS Inc. In this role, he has primaryoversight for the identification and cultivation of original expertise and insightsassociated with the most significant global megatrends, business drivers, marketdrivers, and strategic themes shaping four connected, capital-intensiveworldwide sectors with common supply chains: energy, chemicals, technology,and transportation. This includes coverage of the most critical and significantissues associated with advanced analytics, economics, operational excellence,risk management, innovation, product design, and supply managementunderpinning these convergent industries.

For over 15 years, Mr. King's collaboration and leadership have led to over 20awards for excellence in individual performance, process improvement andoriginal insight in areas of innovation, product lifecycle management, supplychain management, risk management, and sustainability. As an industry thoughtleader, his unique research, analyses, and evangelism on topics such as conflictminerals, semiconductor technology, environmental regulations, counterfeitelectronics, and supply chain risk, have been featured by global news andinformation services including CNN, The Wall Street Journal, BBC News, FoxNews, Compliance Week, The Federal Times, and IHS Quarterly, in addition tonumerous industry research, media, and trade publications.

Rory King, Director, Thought Leadership, IHS