People should be extremely wary about buying ICs on the grey market, warns Altera, because grey market parts have been causing systems failures.
"You’re at significant risk buying grey market parts", John Sakamoto, senior director of application business units at Altera, told EW at the Globalpress Summit Conference in Santa Cruz, yesterday.
"The grey market is a big and growing concern", said Sakamoto, "we had a Tier One telecoms company customer which sourced 1500 parts – 1200 from us and 300 from a broker – and the company had field failures from the parts which had been sourced through a broker, because they had been misrepresented as faster parts than they were."
Grey market ICs are having their markings changed so that a low performance part is marked as a high performance part and so attracts higher prices. However, in the field, under stress, these parts can fail.
The grey market problem has happened, in part, because of the tight supply of chips now affecting the electronics industry.
"We don’t change the pricing because of the state of the end market", said Sakamoto, "we keep pricing stable. We keep to customer pricing agreements. But we get customers who order too much product and put some of it on the grey market."
"What we’re doing about it is we’ve started to put clauses in sales contracts saying that this is a breach of contract. And we are doing internal tracking to try and monitor if a company is ordering more than they can be expected to use", added Sakamoto.
"If we see a contract manufacturer buying in excess of what they need for their customer, we will not continue to ship to that contract manufacturer", added Sakamoto, "and contract manufacturers must identify the end customer."
The same principle applies to OEMs. If they order more than they can justify, then Altera is reserving the right to cut back on supplies, or increase prices or, sue for breach of contract.
Altera can identify its parts from their markings. "Our parts have numbers and lot numbers – unique identifiers", said Sakamoto, "we know which lot was shipped to which distributor, to which end customer, and to which contract manufacturer."
Sakamoto estimated the value of the sales going through the grey market at the moment as worth ‘tens of millions of dollars’.
To address the problem of parts having their markings changed to pass them off as higher grade parts, Altera is thinking about putting a unique identifier on the die. It will not start doing this until the 28nm, Stratix V, generation.
"We need to encourage customers to go to franchised distributors", said Sakamoto.