Black marketeers in the chips as semiconductor theft rises

What's small, valuable, and in demand on the black market? Ask Lt. Robert McDiarmid, head of the organized-crime and criminal-information section of California's Santa Clara Police Department, and he's likely to reply "semiconductor chips."

Semiconductor chips -- thumbnail-size bits of silicon filled with programmable memory circuits -- are the heart and soul of computer hardware. Any electronic device relying on a memory requires them.

Five years ago these chips were simple logic circuits, worth 60 to 75 cents. Today the chips are much more complex components, and one chip may have a retail value of $50 to $100. Their value, combined with their tiny size -- the longest measure about an inch -- has made the chips prime targets for theft.

The Santa Clara Police Department reports that most of the stolen chips are sold on the black market at slightly below retail value. Chips that are in short supply on the legitimate market, however, may sell illegally for up to three times the retail price.

Lieutenant McDiarmid estimates that in Santa Clara County -- known as "Silicon Valley" because it is home to so many high-tech companies -- losses due to semiconductor chip thefts total about $20 million annually. But he suspects that figure is "a gross underestimate, if anything."

Chip manufacturers and users along Boston's famous Route 128 -- and for that matter elsewhere in the nation -- have also had trouble with theft.

Dealing with the situation has proved complex for high- tech companies. They believe that most of the stealing is done by employees. But without creating a stalag atmosphere that would damage employee relations, or significantly slowing production with constant checking, how does one keep track of the little chips inside the plant?

Moreover, the police are having a tough time curtailing the operations of the black market. Most black marketeers are believed to be independent fences. Lieutenant McDiarmid explains, however, that many of the chips end up in the hands of otherwise legitimate dealers. Companies buying the chips may or may not suspect that the goods are stolen.

"But the dealers ask no questions, and the companies don't ask questions either. These parts are really in demand," McDiarmid explains.

The insatiable market for chips -- stolen or legitimate -- extends abroad. McDiarmid claims that some of the stolen chips have ended up in Europe, particularly in East-bloc nations, where the shortage is made more severe by a lag in technology. The Santa Clara police, he reports, have come across a few companies set up primarily to route technology out of the United States.

At Intel Corporation of Santa Clara, Bill Bankert, the manager of security, claims there have been no major thefts since last April. He claims tighter inventory control and frequent internal audits have made stealing more difficult. Outside the plant, several scams have been set up, and black marketeers and fences who deal in the stolen property have been lured and trapped by the offer of stolen Intel property. "These kinds of things make them leery of Intel products," he says.

According to Thomas DiLillo, director of security for Wang Corporation in Lowell, Mass., his company has managed to slow thefts through tighter internal security, including electronic antitheft equipment and more careful audits.

Many manufacturers of the components are reluctant to discuss security methods at all. Steve Fields, director of public relations at National Semiconductor, Santa Clara, the nation's second-largest US merchant manufacturer of integrated circuits, says that National Semiconductor's security provisions have been "reasonably successful, largely because we don't talk about them."

He does say, however, that National Semiconductor has of late been keeping closer track of its merchandise, and admits that "knowing what should be where, and when it should be there, has helped."

But Mr. Bankert notes that there is no measure that will guarantee total security for the chips. "If you can ship a product," he says, "you can steal it."