Estimates vary from $1 billion to $10 billion in lost sales per year, but for many manufacturers even one counterfeit product is one too many. No one knows exactly how big counterfeiting is, but there are indications it is huge.

In a March 2004 report written for consulting firm Technology Forecasters, Clive Jones, economist and managing director at Economic Data Resources (Boulder, Colo.), estimated that counterfeit electronics originating in China accounted for $1 billion to $10 billion in lost global sales in 2002.

That range is so large as to invite disbelief, but Jones, who spent six months on the research, said that he built the estimate from a variety of hard data sources, including reports from the Japanese patent office on product infringements of Japanese products in China, the Chinese government's official State Council report, and a coalition of foreign companies that formed an association to deal with counterfeiting in Beijing.

The numbers aren't so implausible when viewed against the backdrop of electronics manufacturing in China, which generated $100 billion in sales in 2002. Hence, counterfeiting accounts for anywhere from 1 percent to 10 percent of electronic sales. The upper end of that amount is consistent with an estimate that counterfeit products of all kinds account for 9 percent of world trade, according to intellectual property abuse investigation firm Carratu International LLC (London).

Jones estimates that for each $1 billion in counterfeit electronics in China, between $300 million and $400 million consists of semiconductor chips. Those numbers are huge, considering the quantity of counterfeit goods that the authorities manage to seize. The U.S. Customs Service intercepted only about $10 million in fake electronics goods in 2002, Jones said.

One industry association, the Electronic Resellers Association International, lists dozens of counterfeit and substandard parts on its Web site (www.erai.com) to warn potential customers. In May 2003, The World Semiconductor Council, whose members include chip makers worldwide, reported "an increasing number of instances of counterfeiting of integrated circuits and other semiconductors."

Over time, experts believe, counterfeiting will get worse. On the global level, all counterfeit goods, including electronics, are expected to double, to 18 percent of total world trade in the next two years alone, according to Carratu. Jones believes that counterfeiting will get worse as China's share of global electronics production rises from 15 percent now to 35 percent by 2010. China itself became the largest chip market in 2001, and in 2002 sales to that country's industry hit $18 billion, or 15 percent of total worldwide chip sales, according to the Semicon-ductor Industry Association.

Dozens of chip fabs are being built in China, some aimed just at supplying local demand. With a big Chinese domestic market, counterfeiters are no longer forced to deal with the risks of exporting their goods beyond China's borders.

"The situation in China is so fluid; the number of new counterfeiting operations is growing so rapidly that it's keeping pace with the industry's overall growth," Jones said.