Your Chips Or Your Life!

By John Greenwald

They are the soul of the personal computer and worth more than their weight in gold or cocaine. Small wonder then that these tiny, high-tech chips have become the latest target of the international crime set. A few tales from the cyberfront: in Greenock, Scotland, three knife-wielding masked men overpowered a factory guard last month and stole $3.7 million worth of chips and related computer parts; in Fremont, California, burglars disarmed a security system and made off with more than $1.8 million of chips and computer equipment in a January warehouse heist. And outside Portland, Oregon, five gunmen bound and gagged 12 workers at a semiconductor plant last fall and fled with $2 million worth of chips.

The idea of stickups inside some of the world's glossy, high-tech laboratories and computer warehouses is a bit incongruous, unless one considers that computer chips are a robber's dream -- very precious (up to $900 for the newest models) and easy to conceal (the size of matchbooks when sealed inside their cases). And these days they are in high demand: the worldwide market for personal computers grew 8%, to $68 billion, in 1993. The main target of thieves is the Intel 486 chip that powers most new IBM PC and IBM-compatible machines; such chips are now in more than one-quarter of the world's 110 million personal computers. Also coveted is the newer and faster Intel Pentium chip, which the Santa Clara, California-based company recently developed to run the latest generation of IBM PCs. In all, thieves last year ripped off up to $40 million worth of chips from California's Silicon Valley, according to the FBI.

So concerned is the agency that earlier this year it opened a high-tech- crime office with a dozen agents in San Jose, California, to clamp down on chip thefts. Among other things, the agents have found a rising threat of heist-related violence. "We're seeing more weapons being used," says special agent Rick Smith. In one stickup a robber put his gun to a chip retailer's head and pulled the trigger, but the weapon failed to fire. "No one's been killed yet," Smith says, "but it's going to happen."

Many robberies are the work of gangs of Chinese or Vietnamese immigrants with ties to shady electronics brokers in the U.S. and Asia who purchase the stolen chips. The gangs first appeared on a small scale in 1987, when they began preying on mom- and-pop Asian distributors based in Silicon Valley. "It's been a real progression," says Santa Clara police sergeant Mark Kerby. "Now they're no longer just robbing Asians. They're robbing everybody."

Unlike rare jewels, chips have had the advantage of being untraceable, so they can be quickly unloaded on gray and black markets. "Computer components are fast becoming the dope of the '90s because they're so easy to get rid of," says Kerby. In Silicon Valley thieves typically sell batches of chips for 50% of their market value, so the brokers they work with pay about $250 for an Intel 486 chip that might otherwise cost up to $500. The chip may change hands a dozen or more times within 72 hours, with each transaction pushing up the value. All that leaves an unsuspecting computer maker to purchase the chip at its regular price and install it in his product. "Then John Q. Public walks into a computer store, and he can't tell whether it's a legitimate chip or if it started out in a crook's pocket," says Sergeant Jim McMahon, who heads a four-member San Jose Police Department task force that focuses on high-tech crime.

What the consumer doesn't know can hurt him because he could wind up with a computer chip that failed a quality-control test but still reached the market. This is less likely to happen to purchasers of big-name computers such as Apple, IBM or Compaq, however, since major companies either make their own chips or purchase them straight from the manufacturer.

Recent sting operations have slowed the Silicon Valley heists a bit but have shown few signs of stopping them. In campaigns with code names such as "Operation Gray Chip" and "Winter Sting," law-enforcement officers rounded up 43 suspects in January, including 13 who were caught while trying to steal more than $1 million worth of computer parts from an electronics warehouse. Officers seized a total of $2 million worth of chips and other computer equipment, together with nylon masks, duct tape, ropes, gloves, walkie-talkies and five loaded guns. But while 20 suspects were swiftly tried and convicted, most face sentences of no more than six months to a year in jail and could soon be on the street again.

To discourage theft on a worldwide basis, Intel last month began etching serial numbers on its Pentium chips, and will do the same with its 486 line this summer. That will enable the company and law-enforcement officials to trace the chips to their source, and thus could make stolen goods harder to fence. With the numbers in place, Intel hopes its hottest products will avoid becoming hot chips.

With reporting by Barry Hillenbrand/London and David S. Jackson/San Francisco