A nuclear submarine, an aircraft-mounted laser and a surface-to-air missile system have all been exposed to the same hidden supply-chain threat: counterfeit cooling fans.
In 2024, a California supplier admitted selling US$3.5 million worth of counterfeit and misrepresented fan assemblies to the United States Defense Logistics Agency. Used and surplus assemblies had been presented as new, relabelled and supported by fabricated traceability documents. Some were installed – or intended for installation – in electrical systems for those sophisticated military platforms.
The case did not establish that one of the systems failed in operation. It revealed something almost as confronting: apparently ordinary components, supported by apparently credible paperwork, had penetrated one of the world's most closely controlled defence supply chains.
That is the challenge facing defence electronics procurement today. The risk is not limited to whether a component can be found. Organisations must establish where it came from, whether its history can be proven and whether it can be trusted to perform for the required life of the platform.
A growing market can still produce shortages
Global semiconductor sales grew 26.2 per cent in 2025 to US$795.6 billion, one of the strongest annual expansions recorded by World Semiconductor Trade Statistics. Government-related demand increased 15 per cent. Yet those headline figures do not mean that every customer has better access to every component.
Growth has been concentrated in logic, memory, data-centre infrastructure and AI-related systems. Manufacturers are prioritising advanced processes and the products offering the strongest demand and margins. Defence programs frequently need something different: mature-node devices, specialist configurations, controlled bills of material and components that must remain supported for decades.
The result is an increasingly uneven market. Capacity may be expanding globally while availability tightens for the particular memory, analogue, programmable logic, power or passive devices required to manufacture and sustain an established defence system.
“The risk is no longer that a part is simply unavailable. The greater risk is that urgency pushes a buyer into an unfamiliar channel without the intelligence, traceability or testing needed to establish what is actually being supplied,” says Mark Shanley, global sales and marketing director, Astute Group.
Memory provides the immediate warning
Memory is one of the clearest examples of commercial demand reshaping the supply available to other sectors. As suppliers direct capacity towards high-bandwidth memory, AI servers and enterprise storage, general-purpose and legacy memory products are being squeezed.
For the second quarter of 2026, TrendForce forecast conventional DRAM contract prices to rise by 58 to 63 per cent quarter-on-quarter and NAND Flash contract prices by 70 to 75 per cent. It also warned that meaningful enterprise SSD capacity expansion may not arrive until late 2027 or 2028.
For defence suppliers, the effect extends far beyond a higher line-item price. Allocation, extended lead times or an end-of-life decision can affect quotations, production schedules, repair capability and contracted delivery dates. An alternative component may require redesign, documentation changes and fresh qualification – adding engineering cost and potentially months to a program.
Trade policy adds friction at every border
Tariffs are often discussed as a percentage added to landed cost. In a complex electronics supply chain, their effect is broader. Policy changes can trigger new country-of-origin checks, customs classifications, licence reviews, end-user declarations and route changes. A part may be designed in one country, fabricated in another, packaged and tested elsewhere, and distributed through a fourth jurisdiction before it reaches Australia.
Export controls add another layer. In 2025, China introduced controls covering specified tungsten, tin, antimony, molybdenum and germanium materials and related technologies used across high-technology manufacturing. The United States has continued to develop export controls and tariff actions affecting advanced computing devices, semiconductors and downstream products, including those used in defence.
For Australian buyers, the practical consequence is uncertainty: more documentation, more compliance checks, more potential points of delay and less confidence that yesterday’s sourcing route will remain available tomorrow.
“For defence manufacturers, global sourcing must provide more than access to stock. It must provide confidence that every component is backed by market intelligence, research, traceability and rigorous testing before it enters a mission-critical supply chain,” says Nick Molloy, operations manager, Astute Electronics, Australia.
For defence manufacturers, global sourcing must provide more than access to stock. It must provide confidence that every component is backed by market intelligence, research, traceability and rigorous testing before it enters a mission-critical supply chain.”
Nick Molloy
Urgency creates an opening for counterfeit material
When an authorised source cannot support the required schedule, buyers may need to enter the independent or open market. This is a legitimate and sometimes essential sourcing strategy, but it must be supported by supplier controls, traceability and testing appropriate to the risk.
ERAI's 2025 Annual Report shows why assumptions are dangerous. Of the nonconforming parts reported to its database, 68.84 per cent were classified as suspect counterfeit. Almost one-quarter of suspect counterfeit parts passed electrical testing. More than one-third of the parts reported were active components, while 81.1 per cent were occurrences not previously reported to ERAI.
These figures describe parts reported to ERAI, not the incidence rate across the entire global market. Even with that qualification, they undermine three comforting beliefs: that counterfeiters mainly target obsolete parts, that a part without a prior alert is low risk, and that a simple functional test will identify the problem.
A remarked, recycled or substituted component may operate under initial test conditions while failing to meet the specified temperature range, reliability, endurance or service life. In a consumer product, that may lead to a return. In a defence system, it may affect safety, platform availability or operational capability.
“When a component slips, it does not remain a procurement problem. It moves through engineering, production and qualification, and ultimately affects our ability to deliver capability to Defence when promised,” says Shanley.
Obsolescence is the quieter threat
Counterfeiting is the visible risk. Obsolescence is often the slower-moving one. Defence platforms are expected to operate for decades, while many commercial electronic components remain in production for only a fraction of that time.
Without life cycle monitoring, a supplier may discover a discontinuation only when the next order is placed. By then, authorised stock may have been absorbed by the market, leaving a last-time buy, a search for residual inventory or a redesign requiring new engineering and qualification.
Resilience therefore begins well before a shortage. It requires visibility of the bill of material, product-change and end-of-life notifications, assessment of geographic and supplier concentration, approved alternative sourcing paths, strategic inventory for selected high-risk parts, and early engagement between procurement, engineering and quality teams.
From component availability to capability assurance
Australia cannot remove every geopolitical, manufacturing or logistics risk from the global electronics market. It can reduce the likelihood that those risks become operational failures.
That means moving beyond transactional purchasing. It means understanding the life cycle and origin of critical components, selecting suppliers before a requirement becomes urgent, and applying inspection and testing proportionate to the application. Depending on the component and risk profile, that may involve visual and marking inspection, X-ray, XRF analysis, decapsulation, solderability assessment and electrical testing – supported by documented chain of custody.
As the defence community comes together at Land Forces 2026, electronics supply-chain assurance deserves a place alongside sovereign manufacturing, platform performance and operational readiness. The smallest part in a system can still become its greatest vulnerability.
_Astute Pty supports Australian defence and high-reliability customers through authorised and global component sourcing, life cycle and obsolescence management, logistics, traceability, and component inspection and testing. Meet the team at Land Forces 2026, Stand 2A13._
