Reports of Counterfeit Parts In Tech Supply Chain Reach All Time High

Counterfeit parts have infiltrated the tech supply chain more rapidly than ever over the last two years with 1,363 reports of fake components made in 2011 alone, according to a report Thursday from market analyst IHS iSuppli.

This number represents a fourfold increase from the 324 reports filed in 2009, and marks the first time in history the reported number of incidents has exceeded 1,000.

1,363 verified counterfeit cases could potentially encompass thousands of parts and millions of dollars’ worth of purchases, iSuppli said. The majority of cases have been reported by U.S.-based military and aerospace firms, but it’s not uncommon for these fake parts to find their way into enterprise organizations around the globe.

"The counterfeit issue is serious, it’s growing and it’s a major problem for electronics makers—especially military and aerospace companies," said Rory King, director of supply chain product marketing at IHS, in a press statement. "The problem has grown increasingly hard to ignore, as reports of counterfeits have risen exponentially and most companies lack the awareness and capability to effectively detect and mitigate the growing problem."

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Counterfeit parts are reported by military and aerospace firms as being "cheap substitutes or salvaged waste components" that fail to comply with industry standards, iSuppli said. These parts can ultimately cause any electronic device to fail, but the risk they pose to defense and aerospace organizations is especially high because of the potential threat to human lives.

There are fears that some counterfeit devices, such as integrated circuits, could potentially act as "malicious Trojan horses" that could be disabled remotely and threaten defense capabilities at any given time, iSuppli said.

Marc Fertik, director at ACE Computers, a system builder based in Arlington Heights, Ill., told CRN that counterfeit parts are definitely something be cognizant of when working within the supply chain, but haven’t poised as immediate a threat as the report perhaps suggests.

"Generally, [counterfeit parts are] not an issue we face, but it can certainly be a problem," Fertik said. "Most of the items we buy are components through regular distribution, and there is no motivation to counterfeit. Since we are using primarily brand name components, we are able to track their sourcing. We don’t typically buy chips by themselves, other than CPU and MEMORY, and all of those are typically from authorized sources only."

Even still, Ace tests and checks every component before deploying it within a device, Fertik said. He also noted that while Ace build systems for military and airforce segments, the technology is used more on the commercial rather than weaponry side, so this could account for the counterfeit issue not being as widespread.

The U.S. government tightened regulations around counterfeit components in the defense supply chain last year, and made it mandatory for all members at all tiers of the chain to establish thorough risk mitigation procedures moving forward.