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Dell Charged with Knowingly Shipping Bad PCs

Newly unsealed documents that are part of an ongoing three-year-old lawsuit against computer maker Dell alleged the company knowingly shipped millions of defective motherboards in Optiplex desktop computers—sold mostly to enterprise and business customers—and that the company mislead customers about the cause of the problem.

For its part, Dell’s response is that many major PC manufacturers were impacted by similar problems from a component supplier, and the problem is “old news” that has long since been corrected.

The lawsuit is a civil action being brought against Dell by North Carolina-based Advanced Internet Technologies, and was first reported by the New York Times. The machines in question shipped from 2003 to 2005—so they aren’t exactly on the market now—and the lawsuit was filed in 2007. However, documents assert that an outside consultant warned Dell the systems were ten times more likely to fail than Dell originally estimated. The suit alleges that Dell employees knew about problems with the Optiplex PCs, but that the company continued to ship known-faulty systems, and instructed customer service and sales people to conceal the issue—or at least not bring it up.

According to case documents, the problem stemmed from faulty capacitors on the Optiplex motherboards; capacitors are key components in power supplies and in regulating power sent to various system components. Dell acknowledges that were supply chain problems in 2004; many of the capacity failures are attributed to an Japanese supplier Nichicon, which sold components not only to Dell but to a number of PC manufacturers.

Dell did take a $300 million charge in 2005 to address issues with culty systems, and a $442 million charge in its third fiscal quarter of 2006 that, in part, was intended to account for costs associated with replacing faulty components and reimbursing customers. However, the suit alleges Dell sold almost 12 million Opitplex systems between May 2003 and July 2005 that were at risk of failure from the faulty components.

At this point, the issues in the case are years-old and do not impact any current Dell systems; however, they do call into question Dell’s quality control and willingness to mislead customers—particularly enterprise clients—even when the company knows it has a problem.