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Unsealed documents show Dell knew about faulty machines

A federal district judge in North Carolina has unsealed hundreds of documents that are part of a lawsuit brought against computer maker Dell by Advanced Internet Technologies, which claims the company knowingly hide defects in Optiplex desktop PCs from its customers several years ago. The documents indicate that Dell knew about abnormally high failure rates with the Optiplex PCs, but that Dell failed to inform customers about problems with the systems, and even encouraged technicians and sales people to keep quiet about known problems with the systems.

The documents show that New York City purchased a batch of 5,000 computers during the 2003 to 2005 period, and filed incident reports with Dell regarding more than 20 percent of the machines. Similarly, Microsoft purchased some 2,800 of the systems and reported problems with over 10 percent of the systems, and similar large purchases from Denison University, General Electric, the William W. Backus Hospital, and other organizations reported similar failure rates. The documents also include an study from Dell conducted in 2004 that found at least 12 percent of the company’s SX270 Optiplex computers would generate incident reports within three years. By September of 2004, Dell raised the three-year minimum incident forecast for those machines to 45 percent, noting it might run as high as 97 percent.

The documents follow on a similar set unsealed earlier this year. As with the previous set, access to remaining sealed documents was sought (and first reported) by the New York Times.

The issue with the systems involved faulty capacitors used on the computer motherboards. Faulty capacitors attributed to Japanese supplier Nichicon beleaguered consumer electronics in those years, impacting everything from televisions to PCs as the capacitors overheated and failed. Other PC manufacturers impacted by the problem included HP and Apple, which tried to pull impacted systems from the market. However, the AIT suit alleged that Dell continued to receive and ship systems with faulty capacitors well into 2005—as well as mislead customers about the nature of the problem—after the problem had been identified. Internal Dell documents advised employes not mention the issue to customers, and to “emphasize uncertainty” if the matter came up.

Dell did not recall affected systems, but in 2005 took a $300 million charge related to repairing or replacing faulty systems. According to Dell, the company replaced motherboards on 22 percent of the 21 million Optiplex computers it shipped between 2003 and 2005.

Dell settled with Advanced Internet Technologies in September, Financial terms of the settlement were not disclosed. Dell has repeatedly characterized the issues as old problems that have long-since been corrected.