Update: Dell knowingly sold faulty PCs

Unsealed court documents reveal Dell had prior knowledge of bad components in its PCs, The New York Times reports

PC maker Dell has been accused of selling thousands of desktop PCs despite knowing the machines contained faulty components, according to recently unsealed court documents first reported about on Tuesday by The New York Times.

Court documents unsealed in a civil case against Dell in Federal District Court in North Carolina accuse Dell employees of having prior knowledge that the company's OptiPlex PCs sold to customers were likely to break, the newspaper reported.

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Dell shipped around 11.8 million OptiPlex computers between the May 2003 to July 2005 period that were at risk of failing because of the faulty components, according to the unsealed court and internal documents. Dell sold OptiPlex desktops to companies and business customers including Wal-Mart and Wells Fargo.

The problems stem from bad capacitors on motherboards. which could cause systems to fail. The documents also say that Dell employees knowingly tried to play down component problems, which put customers at risk.

Dell salespeople were told to say "don't bring this to customer's attention proactively," in an effort to conceal system problems, according to the documents reported on by the Times.

The documents were connected to a lawsuit filed by Web hosting service provider Advanced Internet Technologies (AIT) against Dell in the U.S. District Court for the Eastern District of North Carolina on Nov. 1, 2007. AIT sought $75,000 and punitive damages from Dell for breach of contract, fraud and deceptive business practices.

Bad capacitors from a company called Nichicon were used by certain Dell suppliers between 2003 and 2005, and the same issue affected many PC makers, said David Frink, a Dell spokesman.

"Dell worked with customers to address their issues, and Dell extended the warranties on all OptiPlex motherboards to January 2008 in order to address the Nichicon capacitor problem," Frink said.

The capacitor issue does not affect current Dell PCs, he said.

"The AIT lawsuit does not involve any current Dell products. Dell is responsive to customer issues and we continue to remain focused on our customers, their needs, and our growing record of superior customer service," Frink wrote.

Dell has had customer support issues in the past few years. The company took a $442 million charge during the third quarter of 2006 to account for a number of issues including the costs associated with replacing faulty capacitors on some of its OptiPlex desktops, layoffs and inventory writeoffs.

Dell in September also agreed to pay $4 million to settle charges of fraudulent and deceptive business practices brought against the company by New York's Office of the Attorney General. The suit charged Dell with misleading customers by charging high credit rates when they were promised cheap financing, and for failing to deliver rebates, warranties and technical support as simply as it had promised.

The U.S. Securities and Exchange Commission began investigating Dell in 2005 over its financial statements. Dell has already restated some of its financial results reported prior to 2007, and last month said it was setting aside a $100 million reserve for the first quarter of fiscal 2011, related to a potential settlement with the SEC in connection with the investigations.

This story was updated on June 29, 2010

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