Dell Could Face Troubles after Unsealed Documents Show Company's Response to Faulty Components

Dell (News - Alert) could be at risk after recently unsealed court documents show the company's reaction to failing computers due to faulty components.

The New York Times reported this week that documents recently unsealed in a three-year-old lawsuit against Dell show that the company's employees were aware that the computers were likely to break.

Internal documents show Dell shipped at least 11.8 million computers from May 2003 to July 2005 that could fail because of the faulty components, The Times reported.

The at-risk computers were Dell's OptiPlex desktop computers - products sold to businesses and government agencies, The Times said.

Still, Dell employees tried to minimize the problem to customers - putting their businesses at risk, according to The Times story.

Dell appears to have suffered from the bad capacitors, made by a Japanese company, Nichicon, more than its rivals, The Times said.

A study by Dell found that OptiPlex computers affected by the bad capacitors were expected to cause problems up to 97 percent of the time over a three-year period, according to the lawsuit, The Times reported.

Dell replaced faulty motherboards with other faulty motherboards, The Times reported.

Dell came under criticism for its response to the problems with the computers.

For example, TMC (News - Alert) columnist and CEO Rich Tehrani saw Dell's response as an example of actions by a well-respected brand that can lead to damage to its reputation - similar to issues that Toyota has recently found itself facing.

Dell saw its stock trade lower Tuesday after The New York Times published its story.

The Austin American-Statesman reported that Dell said the issue was "old news and the implication that this situation affects Dell currently is incorrect."

Dell had disclosed problems with the motherboards in the computers in 2005, according to The Statesman, and that fall, it took a $450 million charge against earnings to reflect its costs related to fixing or replacing the components.

The lawsuit was filed in 2007 by Advanced Internet Technologies, which had leased more than 2,000 computers from Dell but then encountered problems with them, according to The Statesman.

Dell said when the issue arose in 2003, it worked with customers to resolve their issues, including with extended warranties, The Statesman reported. Dell noted that other PC makers also purchased motherboards from Nichicon at that time. "It is speculation to suggest that Dell was affected more than other companies," the newspaper said in quoting Dell's statement.

In other company news, Dell said recently it expects revenue growth for the remainder of the year - fueled by the replacement of older computers among businesses and governmental organizations.

Dell said it expects revenue for Fiscal 2011 will increase 14 to 19 percent over Fiscal 2010. Dell also said it expects that operating income will increase by 18 to 23 percent over Fiscal 2010.