Dell has finally dispensed with a lawsuit that has hounded the company for the better part of three years.
The suit, which was originally filed by Advanced Internet Technologies (AIT) in 2007, said that Dell knew that some of its desktop computers were faulty, but shipped them anyway and told employees to keep their mouths shut.
The suit concerned Dell OptiPlex models with capacitors manufactured by Nichicon, a Japanese company, and shipped to customers between May 2003 and July 2005. Although the capacitors, which had a tendency to leak, were also used by Apple and Hewlett Packard, Dell was by far the company most affected. An internal Dell memorandum said that a maximum of 97 percent of certain OptiPlex machines with Nichicon capacitors could malfunction.
A company spokesman said that, to date, Dell has replaced motherboards in approximately 22 percent of the OptiPlex computers potentially affected.
"Not all of those replacements were the result of faulty capacitors and some of those replacements were performed where the computer had not failed. Given that no Nichicon capacitors were used after 2005, only a very small percentage of the potentially affected products are still in use today," said David Frink in an email to ConsumerAffairs.com
Damning internal documents
In June, The New York Times released an article summarizing documents that showed Dell was aware of the problem long before the lawsuit reared its head. The very existence of the article -- which blamed the malfunction for "the decline of one of America's most celebrated and admired companies" -- was bad enough, but its content was devastating for the once-triumphant computer maker.
In one internal email, a Dell employee advises against "language indicating the boards were bad or had 'issues' per our discussion this morning," according to the Times.
And a memorandum telling employees how to approach the situation warns employees not to "bring this to customer's attention proactively" and to "[e]mphasize uncertainty."
A contractor hired by Dell to evaluate the scope of the problem found that Dell was replacing defective capacitors with defective capacitors, essentially kicking the can down the road indefinitely.
Wal-Mart, Wells Fargo affected
Making matters worse, the computers were distributed not only to private consumers, but to scores of small businesses and several large corporations, including Wal-Mart and Wells Fargo. Widespread hardware failure for any of those companies potentially meant catastrophic data or financial loss.
AIT, the plaintiff company, said it lost millions due to 2,000 affected machines that Dell refused to fix or replace.
In an embarrassing sign of how widespread the problem was, one email showed that Simpson Thacher & Bartlett, the law firm representing Dell in the suit, had 1,000 of its own computers that were affected. Dell refused to fix the machines, according to the Times.
Pressing the restart button
Dell had been widely expected to finalize the settlement agreement, which was reached on September 23.
The settlement, the terms of which have not been disclosed, is Dell's latest attempt to make a fresh start. Once seen as a company to be emulated, Dell has spent the last five or so years lurching from crisis to crisis.
In July, the Securities and Exchange Commission (SEC) charged CEO and founder Michael Dell with failing to disclose material information to investors. He avoided prison time, but had to shell out $4 million to settle the matter. The corporation didn't get off Scot-free either; Dell had to pay $100 million to settle the same charges, as well as separate allegations of accounting fraud relating to a purported exclusivity agreement with Intel.
In August, 25 percent of the company's board refused to vote to re-elect Michael Dell as chairman.
Infamous customer service
ConsumerAffairs.com has gotten more than its fair share of Dell complaints. A survey back in 2005 showed that we receive far more complaints about Dell than any other computer manufacturer. Many consumers complain about what they say is atrocious customer service -- a complaint that squares with the allegations in the just-settled suit.
In 1997, when Apple was doing its own soul-searching, Michael Dell was asked at a technology conference what he would do if he were in charge of the now-humming company.
"What would I do?" Dell said. "I'd shut it down and give the money back to the shareholders."
How times have changed.
