Though the American company had nothing to do with the industrial espionage in China in 2002 that led to faulty components, it paid the price with millions of faulty PCs





Is the green capacitor faulty? Photo by hr.icio on Flickr. Some rights reserved

Dell sold millions of computers between 2003 and 2005 that had faulty components - specifically, capacitors, according to documents unsealed in a case being heard in the federal court in North Carolina.

In an article in the New York Times, Ashlee Vance writes about the problems that Dell faced - and how it tried to prevent them becoming more widely known:

"Documents recently unsealed in a three-year-old lawsuit against Dell show that the company's employees were actually aware that the computers were likely to break. Still, the employees tried to play down the problem to customers and allowed customers to rely on trouble-prone machines, putting their businesses at risk. Even the firm defending Dell in the lawsuit was affected when Dell balked at fixing 1,000 suspect computers, according to e-mail messages revealed in the dispute."

The documents do sound fascinating - though so far the only one from the case that that has made it onto the wider web from the case is this one - which is simply a list of documents that are no longer sealed. (The case is being heard at the Federal District Court in North Carolina.)

In 2005, Dell announced that it was taking a $300m charge to cover the cost of fixing and/or replacing the faulty machines.

The NYT then argues that "The documents chronicling the failure of the PCs also help explain the decline of one of America's most celebrated and admired companies. Perhaps more than any other company, Dell fought to lower the price of computers."

That may be true - but it's not the whole story. Dell ran afoul, quite without realising it, of one of the most fascinating pieces of industrial espionage of recent times: the theft of a formula for making the electrolyte to go into capacitors from a Japanese company, which got taken to China, and then onto Taiwan - but somewhere, got messed up.

How do I know? Because I wrote about it seven years ago:

"A scientist steals a secret formula for an electrical product from his Japanese employer and takes it to China. Then it is stolen again and turns up in Taiwan. But something goes wrong - and thousands, perhaps millions, of computers and electrical goods in the West begin to burn out or explode.

"It sounds like the plot of a thriller, but it's reality. Thousands of computers have failed and nobody is sure how many more products might go wrong because their capacitors - essential components to control the power supply - were made with faulty materials."

In 2001, a scientist - name still unknown - left Rubycon Corporation Japan to go and work for the Luminous Town Electric company in China. Both companies made (among other things) electrolytic capacitors, which are usually used in power circuits. At the LTE Company, the scientist made a copy of the electrolyte - the chemical that goes inside the capacitors and enhances its capacitative properties.

"Later that year, the scientist's staff defected to Taiwan, taking with them a copy of the electrolyte formula so they could set up their own company. Taiwan supplies 30 per cent of the world's electrolytic capacitors and most of the big PC manufacturers get their machines assembled in Taiwan. But the defectors mis-copied the formula. After a few hours of operation, the electrolyte would leak hydrogen gas, before bursting the metal body of the capacitor. The electrolyte would then leak its brownish filling and could cause a fire."

IBM confessed to having a problem - and so too, privately, did Dell at the time. But that was before it began selling millions of machines which had a consistent problem: the capacitors weren't up to scratch.

Because according to the NYT story, the problem that kept cropping up with those machines was, indeed, the capacitors. "The problems affecting the Dell computers stemmed from an industrywide encounter with bad capacitors produced by Asian PC component suppliers. Capacitors are found on computer motherboards, playing a crucial role in the flow of current across the hardware. They are not meant to pop and leak fluid, but that is exactly what was happening earlier this decade, causing computers made by Dell, Hewlett-Packard, Apple and others to break."

Passive Component Industry Magazine (passive components are things like capacitors and resistors) wrote about this in September 2002, though it didn't know then quite how bad things would get. As Dell's experience showed, it could get very bad indeed.

Back in 2003, Dennis Zogbi, president of Paumanok Publications, an expert on the market for passive components, told me that the problem is that "People want Western quality at Chinese prices," he said. "Well, you can't have both."

The story continued well after that, though, with sites such as Badcaps staying on the back of manufacturers including Apple which had had the faulty components. Wikipedia refers to the "capacitor plague" - and though it does seem to have gone into remittance now, Chris Passalacqua, owner of Badcaps, suggests, "They didn't discover this until it was too late and they had manufactured and distributed literally MILLIONS of these flawed capacitors. However, it's been going on way too long to simply blame on an industrial espionage boo-boo in my humble opinion, as this problem is still extremely common, and hasn't slowed down. Personally, I think it all boils down to shoddy components that are manufactured by shoddy component makers."

And that's where we circle back to Dell's problems. The NYT said that "The documents chronicling the failure of the PCs also help explain the decline of one of America's most celebrated and admired companies. Perhaps more than any other company, Dell fought to lower the price of computers." And that's certainly true: for years, Dell led because it could undercut rivals, and kept pushing the price down.

But price and quality control are always in conflict - and in the end that seems to have done for Dell. While other companies had the capacitor problem too, they didn't suffer it as long as Dell appears to have. So it was partly something Dell couldn't have expected to have control over, namely the electrolyte formula in the capacitors in the motherboards and/or power supplies - but also partly something Dell could have acted on, which was the repeated failure of those capacitors.

Meanwhile, if anyone does have a Pacer account and wants to repost those court documents, please link them below.