According to recently released documents stemming from a three year-old lawsuit, the company shipped "at least 11.8 million computers" with potentially faulty components between May 2003 and July 2005. Unfortunately, they didn't discover this until it was too late and they had manufactured and distributed millions of systems. An internal study at the company showed that OptiPlex PCs containing the suspect capacitors had a 97% fail rate. Their solution? Play it cool and telling employees to "avoid all language indicating the boards were bad or had issues."
Dell's business model relies on a just-in-time assembly process that lets it get cheaper parts as they become available. The company was indeed able to undercut rivals and quickly became largest PC vendor in the world. But their leadership at the time was extremely focused on cost, and as a result they failed at being proactive and addressing customers concerns before they spun out of control. Poor decisions like this and several other problems that have plagued Dell in recent years (including fraud charges) really help explain the decline of the company and its tainted image.
Dell eventually admitted to the issue and in 2005 set aside $300 million to mend and replace computers, but that did not stop Internet services company AIT from launching a lawsuit two years later. The lawsuit is still pending.