It's no secret that Dell, the world's second largest computer maker is struggling.  Evidence of that was on display when following a series of layoffs last December, the company's site became riddled with pricing errors -- including the world's most expensive mouse, priced at $3,999.99 USD.

The company's profits plunged 54 percent between 2008 and 2009.  Now, documents unsealed in court this week paint a troubling picture, showing that the manufacturer knowingly sold defective machines between 2003 and 2005 according to the New York Times.

Among the customers burned by Dell was the University of Texas, which purchased a large number of computers for its math department only to see them fail and die.  Dell blamed the college for overtaxing the machines, but newly released evidence indicates that the failures were actually caused by faulty electrical components that leaked chemicals.

Wal-Mart, Wells Fargo, institutions like the Mayo Clinic, and small businesses were among the other companies to buy failing units.  Greg Barry, who is President of a Philadelphia firm named PointSolve, was one such small business customer who suffered.  His company bought dozens of the machines.  He recalls, "The funny thing was that every one of them went bad at the same time.  It’s unheard-of, but Dell didn’t seem to recognize this as a problem at the time."

Perhaps the greatest irony are unsealed emails from the firm defending Dell in the case, which has now been in court for three years.  In the emails, the firm reports to Dell that many of its 1,000 Dell computers were failing.  Dell employees are found arguing about whether their company should have to fix the machines.  This all occurred while the company was actively defending Dell's failing computers.

David B. Yoffie, a professor of international business administration at Harvard, says that these troubling developments may undo Dell's reputation in the business world as being the archetype of efficiency, outsourcing, and tight inventories.  He comments, "Dell, as a company, was the model everyone focused on 10 years ago.  But when you combine missing a variety of shifts in the industry with management turmoil, it’s hard not to have the shine come off your reputation."

A study on the OptiPlex computers sold by Dell showed that those with bad capacitors were 97 percent likely to fail.  Despite knowing about the bad capacitors, which were found in many of the machines, Dell resisted a recall.  It shipped at least 11.8 million computers from May 2003 to July 2005 that were at risk of failing because of these and other faulty components.

In documents Dell was revealed to have told its salespeople with regard to the failing capacitors "Don’t bring this to customer’s attention proactively" and "Emphasize uncertainty."

Advanced Internet Technologies filed the lawsuit against Dell in 2007.  It says that it had a significant percentage of the 2,000 Dell computers it purchased fail, resulting in millions in lost business.  Its expert witness Ira Winkler, a former computer analyst for the National Security Agency and a technology consultant comments, "They were fixing bad computers with bad computers and were misleading customers at the same time.  They knew millions of computers would be out there causing inevitable damage and were not giving people an opportunity to fix that damage."

The damage to business likely was mirrored by similar woes among public consumers.  It would be unsurprising to see additional consumer class actions arise in the wake of the release of these damaging documents.  Dell already faces customer class actions on other issues and an SEC investigation on stock fraud reaching as high as the company's founder, Michael Dell.