Open Source

SCO reports deeper loss, shrinking revenue

It's another quarter of financial bad news for the firm engaged in litigation over Unix and Linux.

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By Stephen Shankland
Staff Writer, CNET News.com

The SCO Group, a company engaged in complicated litigation regarding Unix and Linux, reported another quarter of financial losses on Tuesday, spurred by dwindling software and licensing revenue.

The company reported a loss of $6.5 million, or 37 cents per share, for the quarter ended Oct. 31, compared with a year-earlier loss of $1.6 million or 12 cents per share. The Lindon, Utah, company's revenue dropped from $24.3 million to $10.1 million over the same period.

SCO blamed the revenue decrease on competitive pressures and a major drop in the company's effort to license its Unix intellectual property. No analysts surveyed by First Call had financial projections for the company.

SCO also will have to reckon with the fallout from a major shake-up at the Canopy Group, the investor that owns a majority stake in SCO. Canopy Chief Executive Ralph Yarro, who also is SCO's chair, has been replaced at Canopy by Bill Mustard, a Canopy representative said. The executive shake-up was reported Tuesday by The Salt Lake Tribune, which also said Chief Financial Officer Darcy Mott lost his job.

Yarro and Mott remain on SCO's board, SCO spokesman Blake Stowell said. Yarro and Mustard did not immediately respond to requests for comment.

SCO is suing IBM, arguing that Big Blue violated its Unix contract with SCO by moving proprietary Unix technology into open-source Linux. It's also engaged in related litigation with Linux user AutoZone, Unix licensee DaimlerChrysler, Linux seller Red Hat and earlier Unix owner Novell. Though the cases aren't expected to finish anytime soon, SCO meanwhile is trying to make money by licensing its intellectual property to Linux users.

In regard to the SCOsource effort to make money through this licensing and litigation, revenue declined from $10.3 million a year ago to $120,000 in the most recent quarter, SCO said. The program hasn't made much money since SCO signed major licensing deals with Microsoft and Sun Microsystems in 2003.

Costs for the SCOsource program are high, however: $4.3 million for the quarter and $19.7 million for the entire year. Through a new agreement that caps payments to law firm Boies Schiller & Flexner, the company expects to pay $3 million in legal fees.

The company's Unix business, based on its UnixWare and OpenServer products, shrank from $12 million a year ago to $8.3 million in the most recent quarter.

SCO hopes the release of a new version of OpenServer code-named Legend will help. However, the company delayed its release; in June it said Legend would arrive in the first quarter of 2005, but Tuesday the company said it would be the first half.

The slip probably won't have financial effects because upgrades are a gradual process, Chief Executive Darl McBride said. "The opportunity for Legend is not going to be measured in weeks or months," he said during a conference call Tuesday.

The company has been cutting staff in an attempt to cut expenses and return to profitability. SCO employed 275 earlier this year but now has cut that to 200, Chief Financial Officer Bert Young said.

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