SCO stock falls to lowest price since it filed IBM suit

Published October 26, 2004 12:06 am
Nineteen months ago: It has now lost 83 percent of its value since Jan. 6; it closed Monday at $3.01
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The SCO Group's stock tumbled Monday to lows not seen since before it made international headlines by filing a multibillion-dollar lawsuit against IBM 19 months ago.

The Lindon software company, which claims its protected Unix code was illegally dumped into the freely distributed Linux operating system, saw its stock close Monday at $3.01 per share.

SCO shares last traded for so little on March 18, 2003 - a week before the company sued IBM in Salt Lake City's U.S. District Court. SCO's stock - which went for $3.84 per share entering October - has now lost 83 percent of its value since Jan. 6 of this year, when it closed at $18.19.

Company spokesman Blake Stowell, citing corporate restrictions, declined comment on the stock price. He also would not discuss SCO's plunging revenues or uncertainty about the Unix-Linux courtroom battles, possible factors in the company's declining fortunes on the Nasdaq exchange.

However, Laura DiDio, a senior analyst with the Yankee Group, said it was clear that the market's "pendulum is indeed swinging in the wrong direction for SCO."

DiDio blamed the slide on a combination of widely reported, unfavorable developments for the Utah company in the ongoing lawsuit with IBM, along with a 44 percent drop in third-quarter revenues.

Nonetheless, she saw chances for a stock-price turnaround if SCO can "begin realizing revenue from its Unix business," which dropped to $678,000 in the third quarter, down from $7.3 million a year earlier.

Seth Jayson, an investor-writer who has followed SCO for The Motley Fool, said it appeared the company's shareholders "are just slowly beginning to realize what I've been saying for a while: that this is an overly risky speculation, a gamble on a lawsuit rather than an investment in a working corporation."

He added: "SCO needs to become a profitable software services provider if it hopes to survive. Investors don't seem to think that's going to happen."

Dan Kusnetzky, a vice president with the IDC advisory firm, also wondered about SCO's prospects with its core Unix products.

"The Unix market has been under attack from several quarters for several years," he said. "Organizations that may have selected a Unix-based solution are selecting Windows-based solutions instead, [and] Linux has been a challenge as well."

Kusnetzky noted that worldwide, Unix accounted for 14.5 percent of operating revenue in 2001. Last year, Unix was responsible for only 12.7 percent. It is expected to dip below 10 percent by the end of 2004.

"Unlike other Unix suppliers, the SCO Group does not have offsetting streams of revenue coming from other operating environments, hardware, application software or professional services revenue," Kusnetzky said.

If true, the SCO Group's hopes for the long term seem more and more to rely on succeeding in the courts. The company is seeking a minimum of $5 billion and a maximum of $50 billion from IBM in its suit, expected to go to trial in summer 2005.


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