SCO shares plunge

Published December 22, 2004 12:01 am
Double whammy of Canopy ousters, quadrupled Q4 losses
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Shares in Utah's SCO Group went into a tailspin late Tuesday as news spread of both deepening losses and an apparent coup at the software company's corporate parent, the Canopy Group.

SCO shares closed at $4.51 in regular trading on the Nasdaq Stock Market, down 33 cents, or 7 percent. Then came SCO's dismal earnings reports for the fourth quarter and fiscal 2004; within minutes shares plunged another 46 cents, or 10 percent, in after-hours trading, to $4.05.

SCO, embroiled in multibillion-dollar federal litigation against IBM and others over its purported rights to the Unix and Linux operating systems, more than quadrupled its fourth-quarter losses. For the quarter ending Oct. 31, SCO's loss sank to $6.5 million, or 37 cents a share; the company had lost $1.6 million, or 12 cents, in the same period last year.

Investors already were absorbing news, leaked out in bits and pieces earlier Tuesday, about an apparent weekend coup that ousted Ralph Yarro, Canopy's longtime president, chairman and chief executive, along with Chief Financial Officer Darcy Mott.

Secretaries at Canopy's Lindon headquarters confirmed that Yarro and Mott were "no longer with the company."

Callers to Canopy were told the company's new CEO is William Mustard, believed most recently to have been a managing director at Smooth Engine, a New York-based consulting firm that provides both interim and permanent executive replacements.

Mott's replacement had not yet been named. Questions regarding the ousters were referred directly to Mustard. He did not return several calls seeking comment.

Messages left at the home telephone numbers of Yarro and Mott - both former proteges of former Novell chief and networking tech guru Ray Noorda - also went unanswered; so did questions about how their departure from Canopy might affect SCO and its now 21-month-old battle with IBM, the world's largest computer company.

Yankee Group analyst Laura DiDio called the ousters "a changing of the guard at Canopy. It is quite literally out with the old and in with the new.

"With the departure[s] . . . go the last vestiges of the Ray Noorda era. Yankee Group expects that other, equally significant changes will be in the offing for 2005," she said. "The fate of SCO is one of the big question marks. New management at Canopy . . . may push [SCO] to try and settle."

Of more immediate concern to investors, though, were SCO's finances. In addition to growing losses, the company's quarterly revenue also tumbled more than 50 percent - $10.1 million compared with $24.3 million a year ago. The decrease was primarily due to a precipitous slide in the company's SCOsource revenue - a paltry $120,000 compared with more than $10.3 million for 2003's fourth quarter.

For fiscal 2004, revenue was $42.8 million, down sharply from 2003's $79.25 million. Shareholders lost $16.2 million, or $1.07 per share this fiscal year, compared with $5.3 million, or 34 cents, the year before.

The SCOsource division manages the company's Unix intellectual property, and oversees SCO's largely unsuccessful attempts to sell licenses to Linux users under implied threat of copyright infringement lawsuits.

SCO CEO Darl McBride, anticipating victory in SCO's lawsuit against IBM, believes SCOSource revenue is destined to revive. The suit, awaiting rulings on motions for dismissal and evidentiary discovery, is not expected to come to trial until next fall.

"We're in a challenging business environment," he said during an earnings teleconference. "[But] we believe there is value in our Unix licensing business and we offer our customers . . . value they need to be made aware of."

McBride also pointed to a recent deal SCO made with its chief Linux litigator, attorney David Boies of New York. His law firm agreed to cap the overall cost of SCO's lawsuits to $31 million in return for a bigger piece - 33 percent, instead of 20 percent - of any settlements.

McBride said that pact will enable SCO to see its legal challenges over Unix and Linux through to the end without draining the company's remaining cash reserves.

He took no Canopy-related questions during the teleconference and did not return calls afterward seeking comment.


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