SCO posts $3.43M loss in 4th quarter

Published December 23, 2005 12:01 am

Lindon company: Legal fees continue to take a big toll on the bottom line as the software maker battles IBM
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Utah's SCO Group finished its fiscal year deep in the red, but with high expectations for its revamped Unix products and new applications in the coming year.

The Lindon-based software company, best known for its $5 billion Linux-related lawsuit against IBM, saw revenues for the quarter ending Oct. 31 shrink to $8.5 million compared with $10.07 million a year ago.

However, SCO's net loss came in at $3.43 million - about half the $6.5 million lost for the same period last year. For fiscal 2005, the company lost $10.7 million (60 cents per share) on $36 million in revenue, also an improvement on the $16.22 million ($1.07 per share) lost on revenue of $42.8 million in 2004.

President and CEO Darl McBride acknowledged the biggest factor in SCO's continuing losses was the ongoing drain from legal costs. Bills for pursuing IBM over alleged use of SCO Unix code in Linux applications - and Linux-related suits involving Novell, RedHat and others - were $3.4 million for the most recent quarter, and just under $13 million for the year.

Still, McBride boasted that SCO's Unix business generated a positive cash flow in 2005, and that the company's month-old "Me Inc." digital network services product for smart hand-held devices and browsers is gaining early and positive interest.

"We are solidly focused on executing . . . our Unix business and introducing new and innovative technologies," McBride told a webcast conference call. "With the closing of our $10 million private [stock] placement in November . . . we are confident that we will be able to execute on our business strategies and see our litigation through to its conclusion."

Further, SCO expects to make a final $2 million payment during the current quarter on an agreement capping the costs of its litigation. Company officials indicated that should dramatically impact the bottom line by summer 2006.

The IBM case, in its third year, is set for trial in February 2007. A trial in SCO's suit against Novell, stemming from Novell's challenge to SCO's claim of outright Unix ownership, is tentatively set for June 2007.

Earlier this week, SCO attorneys failed to convince Magistrate Judge Brooke C. Wells that IBM had acted in bad faith during evidence discovery. However, Wells did grant SCO's request for depositions and affidavits from two more IBM executives.

IBM prevailed in its own motion to compel SCO to produce more documents relating to terms of its original Unix acquisition from Novell. Further, Wells heard that while deposing McBride, IBM learned he had failed to turn over more than two dozen e-mails exchanged with Microsoft.

SCO subsequently turned over that correspondence at IBM's request.

The e-mails are of interest in the context of Linux's growing challenge to Microsoft's predominant Windows operating system. Indeed, some in the pro-Linux "open source" community contend the computer software giant has more than a casual stake in the outcome of SCO's lawsuit.


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