Market slide: SCO Group's stock falls to $2.28 per share

Published August 2, 2006 12:00 am
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In the months after the SCO Group's Linux-related lawsuit against IBM was filed nearly three and a half years ago, the tiny Utah software company saw its stock soar tenfold.

But on Tuesday the Lindon company's stock was a long way from its October 2003 high of $20.50 per share. After a sustained slide fed by sustained poor earnings results and courthouse reversals, SCO shares closed Tuesday at $2.28 per share.

That was 2 cents per share lower than the company's stock sold for on March 25, 2003. That was the same day SCO, alleging IBM had transferred SCO's proprietary Unix code into its Linux releases, filed its $5 billion complaint against Big Blue in Salt Lake City's U.S. District Court.

On June 27, the day before U.S. Magistrate Brooke Wells gutted two-thirds of SCO's nearly 300 allegations against IBM, shares traded at $4.17. Coming on the heels of SCO's more than doubling its second-quarter losses, to $4.7 million, investors apparently began to lose heart. Prices - stable for some weeks around $4 - resumed their tumble.

SCO spokesman Blake Stowell declined comment. Investors contacted either refused to go on record about the company's market woes, or in the case of SCO's two largest stockholders - Ralph Yarro, also board chairman, and Glenn Krevlin of Glenhill Capital - did not immediately return calls.

Market-watchers said Tuesday that unless SCO succeeds in getting U.S. District Judge Dale Kimball to review and overturn Wells - a rare occurrence - it appears the company's future will be dismal.

"This is now no more than a case study, albeit a very important one, for the software industry," said Stuart Cohen, CEO of the pro-Linux Open Source Development Labs. "It shows that Linux and open source [freely distributed] software are bigger than any one company. "Linux has won in the courts and is winning in the marketplace. SCO . . . is dead. This plan [of litigation] didn't work at all, and now they are paying the price."

Gordon Haff, Illuminata Inc. anaylst, agreed, saying SCO's strategy appeared to have been one of "throwing out a wide range of claims and allegations in the hope that at least one will stick."

He, too, saw Linux - increasingly seen as an alternative to Windows - as having grown only stronger from SCO's challenge to its programming integrity.

"It's always hard to prove a negative, to state categorically that Linux adoption wasn't hurt in some way and to some degree," Haff said. "But Linux's continued popularity and adoption certainly suggest that any harm was relatively limited and temporary."

George Weiss of Gartner Inc. observed that SCO's stock slide, at least in part, may be linked to lagging interest in the Unix-based products SCO offers in favor of improved applications emerging from various flavors of Linux.

"It's nothing definitive, but one [information technology] manager told me that their application vendor is abandoning SCO and leaving the user in the lurch," Weiss said. "Effectively, he will be forced to migrate, most likely to Linux."

Such doubts, if widespread, "could be a factor influencing stock analysts who like to monitor the vendor's channel," he added.


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