Comeback kids see a brighter future for The SCO Group
Buoyed by a court ruling and prospects for new mobile phone products, The SCO Group says it is on track for a Phoenix-like rebirth.
The company believes those two factors have finally given it the breathing room to emerge from bankruptcy and continue its traditional computer server business, as well as market promising new mobile products and pursue its high-profile legal battles over the millions of dollars it believes it is owed from users of Linux-based servers.
The developments of the past few months also may mean that Darl McBride will continue as CEO, a post he was to exit when the company planned to give up control to new investors in order to save the company. Now, SCO may not need as much, if any, outside money to continue operations and pursue its lawsuits.
"For the naysayers out there that would say, 'The lights are out, the lights are very dim on SCO and it's only a matter of time until there are no lumens coming out of the light bulbs and the game's over' - that's far from what the truth is," McBride said in a recent interview.
"The truth is the substantial amount of investment we've put into this mobile business in the past four years - it's in the tens of millions of dollars - is now ready to go into harvest mode."
McBride and Jeff Hunsaker, president and COO, are near giddy about a flashy new product now available but waiting its official launch next month that combines The SCO Group's technical expertise with FranklinCovey's famous day planners. The result is software that allows groups - such as small businesses, teams within big businesses or even soccer moms -to near-instantly schedule meetings, delegate tasks and post messages through their smart mobile phones, now limited only to users of Blackberries or Windows Mobile units.
Should the mobile business prove to help rescue SCO, its recent history will count as a near-death experience.
In 2003, the company initiated a lawsuit against IBM, claiming it was owed hundreds of millions of dollars because the high-tech giant had used SCO's Unix server software code as the basis for an important addition to the Linux software system. SCO alleged that IBM's actions allowed Linux sellers to compete for business.
The lawsuit provoked the wrath of the Linux community of developers who deny the SCO allegations and take pride in their work in creating the computer system whose core codes are open to the public and available for use in developing products that compete with Unix and Windows.
The SCO Group also sued Novell Inc., saying it was trying to interfere with its ownership of Unix. Last year, U.S. District Court Judge Dale Kimball ruled against SCO, a decision that meant it potentially owed Novell $37 million in licensing fees and interest.
Shortly after that, SCO filed for bankruptcy and proposed a reorganization plan that included an investment of up to $100 million from a private-equity fund that would have taken control of the company. The fund, Stephen Norris Capital Partners, said McBride would not continue as CEO if the plan were approved by the bankruptcy court.
But in July, Kimball ruled that SCO owed Novell only $2.5 million, a figure that greatly reduced SCO's need for outside capital. That verdict also put SCO in a better position to appeal the case, with the company's leadership confident in its chances of overturning Kimball's 2007 ruling and getting the case returned to Utah for trial.
Coincidently, SCO's partnership with FranklinCovey, another Utah company, matured to the point that it is going to market with a product that company officials believe has the potential for a steady stream, if not a river, of revenue.
"We think it'll actually be a killer application in the world of mobile phones," said McBride, whose company's shares trade over the counter at about 30 cents a share.
McBride also thinks SCO could potentially sell off its interests in the FranklinCovey FC Mobile Life to raise needed cash and continue to develop and market "dozens" of other mobile products now in its labs.
Bill Hughes, principal analyst on mobile businesses for In-Stat, said the important component with mobile phone products is having a good distribution channel. FranklinCovey's strong brand recognition will help sell the technological innovations that SCO brought to market, he said.
"Their enthusiasm is warranted," Hughes said. "They're going to the organizations that rely on FranklinCovey and will listen to them with an open mind."
But Rob Enderle, founder and principal analyst of the Enderle Group, argues that although SCO possesses skills similar to those that helped Apple develop the iPhone, it faces a huge image problem in trying to market any new product.
"They actually have a decent pedigree with regard to their technical skills," he said. "But the problem is they carry so much baggage, along with their corporate name, that getting somebody to take a meeting so they can pitch the product is incredibly difficult. I'm not convinced they can ramp the volume."
Enderle does agree that because FC Mobile Life carries FranklinCovey's name, the product might be easier to market, but there might be even more potential for someone else who might buy SCO's interest in the product.
"It'll be a lot more valuable out from beneath the SCO brand."
Todd Simons, senior director at FranklinCovey, said The SCO Group brought critical technical expertise to FC Mobile Life that created a real-time interaction between mobile devices, servers and Web versions of the product. SCO also contributed the "Post" feature that allows users to broadcast text, video and audio to a group of people and have responses posted on a private blog that everyone on the list can access.
The partnership allows FranklinCovey to offer customers a way to move beyond traditional paper organizers to Web- and smart-based phone applications, Simons said.
"We really have a lot of confidence in it. It's very fast, it's easy to use. You're always connected in real time, it's talking to a server and it's always being updated."
Just as SCO has found some breathing room, McBride's own future is more secure, if still unsettled.
Asked whether he will remain as CEO, McBride said, "As we move forward, at some point we'll have to answer that question. What I can say is I'm very committed to SCO stakeholders . . . to finish off this battle that we started five years ago. We believe it is time now to go in and get things finished off."
What's in a name?
In 1995, Novell sold the Unix computer operating system to The Santa Cruz Operation. Santa Cruz sold Unix to Utah-based Caldera International in 2001. In 2003, Caldera International changed its name to The SCO Group.