Layoffs coming at SCO

Published February 11, 2008 11:37 pm

Company loses $6.8M for fiscal year amid high-profile legal battles
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The embattled SCO Group Inc. is laying off about a quarter of its work force as it tries to survive while it fights high-profile legal battles with Novell, IBM and others.

SCO will lay off about 30 of its 115 employees, the company said in a filing last week with the Securities and Exchange Commission.

The SCO Group lost $6.8 million for its fiscal year that ended Oct. 31, the company also said in an annual report to the SEC. It pointed to legal costs and those costs associated with getting its new mobile applications to market for the loss.

In the report, The SCO Group, which sells the UNIX computer operating software and related products and a new line of software for mobile devices such as cell phones, said its revenues are declining even as it faces further expenses for expert witnesses, consultants and other services in its lawsuits against Novell and IBM.

"Our limited cash reserves may not be sufficient to fund continuing losses from operations and the expense of the SCO litigation," the company warned in providing investors a snapshot of potential risks.

SCO has prepaid the law firms representing it so it will not have huge legal bills this year. It also has set aside $1.8 million in cash that officials believe will be sufficient for additional expenses related to the lawsuits such as for expert witnesses.

In a statement on Monday, SCO said the layoffs and reorganization had "right sized the company to ensure our financial viability."

"Our current business plan will allow us to have sufficient resources to continue moving forward with our UNIX and mobile businesses as well as the ongoing pursuit of our legal claims," it said.

The statement pointed to major customers that include McDonald's, Costco, Walgreens, the China Post, CVS Pharmacies and Sberbank, Russian's largest bank, as proof of the continued viability of its products.

However, Rob Enderle, principal analyst and founder of the Enderle Group of San Jose, Calif., is bleak in his assessment of the company's future, particularly as it faces trial in April in which it potentially owes Novell more than $30 million in licensing fees for UNIX.

"They really don't have the money to pay the Novell settlement and . . . underneath this cloud they certainly can't find a buyer for this company and they're enjoined from finding a buyer for any of the assets until a lot of the litigation stuff is resolved," Enderle said in an interview.

SCO says, however, that any monetary amount awarded Novell would be subject to the federal bankruptcy court in Delaware where it filed last year for bankruptcy protection in order to try to keep creditors at arms length while it reorganizes. Facing declining business for its UNIX products in the face of competition from the Linux operating system, SCO Group CEO Darl McBride went to court in 2003. SCO claims that IBM had used UNIX software code owned by SCO as a basis for creating code that improved Linux and allowed its wider use. The Linux code is open to the public and can be freely altered by individuals or companies for their own use or for redistribution and sale.

SCO filed a second lawsuit in January 2004 asserting that Novell was trying to interfere with its ownership of the UNIX copyrights. But last year, U.S. District Judge Dale Kimball said Novell owned the copyrights prior to 1995, leaving SCO potentially owing Novell millions of dollars in licensing fees. Company officials are eager to appeal Kimball's ruling, believing they will win a reversal.


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