SCO financial losses continue to mount

The SCO Group has posted a net loss of almost $15m for its most recent financial quarter, as it continues to struggle to realise...

The SCO Group has posted a net loss of almost $15m for its most recent financial quarter, as it continues to struggle to realise revenue from its controversial SCOsource software licensing programme.

Revenue for the company's second quarter, which ended 30 April, was just over $10.1m, less than half the $21.4m it reported for the same quarter last year, when SCO was earning money from software licensing deals with Microsoft and Sun Microsystems.

The reduction in revenue was "primarily the result of a lack of SCOsource licensing revenue", which totalled $8.3m for the same quarter a year ago.

The SCOsource programme brought in just $11,000 in revenue for the quarter, a drop from the $20,000 SCO reported in the second quarter.

"We understand that many people out there have complained about this programme," said SCO chief executive officer Darl McBride.

Linux supplier Novell claims that it, and not SCO, owns the copyright to the Unix System V source code that SCO believes was improperly contributed to Linux, and these claims have raised questions among potential SCOsource customers, McBride said. "The licensing programme did no take off the way it initially appeared it might," he admitted.

SCO launched the SCOsource programme last year, seeking licensing fees from Linux users for use of this Unix System V code.

The company has yet to realise revenue from its most high-profile SCOsource customer, EV1Servers.Net (EV1), the hosting division of Everyones Internet, which signed up for the plan in March.

Revenue from that deal, which SCO claimed to be in the "six-figure" range, will start being booked during its third fiscal quarter, said Bert Young, SCO's chief financial officer.

Because of the questions raised by Novell, and the fact that SCO is now in litigation with a former customer, AutoZone, over its intellectual property (IP) claims, SCO will have a hard time signing up new licensees for SCOsource, said Dion Cornett, an analyst with Decatur Jones Equity Partners.

"Beyond the EV1 deal that they've already signed up, I'm very sceptical that they'll be able to sign up anyone else," he said.

McBride declined to provide estimates of how much SCOsource was expected to bring in during the company's current quarter. "Until there's a stream of revenue that comes out of the SCOsource side, we're not going to get into the business of handicapping or projecting," he said.

During the second quarter, SCO also realised a $682,000 charge related to streamlining Unix business operations, and a $2.1m charge for the impairment of goodwill and intangible assets,  which related to a depreciation in the value of the Vultus acquisition the company made in 2003.

SCO's Unix licensing revenue also dropped 24% year on year, Cornett said, totalling $8.4m for the quarter.

Still, SCO is moving ahead with its Unix product plans. A new version of its UnixWare operating system, version 7.1.4, will begin shipping this month, and the company is putting the finishing touches to an update to its OpenServer software, called Legend, for the first quarter of 2005.

SCO is also readying a new version of its SCO Office e-mail and collaboration software, and has an identity management product in the works.

SCO is also engaged in lawsuits with IBM, Red Hat, Novell and DaimlerChrysler. The company expects to spend between $3m and $5m per quarter on these lawsuits and on enforcement of its IP claims. SCO said it has spent $4.5m in this area during the second quarter.

But with just over $48m in cash in the bank, Decatur Jones' Cornett said it is unclear whether or not SCO now has enough funds in reserve to survive a protracted legal fight.

Separately, the company announced that its stock is being listed without its "consent or authorisation" on three obscure German stock exchanges: the Berlin-Bremen, Stuttgart and Frankfurt Freiverkehr exchanges.

SCO has requested that its shares be delisted from the exchanges and that it be provided names of listing brokers, although the company did not explain why it wanted the delisting.

Robert McMillan writes for IDG News Service

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