SCO Bleeds Red Ink in Q4, Novell Says SCO Bankruptcy Is 'Imminent'

Published: January 18, 2007

by Timothy Prickett Morgan

Commercial Unix software supplier The SCO Group reported its financial results for the fiscal fourth quarter ended October 31 today, and the results are not good.

Because of continued pricing pressure on Unix in general and on OpenServer and UnixWare in particular thanks to the popularity and low-cost of commercial Linux operating systems, SCO reported revenues of $7.35 million in the final quarter of its fiscal 2006, down 14 percent from the year-ago quarter. With sales down and costs more or less the same, that drove SCO to report a net loss of $3.74 million, or 18 cents a share, compared to a net loss of $3.43 million, or 19 cents a share, in the year ago quarter. Software product sales were down 13 percent to $6.16 million, and services sales dropped by 16 percent to $1.17 million. Sales of SCOsource licensing--which provides protection from litigation concerning disputed Unix code that is at the heart of the $3 billion lawsuit between IBM and SCO--fell again, to a mere $21,000 in the quarter.

Darl McBride, president and chief executive officer of SCO, tried to put the best face forward on the numbers, as he has done for years now, in a statement accompanying the announcement of the financial results. "Even though competition is strong and continues to impact our revenue and operating results, we are continuing to develop and promote our Unix solutions and mobile services strategy, as we believe that the market, as well as the benefits to our customers and partners, are significant," he said. "During the fourth quarter we made adjustments to our operating model and eliminated certain costs. We believe these cost adjustments will allow the Unix business to return to generating positive cash flow for the 2007 fiscal year. The company continues to make progress in the development of its Me Inc. mobile services platform and applications. We remain committed to our Unix business, introducing new mobile services to the marketplace and defending our intellectual property through the legal system."

For the full year, SCO's sales fell 19 percent to $29.2 million, with a net loss of $16.6 million, or 80 cents per share. In fiscal 2005, SCO had sales of just over $36 million and a net loss of $10.7 million. Software product sales were $24.1 million, down 20 percent, and services sales were $5.1 million, down 10 percent. SCO puts its legal costs into a category of costs for SCOsource licensing, which amounted to $12.3 million for the year, down significantly from the $17.7 million level SCO spent in fiscal 2005. SCO ended the fiscal year with $7.62 million in cash and securities and just over $8 million in restricted cash that is set aside for legal costs.

In a brief filed on January 8 calling for summary judgment in its own disputes with SCO, Novell is trying to convince Judge Dale Kimball, who sits on the bench at the United States District Court for the District of Utah, that the money that Sun Microsystems and Microsoft paid to SCO for Unix licensing should be held in trust immediately for Novell, which argues is actually due the money. The reason Novell wants the trust is simple: because SCO is "hemorrhaging assets at an unsustainable rate," to quote the brief. "For SCO, bankruptcy is inevitable; it characterizes its assets as merely those 'remaining' and does not rebut Novell's arguments that its bankruptcy is imminent," the brief continued. You can read the full Novell brief on the popular Groklaw site, if you have nothing better to do.

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