SCO Hammered Even as Unix Biz Returns to Profits

Published: January 26, 2006

by Timothy Prickett Morgan

Commercial Unix operating system supplier SCO Group has reported its fiscal fourth quarter financial results, and it has once again been pushed into losses by its ongoing legal battles. For the quarter ended October 31, 2005, SCO said that sales were $8.5 million, down 15 percent from the year-ago quarter. Product revenues dropped 14 percent to $7.1 million, SCOsource intellectual property licensing dropped by nearly three-fourths to $34 million, and services revenues dropped by 16 percent to $1.4 million.

While SCO's core Unix business had a 91 percent gross operating margin, the company had to spend millions of dollars on its lawsuits with IBM, Red Hat, and Novell relating to Unix intellectual property disputes. This pushed SCO to report a net loss of $3.4 million, or 19 cents a share. The good news--if you can call it that--is that this was better than the $6.5 million loss (37 cents a share) that SCO reported in the year-ago quarter. SCO said, once again, as it has in statements accompanying its financial results, that competitive pressure--presumably from Linux and Windows--is the major cause of its revenue decline.

"Even though the company incurred net losses during the fourth quarter and fiscal year 2005 as a result of expenditures for its continuing litigation, the management team accomplished its objective of returning the Unix business to profitability and generating positive cash flow during fiscal year 2005," said Darl McBride, SCO's president and chief executive officer in a statement. "While we will continue to focus resources on our Unix business and expect this business to generate positive cash flow again in fiscal year 2006, we are excited about the prospects of our recently announced Me technology platform for smart handheld devices. Additionally, with the closing of our $10 million private placement in November 2005, we are confident that we will be able to execute on our business strategies and see our litigation through to its conclusion."

For the full fiscal 2005 year, SCO's revenues were just over $36 million, down 16 percent, and the company had a loss of $10.7 million or 60 cents per share. This was again an improvement over the $16.2 million loss in the same quarter in fiscal 2004. With discovery proceeding in the IBM lawsuit and the trial set for February 2007, SCO has to make it through another year on what seems like inevitable declining sales. While the $10 million private placement announced in November helps tide it over, SCO will have to push OpenServer and UnixWare pretty hard and keep focused on its "Project Fusion" merger of OpenServer and UnixWare. To say the least, 2006 looks like it is going to be a long year for SCO, which is itching to get into court.