SCO revenue drops on Unix competition

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The beleaguered SCO Group, in the middle of intellectual property battles with IBM and Novell, posted a 19 per cent plunge in annual revenue, hurt by increasing competition in its main Unix business.

A 14 per cent fall in fourth quarter revenue to $7.3m from $8.5m in the same quarter last year added to a drop in full-year revenue to $29.2m in 2006 from $36.0m the previous year.

"The company's fourth quarter continued to be difficult due to the competition in the marketplace for Unix business," said SCO chief executive Darl McBride in a conference call.

"Some of the negativity is warranted. If you just look at the numbers, the scoreboard over the last few years, it's not a real pretty picture," he added.

The usually-optimistic executives at SCO forecast a return to profit for the Unix business in 2007 and will continue cutting costs. Aside from reductions in travel and marketing costs, the bulk of the fourth-quarter cost savings came in the form of employee cutbacks. The total staff headcount dropped to142 at the end of October, down from 166 the previous quarter, with additional smaller cuts to be announced at the end of the next quarter.

SCO continues to incur legal expenses relating to its long-running intellectual property disputes with Novell and IBM. SCO spent $2.2m in legal costs in the fourth quarter, after spending $2.3m in the third.

New scheduling orders have set the trial in the Novell case for September 2007, with IBM's case to follow thereafter. Because of this, SCO expects costs for litigation to decrease in 2007. "The heavy bulk of expenses related to litigation, as we view it, are in the rear-view mirror," McBride said, adding it was hard to predict how much the disputes would eventually cost.

Novell is seeking $26m in contested licensing fees. As of the fourth quarter, SCO has less than $13m in cash, raising questions over its ability to compete in an increasingly competitive market.

"We acknowledge that we've had a few setbacks in the courts regarding certain evidence and analysis that we can use going forward to prove our claims," said McBride. "We remain steadfast in our belief in and strength of our claims with IBM and Novell."

Gary Barnett, research director at analyst firm Ovum, is telling his clients not to worry about the effects of the lawsuits. "We don't think they've got a case," he said. "In the last six months, everything has gone against SCO." Barnett believes the firm was hoping to force a settlement with IBM, but will ultimately fail. "SCO's clients should be concerned but not panicking. Even if SCO did go out of business, someone else would pick up the Unix business."

SCO's salvation is not in Unix, nor litigation, Barnett says, but in their soon-to-be-released mobile technology. Concerned it's not ramping up fast enough to help SCO, he described it as "good technology, in the wrong company."

In the works for the past three years, The Me Inc mobility server, part of a suite of Unix-based back-end technologies to enable business mobile messaging, is set to roll out in the second quarter.

"Me Inc is a bit of a wildcard here," said McBride. "There were a billion mobile phones in the market last year... and the people looking at our applications are liking what they're seeing."

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