SCO Plans for the Future

By Steven Vaughan-Nichols  |  Posted 2005-03-22

SCO Plans for the Future

SALT LAKE CITY—Darl McBride, the CEO of The SCO Group, has big plans for his company going forward, whether or not it wins all the current litigation it is involved in against IBM and others.

The Lindon, Utah, company has sued IBM for some $5 billion, alleging it illegally contributed Unix code, to which SCO maintains it owns all the rights, to the open-source Linux operating system.

That case is currently due to go to trial Nov. 1, but the trial date could be moved back.

In a lengthy and candid interview in Salt Lake City on Tuesday, McBride discussed his future plans for the company, and the scenario remains largely the same whether it wins in the courts or not.

"We are concentrating on three core constituents: our shareholders, our customers and our staff. Whatever happens in the courts, we intend to drive our Unix business forward, particularly in the vertical markets," McBride said.

Any cash from a legal win or a settlement would be plowed back into growing the business and developing its product lines, McBride said.

"If we dont win the legal battle, we will still have the cash level of a typical startup, but with more customers and technology than many of those."

McBride also observed that SCOs loyal resellers and customers would still be there.

"You must remember these people have stuck with us through our legal cases and even though theyve been told twice by two former SCO CEOs that OpenServer was dead."

"We believe that it is around the vertical markets where we have the value-add. Our plan right now is to use any settlement to invest in the companys growth and drive it forward," he said.

There was also a skunkworks group within the company looking at new applications and services that would target handsets and other devices.

"We are working on products that can take strength of the server that can marry that up to devices," said McBride.

This is not to say that SCO is considering a return to the embedded operating system space.

One of SCOs forebears was Lineo, an embedded Linux company.

Instead, the group is working on ways to seamlessly connect server-based applications to handsets.

Next Page: No interest in acquisition.

No interest in acquisition

Any products from this effort will be more than a year in the future.

For the time being, SCOs main revenue stream will continue to be its Unix operating systems.

McBride also said SCO was not interested in being acquired by another company, and was focusing on winning in both the marketplace and the courtroom.

There have been some feelers from companies interested in acquiring SCO, but there are none on the table now.

In any case, McBride said that any such purchase would have to be good for the companys stockholders, customers and employees.

In addition, "Anyone who buys us now would have to pay a super-premium on price because any price would be based on our IBM litigation being successful."

If that seems unlikely, McBride observed that on this same day IBM had just settled its lawsuit with Compuware over allegations of unfair business practices and copyright issues.

Click here to read more about Compuwares settlement with IBM.

McBride also made clear that the company has the resources to see the litigation through to the very end.

"We have capped and funded our legal fees, and we are pleased that we are heading toward a jury trial and that outcome. There is no question that the claims we have before the court will be heard," McBride said.

With regard to its business plan, SCO had just shipped the public beta for its OpenServer 6 product, code-named Legend, which will ship this summer.

McBride acknowledged that the companys product-related financial future depended on the acceptance of and upgrading to the new product by its current installed base of some 2 million servers.

McBride was optimistic about the outlook.

"We believe we are arresting the downward slide in product sales and revenue a bit; after all, we have been in a five-year revenue slide. But there is optimism from the current installed base towards the new product. We have now taken the UnixWare engine and melded that into this Open Server product," McBride said.

Next Page: Good initial response.

Good initial response

Initial response from those large enterprises, such as McDonalds, that use OpenServer had been good so far, and SCO Unix had not had an uptake like this in seven years.

"I think it will be a good competitive product for years to come. Some 60 percent of our installed base run on Open Server, so the potential for upgrades is really good," McBride said. "This is also the first product to ship since we switched our focus from Linux back to Unix."

SCO was also encouraged with the third party support it was getting for OpenServer, he said, pointing to a list of recent hardware certifications. Included on that list was IBM, the subject of the litigation, which interestingly enough, with 28 certified systems has the most hardware certifications for SCOs operating systems.

"We have been working together with IBM on Open Server. IBM and HP both continue to earn hundreds of millions of dollars annually from supporting and shipping SCO Unix products," he said.

Asked whether Sun Microsystems Inc. was violating its Unix licensing agreement with SCO given its open sourcing of its code for Solaris 10, McBride said the Santa Clara firm had paid more than $100 million over the past 10 years for those licenses and, while it remained a licensee, it was not authorized to give its code away "lock, stock and barrel."

"But they are staying within the rights of their IP agreements," McBride said.

Asked if SCO had been approached by Sun for a possible takeover or buyout of SCOs Unix intellectual property right, as has been rumored, McBride said there were "no discussions going on with Sun right now."

When asked whether the company was involved in settlement discussions with IBM or whether it would settle, McBride said there had been some "back-and-forthing about a settlement, but there is nothing under discussion at the moment."

But, thats not end of the story.

"While a settlement remains an option, there is a side of me that wants to get our claims before the courts and get them resolved one way or the other. The big issue around a settlement would be the amount of money to be paid to us," he said.

The spread between what IBM might be prepared to pay and what SCO would be prepared to accept "is probably too great at this point."

When asked what settlement figure was acceptable to him and the SCO board, McBride jokingly said it would have to be "more than our current market capitalization but less than $5 billion."

With regard to the delisting hearing with Nasdaq last week, McBride said the company had laid out its plan for filing the required 10k and its quarterly financials and was waiting to hear back from the Exchange.

Read more here about SCO making its case before the Nasdaq Listing Qualifications Panel.

Because of the restatement, before the auditors can sign off on the 10k, they must evaluate all of SCOs previous quarterly results.

"Until thats done, they wont sign off on that," McBride said.

McBride said he was unable to predict when the 10K and other overdue financial documents would be turned in.

In the meantime, the Nasdaq Listing Qualifications Panel in Washington has indicated to SCO that a decision will be rendered on SCOs continued place on the Nasdaq in 30 to 35 days after the hearing.

Moreover, the panel informed SCO that for now it can continue to be traded under the symbol "SCOXE," pending the panels decision.

Check out eWEEK.coms for the latest open-source news, reviews and analysis.

Rocket Fuel