SCOs NASDAQ Woes No Surprise to Open-Source World

By Steven Vaughan-Nichols  |  Posted 2005-02-18

SCOs NASDAQ Woes No Surprise to Open-Source World

BOSTON—The news that The SCO Group Inc. is facing the possibility of being delisted by the NASDAQ stock market did not come as a surprise to attendees of LinuxWorld here.

NASDAQ warned SCO on Wednesday that the company was in danger of being delisted from the NASDAQ SmallCap Market stock market because it has first failed to file its 2004 annual report 10-K to the Security and Exchange Commission by its deadline, and then failed again to file the required document by its extended deadline of Jan. 31.

For more on the possible delisting, read "SCO in Danger of NASDAQ Delisting."

Two weeks later SCO still hadnt filed the reports, so NASDAQ notified SCO that it would be delisted shortly unless it could show cause for why its reports were late.

Fredrick Berenstein, chairman and chief technology officer of Xandros, a Linux desktop distributor, for one, said he wasnt "the least bit" surprised.

"SCOs plunging revenue showed the fragility of the way theyve been operating," Berenstein said.

"Ive said from the first that the case [SCO vs. IBM over Unix/Linux copyright and contract issues] was going to crash and burn," he said. "Their business plan based on IP [intellectual property] lawsuits was just not going to work."

Some saw SCOs SEC woes as being unavoidable. "It was inevitable because of the position they took with Linux," said Mike Sheffey, CEO of Versora, an integrator and ISV that specializes in Windows-to-Linux migration.

"After becoming a penny stock, theyll become a company that has lost all its pennies," said Sheffey. "Their customers are already fleeing to Linux."

Jason Filby, project coordinator of ReactOS, an open-source effort to create a Windows operating system clone, also was not surprised by the news.

"Given their past actions, it was only to be expected that theyd be so disorganized that they would fail to get their financial reports in order," said Filby.

Others saw SCOs declining revenues as the real reason why its financial reporting has become almost terminally late.

In its last quarter of 2004, which ended Oct. 31, SCO lost more than $6.5 million. On a per-share basis of 37 cents per share, that was more than twice as much as Dion Cornett, a financial analyst with Decatur Jones Equity Partners, had predicted it would lose.

"SCO hasnt had traction for four to six months. They hadnt been able to go anywhere with their cases; their other financial news had been all negative," said Lincoln Durey, president of EmperorLinux Inc., a Linux laptop system integrator.

In addition, "Now, more and more lay people are seeing that SCOs IP claims are baseless. Lay people are realizing that there is no there, there with SCO," Durey said.

Next Page: No mystery here.

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Although some, like Alex Ionesco, a kernel developer for ReactOS, wondered whether the reason SCO hasnt turned in its financial reports is that it is hiding something, Will Rodger, director of public policy for the Open Source and Industry Alliance, a Washington-based association that tracks and tries to influence government policy toward open source, doesnt think theres much mystery here.

The reporting failure is important, but "NASDAQ has a policy of delisting companies based on weak stock prices," said Rodger.

Because of its recent poor quarters; the uproar in the executive suite of its parent company, the Canopy Group; and the fact that SCO has little to show from its lawsuits, "NASDAQ probably thinks theyre not financially stable enough to be on the exchange," Rodger said.

Ex-Canopy executives are suing the company. Click here to read more.

Even if SCO is delisted—something that the Lindon, Utah, company plans to fight—one observer doesnt see the SCO/IBM lawsuits ending.

Jeremy Allison, one of the founders of the Samba project, a set of programs that enable Unix and Linux users to use the CIFS (Common Internet File System) protocol, which Microsoft Windows uses for such bread-and-butter network jobs as file sharing and printing, sees IBM pursuing its case against SCO to the bitter end.

"Even if SCO is delisted, IBM wont stop until theyve salted the soil of Lindon, Utah," said Allison. "It will be like Keyser Soze [the arch-villain from the movie The Usual Suspects]."

Quoting from the movie, Allison said, "He kills their kids, he kills their wives, he kills their parents and their parents friends. He burns down the houses they grew up in."

Another open-source industry figure added, "Once IBM countersued and brought in patent claims against SCO, you knew it was all over. Its like kicking a pitbull. No matter what else happens, youre going to end up a mess."

The market meanwhile was underwhelmed by the news of SCO NASDAQ troubles. SCOs stock dropped only 22 cents a share (5.12 percent) on the news with only light trading.

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