SCO Litigation Takes Its Toll on Bottom Line

The SCO Groups ongoing legal battle against IBM and others is having a negative impact on the company, leaving it with few new customers for its Unix software and current users reluctant to pay additional licensing fees.

Both issues are taking a serious financial toll on the company, which saw its revenue for the second quarter drop by half and sales from its SCOsource division, which licenses its Unix intellectual property, nearly evaporate.

When asked if its controversial moves had negatively affected the Lindon, Utah, companys ability to attract new clients, Jeff Hunsaker, senior vice president of SCOs Unix division, said, “Absolutely, unequivocally yes. Everybody says that President Bush has the hardest job. I think that I have the hardest job. This is a tough job.”

/zimages/4/28571.gifClick here to read why Steven J. Vaughan-Nichols says the SCO-Linux wars are far from over.

The decline in customer interest is evident in SCOs second-quarter financial results. The companys SCOsource divisions revenues plummeted in the second quarter to $11,000—a drop from the divisions revenues of $8.25 million for the same period last year.

Overall revenue for the second quarter also fell, to $10.1 million, from $21.4 million in the same quarter last year. It is expected to be between $10 million and $12 million for the third quarter this year.

To try to stem the tide, SCO is focusing on getting current customers to upgrade rather than bringing in new ones, said Hunsaker, who spoke with eWEEK at the SCO Forum event here last week. “Until we come to a complete resolution with our SCOsource [program for licensing intellectual property] initiatives, its going to be very difficult to get new customers,” he said. “They want to see this thing resolved.”

Next Page: SCOs SMB challenge.

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But going after its installed base rather than trying to add new customers poses a challenge for SCO: Many of its customers are small and midsize businesses with more limited IT budgets, and many SMBs that have been using SCO technologies for a long time tend not to upgrade as often as large enterprises.

One such customer is CSK Auto Inc., an auto parts retailer based in Phoenix. George Duckworth, director of store support for CSK, said the company has deployed SCO software for about 11 years in 1,125 locations in 19 Western states.

“We have one server in each of our stores running SCO OpenServer and a 16-bit MegaBASIC application running in a Xenix emulator on that OpenServer box,” Duckworth said. “We are moving from OpenServer to UnixWare and hoped to have the first pilot for this installed this month.” He said those moves will take place over time. “We had to come up with a way of spreading the cost out over three years or so where we could actually get it done. The first part, what we are doing now, is starting to migrate to hardware that will support the applications we want to write, while upgrading from OpenServer to UnixWare,” he said.

/zimages/4/28571.gifRead how the SCO Forum and LinuxWorld shows exposed turmoil in the Unix and Linux markets.

Among SCOs large customers is Siemens AG, which uses SCO because it is flexible enough to support a number of PC architectures and peripheral devices, said Detlef Fischer, head of Siemens Power Generation, Instrumentation and Control Development division, in Berlin. Siemens uses SCO in all subsections of that division except automation, Fischer said.

Hunsaker said SCO will fight to keep its current customers from being lured away by competitors such as Sun Microsystems Inc., Novell Inc., Hewlett-Packard Co. and Red Hat Inc. “We are not going to allow them to take our customers away. We will protect them to the end,” he said. “But for us to go head-to-head with them on a new customer—absolutely, thats a huge challenge.”

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