SCO Narrows Its Losses in Second Quarter

The SCO Group slows the bleeding but still loses almost $2 million. While its Unix business has picked up, the company's Linux-related lawsuits continue to drain its coffers.

Although SCO continues to bleed red ink in its latest quarter, in large part because of its legal actions, its core Unix business actually has picked up.

The SCO Group Inc. on Wednesday reported results for the second quarter of its fiscal year 2005, which ended April 30.

In what has become all too common a story for the Unix-on-Intel vendor, revenue fell again. Income for the most recent quarter was $9.2 million, compared with the year-ago quarter of just over $10 million.

/zimages/6/28571.gifClick here to read about SCOs earnings in the first quarter of its fiscal year 2005.

This amounted to a net loss for stockholders for the second quarter of $1.96 million, or 11 cents per diluted common share. Still, this was far better than last years comparable quarter, when stockholders faced a net loss of $14.7 million for a loss of $1.04 per diluted common share.

SCO blamed its continued revenue decline on "continued competitive pressures on the companys Unix products and services," said Bert Young, chief financial officer at SCO.

"Our core Unix business remained profitable in the second quarter as expected, and we increased revenue over the prior quarter as a result of improved performance across all geographies," said SCO CEO Darl McBride.

SCOs bottom line also was improved by the one-time event of selling the companys shares in TrollTech AS, a software development company, for $779,000 after having previously written up any value for these shares. SCOs legal bills also came in $400,000 lower than expected.

McBride continued his recent trend of talking up the companys Unix efforts instead of talking at length about its litigation with IBM and others over contract issues and Linux.

"We have continued to focus our Unix business on commercial success in the market place and look forward to launching SCO OpenServer 6 later this month," McBride said.

SCO will release a new version of its main Unix operating system, SCO OpenServer 6, aka Legend, on June 22. The company has made it clear that it has great hopes for the first major revision of OpenServer in years.

Of course, McBride also said, "Our SCOsource business remains committed to pursuing our legal strategy in the courtroom, and we are well-positioned to see our litigation through to its conclusion."

SCOsource, the division of SCO devoted to obtaining revenue from SCOs Unix intellectual property claims, continues to do poorly on the balance sheet. In this latest quarter it brought in $30,000 in revenue.

With its legal costs capped and cash, cash equivalents and available-for-sale securities of slightly over $14 million, SCO is well-positioned to continue its legal battles.

McBride also talked up SCOs lawsuit against AutoZone Inc., a Memphis, Tenn.-based national auto-parts chain.

"Contrary to AutoZones various statements to the court, SCO found through discovery, including sworn depositions, many instances of copying of programs containing SCO OpenServer code," McBride said in a teleconference.

But he said SCO will not "move for a preliminary injunction at this time" because "AutoZone has now removed the code it used in its migration to Red Hat Linux."

AutoZone, for its part, disagrees with this characterization.

"AutoZone will file a response with a court to correct the record regarding what we believe to be material misstatements contained in the recent SCO filing," AutoZone spokesman Ray Pohlman said in a statement.

While SCO remains bullish on its future despite recent ownership changes and a close brush with being delisted from the Nasdaq stock market, others said they see little hope for SCOs recovery.

"Unless SCOs legal lottery ticket comes up trumps, SCO will have effectively ceased to exist within three years, and the only memory of its battle with IBM will be as an interesting and somewhat amusing case study for MBA students," said Gary Barnett, open-source research director at Ovum, a software and IT analyst company based in Europe.

Attendees of the Red Hat Summit in New Orleans did not disagree.

"There was a time when SCO fighting with IBM was a big deal," said an executive who works for a Linux vendor. "But now, who cares?"

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