SCO financial losses mount

The SCO Group posted a net loss of almost $15 million for its most recent financial quarter Thursday, as the company continues to struggle to realize revenue from its controversial SCOsource software licensing program.

Revenue for the company’s second fiscal quarter, ended April 30, was just over $10.1 million, less than half the $21.4 million it reported in the same quarter last year, when SCO was earning money from software licensing deals with Microsoft and Sun.

The reduction in revenue was “primarily the result of a lack of SCOsource licensing revenue,” which totaled $8.3 million in the year-ago quarter, SCO said in a statement.

The SCOsource program brought in just $11,000 in revenue for the quarter, a drop from the $20,000 SCO reported in the second quarter.

“We understand that many people out there have complained about this program,” said SCO CEO Darl McBride during a conference call with press and analysts Thursday morning.

Linux vendor Novell claims that it, and not SCO, owns the copyright to the Unix System V source code that SCO believes was improperly contributed to Linux, and these claims have raised questions amongst potential SCOsource customers, McBride said. “The licensing program did no take off the way it initially appeared it might,” he said.

SCO launched the SCOsource program last year, seeking licensing fees from Linux users for use of this Unix System V code.

The company has yet to realize revenue from its most high-profile SCOsource customer, EV1Servers.Net (EV1), the hosting division of Everyones Internet, which signed up for the plan in March. Revenue from that deal, which SCO claims to be in the “six figure” range, will start being booked during its third fiscal quarter, said Bert Young, SCO’s chief financial officer.

Because of the questions raised by Novell, and the fact that SCO is now in litigation with a former customer, AutoZone, over its intellectual property claims, SCO will have a hard time signing up new licensees for SCOsource, said Dion Cornett, an analyst with Decatur Jones Equity Partners, an equity research firm based in Chicago. “Beyond the EV1 deal that they’ve already signed up, I’m very skeptical that they’ll be able to sign up anyone else,” he said.

McBride declined to provide estimates of how much SCOsource was expected to bring in during the company’s current quarter. “Until there’s a stream of revenue that comes out of the SCOsource side, we’re not going to get into the business of handicapping or projecting,” he said.

During the second quarter, SCO also realized a $682,000 charge related to streamlining Unix business operations, and a $2.1 million charge for the impairment of goodwill and intangible assets, which related to a depreciation in the value of the Vultus acquisition the company made in 2003, SCO said.

SCO’s Unix licensing revenue also dropped 24% year over year, Cornett said, totalling $8.4 million for the quarter.

Still, SCO is moving ahead with its Unix product plans. A new version of its UnixWare operating system, version 7.1.4 will begin shipping this month, and the company is readying an update to its OpenServer software, called Legend, for the first quarter of 2005, McBride said.

The Lindon, Utah-based company is also readying a new version of its SCO Office e-mail and collaboration software, and has an identity management product in the works, McBride said.

In addition to the AutoZone litigation, SCO is also engaged in lawsuits with IBM, Red Hat, Novell and DaimlerChrysler. The company expects to spend between $3 million and $5 million per quarter on these lawsuits and on enforcement of its IP claims, McBride said. SCO spent $4.5 million in this area during the second quarter, the company said.

But with just over $48 million in cash in the bank, Decatur Jones’ Cornett said it is unclear whether or not SCO now has enough funds in reserve to survive a protracted legal fight.

Separately, the company announced that its stock is being listed without its “consent or authorization” on three obscure German stock exchanges: the Berlin-Bremen, Stuttgart and Frankfurt Freiverkehr exchanges.

The company has formally requested that its shares be delisted from the exchanges and that it be provided names of listing brokers, according to a SCO statement. SCO did not explain why it seeks the delisting.