SCO's quarterly report [LWN.net]

SCO's Form 10-Q filing, summarizing the company's operations for the quarter ending April 30, is now available. These reports always have some interesting tidbits for those who are patient enough to wade through them, and SCO's is no exception.

SCO claims a profit of $4.5 million for the quarter - the first in the company's history. (Bear in mind that "the company" is the one formerly known as Caldera). Based on that figure, SCO management has made much noise about how strong SCO is. A look at the figures tells a different story.

Products revenue was $11 million - down 12% from one year ago. Services revenue was $2 million, down 30% from one year ago. SCO would have racked up a significant loss in this quarter if it weren't for SCOsource, which brought in $8.3 million. Even after they spent over $2 million in legal expenses and such, that money was enough to put SCO into a position of profit for the quarter. That makes for a nice one-time bottom line, but, as SCO says, "SCOsource licensing revenue is unlikely to produce stable, predictable revenue for the foreseeable future."

SCOsource, so far, has exactly two customers. They won't tell us who the first is, saying only:

The first of these licenses was with a long-time licensee of the UNIX source code which is a major participant in the UNIX industry and was a 'clean-up' license to cover items that were outside the scope of the initial license.

The second licensee, of course, is Microsoft. We don't know how much each one spent, only that the two add up to $8.3 million.

There are hints of some interesting stuff going on with regard to the sale of these licenses. Consider:

During the quarter ended April 30, 2003, the Company issued a warrant to a SCOsource licensee. The warrant allows the licensee to acquire 210,000 shares of the Company's common stock at an exercise price of $1.83 per share for a term of five years from the date of grant. Because the warrant was issued for no consideration to the SCOsource licensee, the Company has recorded the fair value of the warrant of $500,000, as determined using the Black-Scholes option-pricing model, as a warrant outstanding during the quarter ended April 30, 2003 and reduced license revenue accordingly.

Of course, at today's price for SCO stock, that warrant can be exercised (if the holder moves quickly) for a $1.8 million overnight profit. That, one might suppose, will take a bit of the sting out of paying for a license from SCO. The filing does not say which licensee got this little added gift ("for no consideration") or why, but the wording suggests the lucky recipient was the "long-time licensee," not Microsoft.

The story with Vista.com (covered in the June 12 Weekly Edition) gets more interesting as well. There, Vista founder got 800,000 shares (now going on the market) in exchange for a $1 million note payable by Vista. Vista, however, is in default on some of its other loans from SCO - but was given more money in April anyway. There is no real explanation of why SCO is supporting Vista (and its founder) in this way.

SCO claims to have $10 million in the bank, and another $15 million in various assets. $1 million of that is the dubious note from Vista. In the absence of new investments or SCOsource deals, the company may well burn through that cash pile in two years or less. Participants in the recent rally in SCO's stock price may yet find a reason to wish they had missed out.

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SCO's quarterly report -- Enron, anyone?

Posted Jun 16, 2003 19:49 UTC (Mon) by flewellyn (subscriber, #5047) [Link]

I don't remember who said it, but someone on this board remarked that the whole IBM lawsuit business could be nothing more than a scam to drive up their stock price long enough for the executives to bail out. This report makes that seem a bit more plausible, especially given the payouts to Vista and the "unnamed licensee". I wonder where that money is going, and who will eventually draw on it?

Of course, this doesn't mean SCO may not really mean it with the suit; they may be banking (heh) on getting a large cash settlement from IBM, which would then be used to add to the executives' golden parachutes when the company goes belly up. That much, the company going belly up, seems certain: I recall another poster on these comment boards saying that SCO's business is litigation now, not selling products. That's not really a viable long-term business model unless you're a law firm, and it certainly isn't likely to work if your suits are based on such shaky ground.

typos, I guess...

Posted Jun 17, 2003 2:15 UTC (Tue) by busterb (subscriber, #560) [Link]

I think that they meant that:
Recent investors in SCO may soon regret their decisions to invest, because SCO's stock
price may drop soon due to a dim prospects for solid, sustainable revenue.

typos, I guess...

Posted Jun 17, 2003 10:50 UTC (Tue) by ayeomans (subscriber, #1848) [Link]

Dead cat bounce ? Reuters SCOx 5-year price

typos, I guess...

Posted Jun 19, 2003 20:02 UTC (Thu) by roelofs (subscriber, #2599) [Link]

I think that they meant that: Recent investors in SCO may soon regret their decisions to invest, because SCO's stock price may drop soon due to a dim prospects for solid, sustainable revenue.

Right, that's fairly clear now. But the original text was:

SCO claims to have $10 million in the back . . . Participants in the recent rally in SCO's stock price may yet find a reason to which they had missed out.

These silent editorial fixes leave the original comment looking strange and/or idiotic. ;-)

typos, I guess...

Posted Jun 19, 2003 21:08 UTC (Thu) by ris (editor, #5) [Link]

Sorry. There were typos and I did silently fix them.
ris

Sun Free and Clear?

Posted Jun 17, 2003 17:02 UTC (Tue) by corbet (editor, #1) [Link]

If you're suspicious, don't look at this article, or you may get downright paranoid...

Sun Free and Clear?

Posted Jun 19, 2003 1:08 UTC (Thu) by JoeBuck (subscriber, #2330) [Link]

It seems that the only other large Unix source licensee is HP, so it would have to be HP or Sun that made the multi-million-dollar payment. There are several Japanese companies who licensed Unix as well, but I can't imagine that it is one of them.

Sun Free and Clear?

Posted Jun 19, 2003 9:04 UTC (Thu) by minichaz (subscriber, #630) [Link]

Yeah... I would be willing to put money on the "long-time licensee of the UNIX source code" being Sun. I've seen several interviews in which the SCO people have said "Sun's clean" (or words to that effect) where as HP (with HP-UX) has been mentioned as a possible defendent in the future.

This could be a big thing for Sun of they play their cards right.