Notes from the SCO conference call [LWN.net]

The SCO conference call followed the usual lines; everything is going great for SCO. Some of the more interesting points: the $50 million from BayStar will be expensive; after a year it requires an 8% dividend. That dividend will increase 2% per year up to a maximum of 12%. SCO is pleased with its discussions with SGI; the removal of 200 lines of code by SGI was presented as a victory. No mention of XFS. Darl McBride said that they didn't see starting any other potential litigation against Unix vendors, but that they have several thousand customers with end-user Unix licenses. SCO apparently sees some opportunity to go after those end-user licensees for their use of Linux. Once again, it is made clear that SCO is not a good company to sign a contract with.

The 8K filing describes the BayStar financing and a few other bits of interest; it is a relatively short and easy to follow document. The most relevant points are:

There is an unnamed second investor who went in with BayStar. The securities agreement appears to suggest that the second (and larger) purchaser is the Royal Bank of Canada.
The investors get "Series A Convertible Preferred Stock", which can be turned into regular SCO stock at $16.93 per share. The investors can convert anytime they want; SCO can force conversion after three years, or if its stock price moves sufficiently in either direction. After one year, SCO starts paying 8% interest, raising 2% per year up to 12%.
The money will be used for all the usual stuff, including web services, "vertical markets", and, of course, SCOsource. SCO plans to offer a set of "migration options" for users looking to move away from Linux.
SCO has a new deal with its lawyers. They get a 20% fee from licensing fees, settlements, equity financings, or a sale of SCO. The filing doesn't say whether the lawyers are getting 20% of the BayStar money. There could also be a straight $1 million payment from SCO, along with 400,000 shares of SCO stock.
Microsoft has, once again, "expanded" its licensing agreement with SCO, and, as a result, fed the company another $8 million.

With regard to where the money is going: SCO said that it has $61 million in the bank after the BayStar deal. The company's last quarterly report showed $14.6 million in the bank as of July 31. BayStar and Microsoft have put in $58 million, giving a base figure of $72 million. So $9 million is missing. Either SCO has fed $10 million of its BayStar money directly to the lawyers, or quite a bit of cash has gone somewhere else.

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Notes from the SCO conference call

Posted Oct 17, 2003 16:56 UTC (Fri) by allesfresser (subscriber, #216) [Link]

>"Darl McBride said that they didn't see starting any other potential litigation against Unix vendors, but that they have several thousand customers with end-user Unix licenses. SCO apparently sees some opportunity to go after those end-user licensees for their use of Linux."

That kinda reminds me of domestic violence in a weird way... a psychotically jealous person who gets mad if 'his' SO even so much as talks to someone else. And of course the lesson to be learned is... don't get attached to abusers and thugs. But some people are attracted to mindless bluster and cockiness, as we all well know, so the tragedies go on... in both arenas.

Notes from the SCO conference call

Posted Oct 17, 2003 19:05 UTC (Fri) by rankincj (guest, #4865) [Link] (1 responses)

> SCO plans to offer a set of "migration options" for users looking to move
> away from Linux.

Migrate away from Linux? To what, dare I ask? Surely not Unixware???!!!!

Notes from the SCO conference call

Posted Oct 17, 2003 20:02 UTC (Fri) by allesfresser (subscriber, #216) [Link]

Of course, Unixware. Didn't you know Linux is a toy OS used by teenage software pirates and pope abusers, while Unixware is an Enterprise-Ready Solution with Cool Web Services? Or our partner company over here can sign you up for a nice rental agreement on their other platform.

Notes from the SCO conference call

Posted Oct 17, 2003 19:32 UTC (Fri) by deatrich (guest, #25) [Link] (5 responses)

I think that many of us have written off SCO as a bunch of WACKOs who will, sooner or later, get their comeuppance. I know that I don't click on every link any longer with one of those 'Darl says' news items. YAWN. It's always the same stuff, and it doesn't get any less stupid over time.

But I'm beginning to think that it simply can't be ignored, in the hope that smart lawyers working for smart corporations will send the bad guys packing. Maybe it is finally time to write SCO out of open-source completely. Remember the readme file that GNU posted with gcc not so very long ago? Maybe it is time to #undef them, and reveal this company for what it really is - an IP company, and _not_ a software company. If this is what they want to be, then fine. Let them be that while the lawyers duke it out.

Notes from the SCO conference call

Posted Oct 17, 2003 21:22 UTC (Fri) by euvitudo (guest, #98) [Link] (2 responses)

Barring the fact that we really should not be allowing them to do what they do without our attention, I agree that we should consider the fact that they are an IP company, and begin to force them out of existence. I place my agreement on the fact that it can be easily argued that our efforts (yes, all our efforts, in software, rebuttals, etc.) have brought them to where they are today. Their stock is worth much more today than a year ago. That is first due to their lawsuit, but more importantly, due to the loads of publicity we have brought them. In other words: I hate to say it, but we helped SCO to achieve the financial situation they are in today.

I believe it is time for us to begin writing them out of the picture. We certainly gave them a lot of help lately, and if our help is any indication as to the type of influence we have on them, then we can certainly help them nose dive. Let those who have the power and influence continue to fight them on the legal end of the spectrum, while we use what power and influence we may have to write them out of the community.

The community has done well to increase the threat against MicroSoft (howbeit not one of our major goals, right? Right?). We certainly have influence, now let us use it constructively, in a manner that will build up the community, rather than the subhuman corporate imperialists that rule the world today.

Thoughts?

Cheers!

Notes from the SCO conference call

Posted Oct 18, 2003 3:40 UTC (Sat) by jdthood (guest, #4157) [Link] (1 responses)

> while we use what power and influence we may have to write
> them out of the community.

They "wrote themselves out" a long time ago. Or perhaps I don't
understand what you are suggesting. We don't really have much
power to control what

> the subhuman corporate imperialists that rule the world

do.

("subhuman" ???)

Notes from the SCO conference call

Posted Oct 18, 2003 6:14 UTC (Sat) by euvitudo (guest, #98) [Link]

> They "wrote themselves out" a long time ago. Or perhaps I don't
> understand what you are suggesting. We don't really have much
> power to control what
>
> > the subhuman corporate imperialists that rule the world
>
> do.
>
> ("subhuman" ???)

(I knew I should not have included that.... ;-) ).

Well, by that I mean that they have a lot of power, but they don't usually use it for purposes of making life nicer for others, just themselves. I thought about demigods, considering the power they have, but I personally do not look to them as such. Hence the adjective from the other end of the spectrum.

Now regarding my overall suggestion. They have not been written out of the community, in that they still occupy the minds of many people in the community. My suggestion, therefore, is that we continue, and enhance, the pursuit of improvement of current software, as well as interaction between ourselves and hardware makers.

Maybe what I am really trying to say is that we should really be focusing on the betterment of the community, w.r.t. software and hardware, rather than on companies that abuse us, then later ignore us, after they got what they needed. I get the feeling that the perception is that we are a bunch of irrational radicals who will react to every utterance made by the non-supporters. Hence, they can get the rise they need to pursue their agenda in the corporate and government worlds, to leave us exactly where they want us.

There are people who are willing and able to pursue PR or legal issues (FSF and friends); we should let them do that work, while we do our work improving what we can. Each of us has our strengths and our weaknesses. I propose that we use use strengths to the betterment of the community, and aim to be more professional and civil when it comes to our weaknesses.

Life is too short (and good) to be upset all the time.

(Now how do I get off this soapbox?)

Cheers!

Notes from the SCO conference call

Posted Oct 18, 2003 5:20 UTC (Sat) by proski (guest, #104) [Link] (1 responses)

You cannot prove anything by removing SCO support from GCC. Those who know what GCC is already know the truth about SCO. Those who trust SCO press releases cannot be persuaded by changes in a compiler.

In fact, one of the bugs fixed in GCC 3.3.2 is for bootstrapping GCC on SCO Unixware (bug 8336).

Removal of SCO-specific hacks that cannot be re-tested if one thing, removal of (mostly) working code that users want to be maintained is another. I've done the former myself, but I won't do the later.

Punishing SCO users who want the latest GCC for the behavior of the company previously known as Caldera would be unfair. Whether the support for SCO Unixware should stay in the code should be influenced by its users (especially by those who can contribute fixes) rather than by the "IP company" that owns copyrights to the OS.

Notes from the SCO conference call

Posted Oct 18, 2003 14:22 UTC (Sat) by deatrich (guest, #25) [Link]

Well, I don't really feel sorry for SCO users. They pay SCO for it - a conscious decision to use that OS. If SCO users really want and need open-source software then maybe they should be considering their options, especially in light of McBride's opinion of the GPL.

Too bad about Caldera - but they really don't exist anymore, do they? What a sad thing to go to www.caldera.com and look in the 'Choose a Product or Service' pull-down list. There, in a section by itself is 'SCO IP License for Linux'.

Where SCO goes next...

Posted Oct 17, 2003 21:47 UTC (Fri) by skybunny (guest, #4478) [Link]

Well, I think I understand why venture capitalists and investment banking companies are jumping on the SCO bandwagon. They are using logic that works for many and most business court cases, without regard to the idea that a business founded on or profiting by GPL software in particular won't generally act in that manner (see: Redhat, IBM).

SCO's stock price is tied to how much profit they make every quarter, and how much cash they have or expect to have. That said...

Most businesses, when sued for IP violations (or IBM's contract dispute) tend to find it in their own best interest to make such lawsuits go away. Doing so tends to relieve speculation on their own business model and stock price, and allows them to 'move forward'. Most 'sane businesses', as a rule, tend not to purposely involve themselves in a lengthy lawsuit, even if they're right. Of course, if SCO gets any fraction of the money they want in damages from a settlement, they really are worth the stock prices that Deutche Bank claims.
Conventional business wisdom says that when a company has something that everyone else needs - but can and does charge exhorbitantly for it - it becomes a buyout candidate to make the pattern stop. Deutche figures on this being a possibility as well, because they believe it may be ruled that SCO really does own UNIX and all possible derivatives. Not only would SCO then be a buyout candidate, but a very expensive buyout candidate.
Lastly, if either of the above two don't happen, there's still (in a typical SCO investor's mind) a 50-50 or better shot that this court case will be found in SCO's favor - and that, if they got the damages they seek from IBM, would probably make $45 a share cheap. I object in principle to Deutche Bank's assertion that SCO is a 'buy'. They've explained both that the stock is extremely speculative and has the possibility of reaping great rewards or becoming worthless depending solely on the IBM lawsuit. Needing to say this, as I see it, should necessitate a 'hold' rating by definition: caveat emptor. Encouraging investors to accumulate shares of SCO because it may or may not go way up, but has a real possibility of nosediving to $0 doesn't make sense.
Of course, in the end, there's one more factor...
Investors pay attention to the news they hear, and they're fickle. They've heard that SCO has gotten massive venture capital, support from Microsoft and HP (through its indemnity), and two investment banks consider them 'buys', which itself is enough for many investors. On its face, that looks like a very promising company. Particularly because SCO has so few shares outstanding, it's very easy for the share price to move up and down. As investors continue to hear good news, the price will go up and up and up. If they actually DO hear news that suggests SCO is in big trouble (say, the judge in the Redhat case granting Redhat its injunction), there will be a panic on the stock. The big problem Redhat and other GPL advocates face right now is that they do not have a mouthpiece capable of or willing to refute SCO's press releases as they come out - hence, why SCO is able to sell its bright future.

If an injunction decision on SCO v. Redhat had been made by now, this stock race might have turned out quite differently. I expect SCO will delay the ruling on that injunction as long as they possibly can for that reason.

With all that said, the next quarter's earnings and conference call will probably come before the Redhat v. SCO injunction hearing and decision. Assuming nothing else is found to specifically counter what SCO is doing, head-on, the pessimistic side of me expects to see from them:

Continued muttering about possibly invoicing customers, while never doing so, keeping the threat of invoices in the spotlight. While Linux advocates are beginning to suspect the invoices will never come, SCO hopes this will erode wider corporate support for Linux.
An eventual pulling of SGI's UNIX license, despite the current delay - not doing so won't help their stock price and overall 'case'. I expect within a month's time that SCO will find a 'gross violation' pretext to do so, sight unseen; they will, in fact, probably claim that pulling the UNIX license is completely justified, since with SGI admitting some code was copied, surely there was more that SGI just refuses to admit. I believe the current delay is steered by trying to give an impression to the market that SCO is being 'fair' and giving companies room to try to meet them where they are, but I don't expect the reprive to last.
Continued delay of offering a Linux binary license one can pay for with cash - doing so keeps the licenses in the news even while they're not actually offered to anyone. October 31 will not be the last absolute-for-real-we-swear-no-more-extensions-it's-double-now deadline. Every time a deadline passes, tech reporters wait with baited breath for the extension so they can report on it again.
An extremely rosy Q4 which shows a continued dumping of money into SCO with no tangible market gains in any specific area
A $60+ price of SCOX by year's end. I'd like to think that's ridiculously high, but I'm taking into account, again, investors believing what they hear, and low liquidity of the stock.

I don't like SCO, and I don't believe what they are trying to do to Linux is right, lawfully or principally. Given the chance, I think any IP claims SCO has can be rectified in hours by code removal, and some short but measurable time after by recoding in a cleanroom.

But my thoughts on principles aren't particularly relevant; on its face, it's fairly obvious from its price jump from $.50 to $20 that they've come up with a brilliant short term business plan that investors, investment banks, and Microsoft (as a rival) believe is worth throwing money at. Whether the business plan actually pans out (based on a single or multiple lawsuits alone) won't matter to those who cash out before that. We have already seen SCO executives, Canopy group stock moves, and Vultus do this, and they are surely not unhappy with the raw profits they've already made.

Someone on the GPL side needs their day in court to stop the train SCO is running. For all the muttering, pandering, and threatning they're doing, I think SCO will do everything it can to make that day take as long as possible. I fully expect they'll ask for yet another extension to the deadline on Redhat v. SCO's hearing; failing that, file a lawsuit of their own against Redhat to delay in that way.