SCO Heading For The Edge?

Linux is apparently hurting the bottom line for unix software maker SCO Group, in more ways than one. Salavation, however, may well just be sitting at the “Edge” for SCO.

The SCO Group’s earnings for the fiscal first quarter of 2006 reveals that its legal costs and costs associated with its SCOsource licensing initiatives grew over the same period last year from nearly $3.5 million in the first quarter of 2005 to $4 million this year.

At the same time, revenues from the licensing program declined by more than half to only $30,000 in its first fiscal quarter of 2006, down from $70,000 during the same time a year ago.

SCOsource is the division of SCO that licenses and protects the company’s Unix intellectual property. Part of the SCOsource program is its Intellectual Property Compliance License for SCO UNIX Rights, which debuted in 2003. It suggests that users take out a license in order to be protected from any potential infringement issues they may run into by using Linux open source operating system software.

SCO’s complex, long-running lawsuit over Linux essentially argues that the UNIX-derived Linux OS contains source code of unlicensed UNIX System V code and UNIX System V derivative code in the Linux 2.4 and 2.5 kernels, which it claims were illegally copied from UNIX.

The SCOsource licensing program was one initiative it launched while pursuing its lawsuit regarding Linux against IBM and other tech companies.

Though SCO reported higher costs in the quarter, part of that was due to legal payments as part of a 2004 agreement to cap legal fees in the Linux litigation.

SCO remains locked in separate lawsuits with IBM and Novell for various alleged Linux related infractions. Darl McBride, president and CEO of The SCO Group, noted during an earnings conference call Wednesday that discovery was ongoing in both cases and that the IBM trial is set for February of 2007; the Novell trial is set for June 2007.

Overall, the SCOsource licensing revenues declined by about 57 percent in one year and have steadily slipped since the program reaped millions in 2003.

Bert Young, chief financial officer for SCO Group, said the SCOsource revenue stream will continue to be difficult to predict. “But we believe that as we see progress in the courtroom validating our intellectual property claims we will begin to see additional SCOsource revenue over time,” Young said.

Linux is also apparently hurting SCO’s bottom line from a competitive standpoint.

SCO reported 1Q06 revenue of $7.3 million as compared to revenue of $8.9 million in 1Q05. The net loss for 1Q06 was $4.6 million as compared to a net loss of $3 million in 1Q05.

“The decrease in revenues was primarily attributable to continued competitive pressures on the company’s Unix products and services primarily from Linux,” Young said.

In June of 2005 SCO released its newest incarnation of its flagship Unix offering, OpenServer 6.

MySQL, which is typically deployed inside of a LAMP (Linux/Apache/MySQL/PHP) stack, is now also available on SCO’s Unix offering, thanks to a deal the two struck last year. As a result, SCO is now actively promoting is own application stack with the acronym SCAMP (SCO/Apache/MySQL/PHP) to compete with LAMP.

Future growth for SCO, however, may well come from the Edge. SCO recently launched its EdgeClick Park mobile services platform and a service called Me, Inc.

“EdgeClick is an ecosystem that provides solution providers and corporate developers with Java, Web Services and other network programming techniques that are required to deliver rich mobile services,” McBride explained.

SCO’s own EdgeClick service includes the Shout broadcast service, which enables users to broadcast short messages to mobile users while the Vote service provides polling functionality.

McBride commented that the digital services on handheld market is a huge market and that SCO has been working for over 2 years on developing the technology.

“For me, the Edge Click environment is really a turning point for SCO,” McBride said. “We’re launching new products in a new space using a subscription model which is attracting customers to SCO. EdgeClick digital services from SCO opens up a new chapter for SCO.”

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