SCO Rings Up First Quarterly Profit

The Unix vendor reported a $4.5 million second-quarter profit after a quarter in which it took on IBM and the open-source community.
After a quarter in which it took on not only IBM but also the Linux community, the SCO Group Inc. on Wednesday reported its first-ever quarterly profit. For its second fiscal quarter, ended April 30, the company earned a profit of $4.5 million, or 33 cents a diluted share, on revenue of $21.4 million. That's a big turnaround from a year ago, when the company lost $6.6 million, or 47 cents per share, on revenue of $15.5 million.

SCO Group derived $13.1 million of its revenue from sales of its operating system platforms, while the remaining $8.3 million came from its SCOsource licensing initiative. SCOsource is the company's division for licensing and protecting its Unix intellectual property. The company anticipates its third quarter will be roughly in line with the second quarter, with revenue projected in the range of $19 million to $21 million. SCO Group expects to derive two-thirds of its revenue from operating system platform sales during the quarter, with the rest coming from SCOsource.

But all isn't rosy for SCO Group. German software group Linuxtag has given notice to SCO Group GmbH "to desist from unfair competitive practices" because of the threats SCO made last week against 1,500 worldwide Linux supporters, including IBM and Hewlett-Packard. SCO Group last week resigned its membership in Linuxtag after the software group asked SCO to provide proof of its claims that SCO-owned Unix code has illegally made its way into Linux. Linuxtag has demanded that the German SCO subsidiary retract its claims regarding ownership of Linux kernel code by this Friday, May 30, or make its evidence public.

Novell chairman and CEO Jack Messman on Wednesday issued a letter defending his company's interests in developing services to operate on Linux. The company challenges SCO's assertion that it owns the copyrights and patents to Unix System V, pointing out that the asset-purchase agreement entered into between Novell and SCO in 1995 didn't transfer these rights to SCO. Novell also is seeking information from SCO to back up its assertion that certain Unix System V code has been copied into Linux.

In an E-mail to InformationWeek, HP last week likewise responded to SCO's letter: "Based on SCO's recent announcement, it appears that HP was one of 1,500 other companies to receive a letter regarding Linux. HP is unaware of any intellectual property infringement within Linux."

SCO Group would like to see a major windfall from IBM somewhere down the road. In March it sued IBM for $1 billion, alleging that IBM leaked SCO's proprietary Unix technology to the open-source community for the purpose of further developing Linux. According to the suit, IBM not only breached its licensing agreement with SCO for the Unix that's used as part of IBM's AIX operating system, but also "induced and encouraged others to breach their obligations to SCO." IBM has said that it has neither breached an agreement with SCO nor had it been approached by SCO on this matter prior to the lawsuit.

Microsoft threw more fuel on the fire last week when it agreed to license SCO's Unix source code and an unspecified SCO patent. Microsoft plans to use SCO technology in Microsoft products that support Windows-to-Unix interoperability, including its Services for Unix software.