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SCO shares dive on earnings warning

Santa Cruz Operation expects a loss of 30 cents per share for the most recent quarter because of slow sales of its server software.

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Stephen Shankland
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Santa Cruz Operation (SCO) stock dropped by more than a quarter today, after the company warned yesterday that losses for the most recent quarter will be about 30 cents per share deeper than expected because of slow sales of its server software.

Shares closed down $1.56, or 27 percent, to $4.13.

Yesterday's warning follows financial woes at other corporate software companies such as BMC and Computer Associates.

The company, which sells Unix, its Tarentella thin-client software, and Linux services, warned that revenue will be between $26 million and $28 million and net losses between 50 cents and 55 cents a share for the third quarter, which ended June 30. Analysts surveyed by First Call/Thompson Financial expected a loss of 13 cents.

In the same quarter last year, the company earned $57 million.

Chief executive Doug Michels blamed the loss on the company's server software division. The company's sales channels are recovering slowly from the Year 2000 transition, and several large contracts didn't close as planned, he said in a statement.

Analysts note that SCO has been hurt by the arrival of Linux, a less expensive clone of versions of Unix such as SCO's UnixWare. SCO initially derided Linux, which like SCO's Unix, runs most often on Intel hardware. But SCO has since warmed up to the operating system.

SCO still is positioned to take advantage of trends such as Linux, application service providers, the antitrust case against Microsoft, and the conversion of software into Web services, Michels said. "We are committed to maintaining technical and market leadership in the exciting and challenging times ahead," he said.

The company is in the midst of a previously announced austerity program to cut expenses and conserve cash, chief financial officer Randy Bresee said. The company also has engaged investment bankers Chase H&Q to help SCO set a course for the future.

SCO expects to report results for the quarter on July 25.