SCO sees loss on legal fees

The controversial Unix software company reports a loss for its fourth quarter, based largely on hefty legal expenses it has accrued in its intellectual property war against Linux.

Matt Hines Staff Writer, CNET News.com
Matt Hines
covers business software, with a particular focus on enterprise applications.
Matt Hines
3 min read
Controversial Unix software company the SCO Group reported a loss for its fourth quarter on Monday based largely on hefty legal fees the company has accrued in waging its intellectual property war against Linux.

The Lindon, Utah-based company said it had a fourth-quarter net loss of $1.6 million, or 12 cents per share, compared with a loss of $2.7 million, or 26 cents per share, in the year-ago quarter. SCO said it would have reported earnings of $7.4 million, or 44 cents per share, for the quarter before making a $9 million payout to lawyers who represent the company in its Linux battles.

SCO's fourth-quarter revenue was $24.3 million, up from $15.5 million a year ago.

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The company said $10.3 million of its revenue for the quarter, which ended Oct. 31, came from its SCOsource licensing division, which is charged with protecting SCO's Unix-related intellectual property. SCO reported that much of that income came from licensing agreements reached earlier in the year with software makers Microsoft and Sun Microsystems. The company also had $14 million in revenue from its Unix products and services.

For fiscal year 2003, SCO reported earnings of $5.3 million, or 34 cents per share, compared with a loss of $24.9 million, or $1.93 per share, in fiscal 2002. Before paying its legal bills, the company would have reported earnings of $14.3 million, or 91 cents per share, for 2003.

"Fiscal 2003 was a pivotal and successful year for SCO," Chief Executive Darl McBride said in a statement. The revenue growth, a strong balance sheet and a $50 million private placement, he said, give the company "the resources and flexibility to both enforce and protect its Unix intellectual property and expand its core business."

For the current quarter, which ends Jan. 31, SCO said it expects revenue to fall between $10 million and $15 million, or roughly in line with the company's first-quarter 2003 performance. The bulk of the revenue is expected to come from products and services, and the company said it expects "minimal" SCOsource sales as it works on licensing agreements with vendors.

The company said operating expenses for its Unix business will remain flat in 2004 but reported plans to increase investment in legal efforts to expand its intellectual property defense.

In related news, SCO said Monday that it sent a second round of letters to businesses that use Linux, as it continues its effort to collect fees for the software to which it claims intellectual property rights. SCO owns some rights to the Unix operating system and contends that it is entitled to a share of money generated by Linux, a variant on Unix.

The letters to "thousands of licensees," SCO said, ask each company to provide written certification that they are in full compliance with SCO's Unix source code agreement, including proof that they are not engaging in unauthorized use of the code via Linux. SCO also began providing notification to Fortune 1000 Linux users regarding additional copyright violations the company believes it is entitled to defend against under the Digital Millennium Copyright Act.