The extent to which the SCO Group has gambled its future on legal battles was made clear yesterday when the Unix vendor announced a $15 million loss. Overall revenue had halved since the previous quarter to just $10.1 million.
Dryly stating the facts, the company said the revenue drop was "primarily the result of a lack of SCOsource licensing revenue". In fact, there had been an enormous 99 percent drop in licensing revenue and, somewhat ironically, the reason for it is SCO's crusade to be recognised as the holder of copyright within the open source Linux operating system.
In short, SCO has been left out in the cold. It is punching well above its weight by suing not only IBM but also Red Hat and Daimler Chrysler, among others. It is also embroiled in a battle with Novell. And all over a tenous claim that it owns the right to some code in Linux. IBM disputes that any such code exists in Linux. Novell disputes that SCO even owns the copyright to the code in the first place.
When faced with two IT giants putting a huge question mark over SCO's code claims, which company in its right mind would pay that company for the right to use such code? The answer has come back starkly: none.
"The largest thing we hear from our potential customers that is causing hesitation are the claims being made by IBM that we don't hold these Unix copyrights, which of course we think are false," said SCO's chief financial officer Bert Young said. "That's clearly the issue."
That however is where Young and SCO's head Darl McBride leave reality alone and continue with their evangelistic pronouncements which are what have put the company in its sticky situation in the first place.
Young swears blind that a 99 percent fall is nothing out of the ordinary. "This is a new thing to sell an IP indemnification license," he said. "It's going to be very cyclical. It's going to be up, it's going to be down." He promises everyone that it will all be fine soon. SCO, he claims, has "many, many deals in our pipeline, people we're in active conversations with". They are all going to be buying licensing off SCO, he says. Except last time SCO claimed it had sold a range of licences, half of them went public to say they had done no such thing.
SCO has cried wolf far too many times to be taken seriously anymore.
But still the company can't stop itself from issuing threats. "If they're willfully not buying licences, the price will be a horrific price," said Young. Why? Because of all the penalties that SCO will add when it has won all its lawsuits. "They run a huge risk. What they're looking at right now is a bet and that bet is going to get more expensive." But every week, the horse is looking more of an outsider.
McBride is suffering even worse delusions. How can he say that SCO's second-quarter revenue was "consistent with company expectations", and expect anyone to believe him? He doesn't even recognise that his instinctive reaction to sue anyone that says boo is making it increasingly difficult for SCO to be taken seriously.
The reason for the "consistent" results on Planet McBride are the significant expenses for the impairment of goodwill and intangibles and for the recent exchange of its Series A-1 Convertible Preferred Stock. That stock conversion incidentally was because one of SCO's two main investors - Baystar - insisted on pulling out of the deal, claiming that SCO has misled it. The other investor, the Royal Bank of Canada, had already pulled out - at a significant loss.
But McBride goes on: "Both of these charges negatively impacted our second-quarter results. As the company looks forward to the last two quarters of fiscal year 2004, we are committed to increasing shareholder value through profitable operations and increasing cash flow from our Unix division as well as remaining focused on our intellectual property lawsuits and licensing strategies."
SCO has put all it has on a horse that is already trailing the pack by a furlong halfway through the race. But like a desperate punter, it still believes there is enough time for a late spurt. Instead we are likely to witness the company being thrown out the paddock while it stares down bemused at its betting slip.
Additional reporting by Todd R. Weiss, Computerworld