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SCO's revenue drops, losses increase

SCO's revenue drops, losses increase

Losses for the fourth quarter and fiscal 2004 soared for Unix vendor The SCO Group, while revenue dropped substantially, but the company continued to insist that its ultimate success will come from a future win in its US$5 billion Linux intellectual property lawsuit against IBM.

In a statement yesterday after U.S. stock markets closed, Lindon, Utah-based SCO reported fourth-quarter 2004 revenue of US$10 million for the period ended Oct. 31, down 58.5 percent from the US$24.2 million in revenue in the same quarter in 2003. For the full 2004 fiscal year ended Oct. 31, revenue was US$42.8 million, down 45.9 percent from the US$79.2 million booked in fiscal 2003.

The company said the fourth-quarter revenue reduction was largely due to "competitive pressures" and a decrease in SCO source Unix licensing revenue, which dropped from US$10.3 million in the fourth quarter of 2003 to US$120,000 in the fourth quarter of 2004.

SCO's fourth-quarter losses totaled US$6.6 million, up 37 percent from a US$4.1 million loss in the fourth quarter of 2003. For the 2004 fiscal year, SCO's losses totaled US$28.6 million, after showing a modest US$3.4 million income one year ago.

The loss per diluted common share was 37 cents for the quarter and US$1.07 for fiscal 2004.

SCO President and CEO Darl McBride called the fourth-quarter results evidence of "continued progress at SCO" in a statement made during a conference call with financial analysts. "The management team has maintained its commitment to operate our core Unix business profitably," he said. "With the benefit of additional efficiency improvements now in place, we expect the Unix business will generate cash during fiscal year 2005."

A major way that will happen, McBride said, is through an agreement reached in the fourth quarter with its legal team, Armonk N.Y.-based law firm Boies, Schiller & Flexner, to cap its fees in the IBM lawsuit at US$31 million by December 2005. Those legal fees are mounting at a rate of millions of dollars per quarter for the company, taking a toll on its bottom line. SCO filed the lawsuit almost two years ago against IBM, alleging that the larger company illegally contributed some of SCO's Unix code into the Linux open-source project without permission.

"The combination of these two positive actions positions us well to pursue our strategy to protect our contractual and intellectual property rights on behalf of our customers, employees and shareholders," McBride said.

McBride couldn't be reached for comment Wednesday morning.

Blake Stowell, a spokesman for SCO, said the company will probably continue to report losses over the next few quarters due to the cost of the legal fees, but he added that "there is light at the end of that tunnel" if SCO is successful in its legal fight against IBM.

In the fourth quarter of 2004, SCO spent US$4.3 million on legal fees in the case, while it spent US$19.7 million in fees for the full fiscal year. Under the cap arrangement that will go into effect next December with the legal team, the company won't have to pay additional legal fees in the case, which should improve its finances, he said.

"I think (McBride) is optimistic because the company's taken steps to make sure they can operate the Unix business profitably in 2005," Stowell said.


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