SCO turns a profit helped by licensing program

The SCO Group Inc. reported a profit in its second fiscal quarter thanks in part to its recently launched initiative to more aggressively collect licensing fees for its Unix operating system software, the company said Wednesday.

That initiative includes the filing of a US$1 billion lawsuit against IBM Corp. that alleges IBM engaged in illegal practices to damage SCO's Unix operating system software and benefit IBM's Linux business.

SCO net income of $4.5 million, or $0.33 per share, on revenue of $21.4 million, in 2003's second fiscal quarter, ended April 30. That compares to a net loss of $6.6 million, or $0.47 per share, on revenue of $15.5 million in 2002's second fiscal quarter.

SCO reported a net loss of $724,000, or $0.06 per diluted share, on revenue of $13.5 million for its first fiscal quarter of 2003, which ended little over a week after the launch of the new licensing initiative, called SCOsource.

In 2003's second fiscal quarter, SCO, based in Lindon, Utah, generated $13.1 million in revenue from its operating systems business and $8.3 million from the SCOsource licensing initiative. SCO expects the SCOsource initiative to continue generating revenue in coming quarters. The company has over 6,000 licensees of its Unix operating system software, SCO said.

SCOsource was announced in January along with SCO's hiring of firecracker attorney David Boies and his law firm Boies, Schiller and Flexner to examine possible intellectual-property infringements against SCO.

Specifically, SCO claims all Unix flavors in use today are based on Unix System V, whose software code and licensing rights SCO owns. Novell Inc. on Wednesday issued a statement saying it didn't transfer Unix System V copyrights and patents when it sold the software to SCO in 1995. SCO countered Wednesday with a statement of its own saying it owns "contract rights" to Unix and that its lawsuit against IBM doesn't involve patents or copyrights.

In March, SCO sued IBM Corp. for US$1 billion alleging misappropriation of trade secrets, unfair competition, interference with contract and breach of contract regarding the Unix software SCO has licensed to IBM. SCO charges IBM with engaging in these allegedly illegal actions to benefit its Linux business.

Since the filing of the lawsuit, SCO executives have said the company has evidence that proprietary Unix from SCO has been copied illegally into Linux software, including the Linux kernel, allegations that have made the company very unpopular in the Linux community.

SCO also announced recently it was suspending its own Linux business and sent letters to about 1,500 large companies warning them they could be held liable for intellectual property violations related to their use of Linux software.

Linux is an operating system that can be obtained free of charge and whose source code can be modified, copied and redistributed by anyone. In addition to the kernel, which is developed by Linux Torvalds and volunteer programmers worldwide, it also includes GNU operating system software from the Free Software Foundation Inc. SCO said recently it hasn't yet found infringements to its proprietary code in GNU software.

SCO expects third-quarter revenue to be in the range of $19 million to $21 million, with two-thirds coming from the operating-systems business and one-third from the SCOsource licensing initiative. SCO is also counting on its forthcoming SCOx Web services strategy to boost revenue in coming quarters.

The company issued its earnings announcement before the opening of the financial markets in New York. Its stock (SCOX) was trading up 3.33 percent to $9.00 on the Nasdaq exchange in mid morning EDT.

SCO will host a conference call at 11 a.m. EDT Wednesday to discuss second-quarter fiscal 2003 results. Those interested in participating in the teleconference can call 1-800-946-0719 or 719-457-2645 and enter the code: 728441. The teleconference will also be Webcast at http://ir.sco.com/conference.cfm or at www.companyboardroom.com.

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