SCO Source income: $32,000. Legal bills: $3 million

SCO has seen a sharp decline in income, as enterprises fail to be tempted by its Linux indemnification program.

The litigious Unix vendor announced this week that revenues for its most recent quarter, which ended July 30, were $9.35 million compared to $11.2 million (5.09 million and 6.10 million pounds, respectively) for the same period in 2004. SCO posted a loss of $2.4 million over the three-month period, compared to a profit of $7.5 million for the same period the year before.

This decline was caused by a drop in income from SCO's Unix products and by legal bills of $3 million. This stemmed from SCO's ongoing court cases against IBM and Novell, among others, over its claim that its intellectual property was unlawfully included in Linux.

Under a much-lambasted licensing program, SCO has been offering a license to companies that use Linux, saying that it will protect them from action by its legal department. But very few companies have acquiesced to what many see as a groundless threat. The program, called SCO Source, brought in revenues of just $32,000 during the quarter, compared to SCO's overall legal costs of $3.1 million.

These figures mirror a similar poor performance in the second quarter of this year, in which revenues dropped to $9.3 million--down from $10.5 million for the same period in 2004.

Analysts at Ovum were scathing about SCO's performance.

"SCO is failing," said Ovum analyst Gary Barnett, who was unimpressed by the performance of SCO Source. "The company's UNIX revenues continue to decline, as the 'continued competitive pressures' cited in the company's earnings release continue a trend that's been running for several years now."

Ovum advises companies not to buy a SCO Source license unless SCO provides a money-back guarantee in the event the company is defeated in the courts.

SCO chief executive Darl McBride tried to put a positive spin on the situation, claiming that the third quarter was "a productive quarter for SCO."

"Our UNIX business operated profitably for the third consecutive quarter and we launched SCO OpenServer 6 which has received many favorable reviews and is showing traction with customers," claimed McBride in a statement.

Ovum, though, offered a more pragmatic overview.

"If you're considering buying OpenServer you need to look at your options. If you need more licenses to support an existing deployment, there is no need to panic--Open Server may change hands in the next couple of years but it won't disappear. Over the longer term you should consider alternatives from both the open-source community (Linux) or from other Unix vendors (notably OpenSolaris on x86)," the analyst group said.

Graeme Wearden of ZDNet UK reported from London.