October 15, 2003 3:24 PM PDT

SCO backs off Linux invoice plan

The SCO Group has backed off a plan to send invoices to corporate users in order to prod them into buying licenses for their use of Linux, an operating system the company argues violates its Unix intellectual property.

In addition, the Lindon, Utah-based company has extended until Oct. 31 a deadline after which it planned to double prices for the Linux license. Previously, the company had said the prices would increase Wednesday.


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"The executives have said we haven't had to do it yet," SCO spokesman Blake Stowell said of the invoice plan. "They're happy with progress in the licensing program."

The move appears to be an adjustment to a "carefully planned and staged scenario," Gartner analyst George Weiss said. It could be that SCO was concerned that its invoices would unfairly target only a subset of the market, or that it was daunted by the possibility that it would have to back up its invoices with a host of lawsuits, if companies refused to pay.

SCO's plan has been carefully unveiled, piece by piece, Weiss added. "This is not to me ad hoc or random. It is carefully designed to ratchet up the pressure on users to knuckle under," he said.

SCO's licensing plan has been lambasted by open-source advocates, criticized by analysts, and ignored by 84 percent of chief information officers Credit Suisse First Boston polled in a September survey. Nevertheless, SCO has signed up an unnamed Fortune 500 company with a "large number" of Linux servers.

The licenses currently cost $699 for a single-processor Linux server, $1,149 for a dual-processor server, $2,499 for a four-processor server, $4,999 for an eight-processor server, $199 for a desktop computer and $32 for an embedded device such as a DVD player, Stowell said. SCO argues that people must pay the licenses.

SCO extended the "introductory pricing" offer, because it didn't have time to make the offer globally, Stowell said. "The rationale was that this pricing had not been rolled out in certain regions of the world, where we wanted to offer this introductory pricing in a timely manner," he said.

Legal analysts have said companies should avoid paying any licenses until lawsuits or legal judgments conclude that it's necessary. SCO has sued IBM over its handling of Linux, arguing that Big Blue illegally moved Unix technology into Linux, but IBM has countersued. In addition, Linux seller Red Hat sued SCO in an attempt to lay the matter to rest.

In other news, SCO's stock surged $4.97, or 32 percent, to close at $20.50 Wednesday, after Deutsche Bank analysts Brian Skiba and Matthew Kelly initiated coverage of the company with a "buy" rating and a $45 price target for the stock.

"Investors with an appetite for risk should, in our view, see an investment in SCO Group as the equivalent of a call option--with most of the risks and rewards often associated with options. The IBM lawsuit and the potential for Linux licensing deals offer plenty to be excited about, while failure could render the shares worthless, in our view," the analysts wrote in a report Tuesday.

Weiss criticized the report as "paradoxical." On one hand, he said, the analysts gave the stock a "buy" rating and put a high price target on the stock. On the other, they're "warning you this is highly speculative, that this whole thing could fall through."

 

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