August 14, 2003 9:56 AM PDT

SCO profits to fuel Linux fires

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SCO Group, the Unix company whose litigious streak has rocked the Linux world, reported a profit Thursday and said it has enough money to continue waging its intellectual property fight.

The Lindon, Utah-based company said it earned $3.1 million, or 19 cents per share, during its fiscal third quarter, compared with a loss of $4.5 million, or 35 cents a share, in the year-ago quarter. The company said third-quarter revenue was $20.1 million, up from $15.4 million a year ago.

The company said $7.3 million of its revenue for the quarter, which ended July 31, came from its SCOsource licensing division, which is charged with protecting SCO's Unix-related intellectual property. The company also said it expected fourth-quarter revenue to grow to between $22 million and $25 million due to expected growth of the SCOsource licensing plan.

"The magnitude of our SCOsource licensing opportunities and our confidence in the SCOsource revenue pipeline is growing each quarter," the company's chief executive, Darl McBride, said in a statement.

McBride said the company's improved financial results would allow it to continue enforcing its intellectual property rights in a fight that has become a hot topic among Linux users. "We intend to use this capital to continue our intellectual property protection and licensing initiative as well as for launching SCOx, our Web services strategy," he said.

SCO shocked the Linux community in March when it sued IBM, saying the computing giant had incorporated SCO's Unix code into Linux. It then raised the stakes by sending out hundreds of letters to Linux customers, warning them that their use of Linux could infringe on SCO's intellectual property. Two weeks ago, it unveiled a licensing program that requires companies to pay $699 for the right to run Linux on a single-CPU server.

During a conference call Thursday, SCO executives spent much of the time discussing the intellectual property fight and the related litigation, trying to dispel the notion that victory will go to the last company standing.

"We have very strong capabilities to fight the legal fight to whatever level it has to go," McBride said.

He said the company had spent between $600,000 and $700,000 on legal expenses since March, less than half of the $1 million per quarter it has budgeted for such costs. In its financial statements, SCO accounts for legal bills under costs of sales.


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During the conference call, McBride portrayed the legal battles as a fight to defend the notion of intellectual property, saying companies that value the technology and products they've developed should support SCO.

He also characterized his detractors as a vocal minority. "I would say that the silent majority is behind SCO in this case," he said.

McBride said about 100 people had traveled to Lindon so far to view the disputed Linux code, which the company is displaying under certain nondisclosure terms.

The company also said it has landed new customers during the third quarter, including Warner Bros. Entertainment, Johnson & Johnson and McDonald's.

In a separate announcement, the company said that during its third quarter, insiders sold 88,000 SCO shares through a special plan known as 10b5-1. The company also said the same insiders could sell as many as 141,000 shares during its fourth quarter, which ends on Oct. 31.

 

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