Whatever happened to SCO?
How was the big beast brought low -- and what's likely to happen next?
Once big, loud and proud, SCO has laid itself low -- low on cash, low on business and, most crucially of all, low in the esteem of its competitors and customers. It got into this pickle either out of desperation, or maybe from an actual belief that IBM had stolen some of its intellectual property, or most probably an amalgam of the two.
The company's sales figures were not looking good, but at least it had some copyrights and patents it could cash in. Is that a viable survival strategy?
Now-forgotten disk drive company Rodime still exists on the cash from licensing its drive servo patents, years after it stopped making disk drives in 1991. Now called Sportech, it bought Littlewoods Leisure, the conglomerate's betting arm, which it now runs. Maybe that's the kind of future that lies in store for SCO.
How did SCO get into this mess?
SCO on the offensive
SCO aimed a multi-million dollar lawsuit at IBM in 2003, accusing Big Blue of infringing its copyright by inserting SCO-owned code into Linux. This bought SCO no friends among the Linux community, as imaginations erupted about what the consequences might be for Linux of SCO won.
The action sparked a number of consequences, including mild panic among corporate executives in deploying Linux who became worried that they might be next in SCO's legal firing line for illegal use of copyrighted software. In response, Novell anted up and offered unlimited indemnification for any of its customers who found themselves in that position; other vendors followed suit.
Microsoft got in on the game, presumably seeing an opportunity to sow seeds of fear, uncertainty and doubt among potential switchers to Linux. It paid SCO $13 million for a Unix licence so that, it said, it could ensure that Unix worked with Windows. The move had nothing at all to do with helping to pay SCO's legal bills, said Microsoft.
SCO in trouble
Since then SCO has been surrounded by clouds of uncertainty. The company's biggest investor, Canopy Group, sacked its top two execs; both on SCO's board, one also happened to be the board's chairman. The group later accused the two -- via its lawyers, natch -- of over-paying themselves by $20 million, which they denied.
After plenty of approaches asking SCO to produce evidence for its suit against IBM, the case finally came to court last month. Evidence came there none, as SCO said that it was still digesting the 900 million lines of code that IBM had passed over to it.
And just a week after that, Nasdaq, the high tech stock exchange, threatened to de-list SCO because it had not filed its annual financial statement, a charge SCO put down to accounting problems. The upshot looks likely to be a reduction in SCO's cash position to the tune of some $500,000.
While reports suggest that this still leaves the company with some seven million dollars in the bank, that's not a lot, despite the company's concluding a remarkable agreement with its lawyers that the cost of continuing the case should be capped. What's more, it looks as if SCO could turn an operating profit this year -- though not a net one -- following a bout of heavy cost-cutting, and a product upgrade due this summer.
The bottom line
Enterprise execs cannot start breathing sighs of relief that the potential Linux copyright infringement looks like coming to nought. Not quite yet.
In January, IBM was ordered to hand over a further 1.1 billion lines of code and a pile of other information, including changes that IBM had made to the OS, plus the names of individuals who worked on it. Working through that volume of code is no trivial matter, and SCO is likely to take its time over it.
However, whether SCO manages to work its way through the code in time could be a question of where two curves cross.
The company made an overall loss last year, and analysts say that SCO is likely to report a loss of £11 million this year -- more than its cash reserves -- on $38 million of sales revenue; that income is 11 per cent down on last year's $42.8 million. Staff numbers have been cut: 100 of them constituting one-third of the total were made redundant last year and, as one analyst points out, as headcount falls, the ability to generate and sell new products reduces. There seems little likelihood of SCO clawing its way out of this deepening hole.
So it's a question whether SCO can hang on as a going concern until the final judgement of its case with IBM occurs. This looks likely, on the latest estimates, to be some time in 2006.
If SCO fails, and if there's anything left, it might decide to go do something else, trailing clouds of Schadenfreude courtesy of the rest of the software industry -- except perhaps Microsoft.