SCO Claims $15,300,000 From SCOsource

Hollins writes "Yesterday, SCO filed their latest 10-Q. In it, they claim over fifteen million dollars in revenue from their SCOsource initiative (mostly from Microsoft and Sun) with a decline in revenue from all other sources. A lot of interesting statements are in the 10-Q, including "The success of our SCOsource licensing initiative, at least initially, will depend to a great extent on the perceived strength of our intellectual property and contractual claims and our willingness to enforce our rights. Many, particularly those in the open source community, dispute the allegations of infringement that we have made"."

Comments

Slashdotted!

[darnok]

Surprise, surprise, ...

Does it mention in any more detail how this licence revenue has come in? Aside from MS and Sun, who else has paid up?

I'm particularly interested in the number of people who've signed up for the $699 "bargain rate" for Linux licences

Re:Slashdotted!

[MuParadigm]

They run into three problems if they actually try to send out those invoices.

A) The obvious fraud charge that everyone has already discussed.

B) Anyone who receives one of those invoices might try to challenge SCO's copyrights. Given that the presiding judge ruled ATT was "unlikely" to prevail on their copyright claims in the BSD case, SCO does not want to put their copyrights to the test in court.

C) Anyone receiving one of those invoices might ask for declaratory judgement, requiring SCO to shut up.

It's less a dog and pony show than a strip tease. And I really *don't* want to imagine Darl naked.

So what they are saying...

[Zocalo]

...is that if they lose their court case with IBM and people won't buy their licenses, then they are screwed? Great! Let's go to court!

hoo boy...

[focitrixilous P]

While our SCOsource initiative has already resulted in revenue of $15,530,000 during the last two quarters and we continue negotiations with other industry participants that we believe may lead to additional SCOsource license agreements, we are currently unable to predict the level or timing of future revenue from this source, if any.
Allow me a guess.

Zero. Microsoft might keep you afloat for now, but you are doomed to failure.

burned by their own lawsuit ?

[gmack]

"caused by the worldwide economic slowdown, increased competition from other alternate operating platforms, and uncertainty from our recent Linux announcement. This impact was largely felt in our distribution channel in the Americas and Europe."

That's interesting.. it indicates at least some customers have given that lawsuit as the reason for not using their products.

Sun is involved!

[raahul_da_man]

Sun has paid Sco a quarter million. Why on Earth is it helping bankroll an attempt to destroy Free Software?

It's time to boycott Sun. It's about time it learned you can't bite the hand that feeeds you.

Microsoft, of course, is no surprise. I'm slightly amazed they didn't give Sco more money.

Re:Sun is involved!

[cyril3]

Perhaps they paid for IP that SCO does in fact own. It may not relate to disputed Linux related IP. SCO does have other UNIX software that it has IP rights in and that it can licence, doesn't it? (That is a question ,by the way, not a statement)

Re:Sun is involved!

[LiquidCoooled]

Sun paid a little more, AND microsoft ARE giving them more money:

The license agreement with Sun provides for an additional $2,500,000 to be paid to us by November 2003. On July 31, 2003, Microsoft exercised an option to acquire expanded licensing rights. Upon delivery, we expect to recognize additional revenue related to this option.

Re:Two companies

[Greyfox]

Sun's been making noises about being able to distribute the Linux kernel irrespective of the outcome of the IBM/SCO battle, if I read the news right. I assume it's to their advantage to imply that they're the only legal Linux distributor for as long as they can, so it'd be to their detriment for SCO to go bankrupt too soon. Once SCO goes under, they'll be back to having to compete head-to-head with IBM.

They're taking a big risk of alienating the community that way. Personally I wouldn't play my cards that way given that a hefty hunk of the product offering (Mad hatter et al) coming up is open source based.

Business Model?

[Professor_Quail]

Regardless of whether or not their claim regarding the Linux source code is true, what kind of a business are they planning to run in the future? At this point, their 'other' revenues are dropping, so I wonder if they just plan to sit around and threaten people so they can collect royalties.

If they're earning revenue in any other meaningful way, it'd like to hear it.

Re:Business Model?

[MuParadigm]

I posted this in a previous SCO thread, but I'm reposting it here, because it's the best answer I can think of to explain SCO's "business model"

What Does Darl Get Out Of It?

Darl gets a big fat payoff if he can deliver four straight profitable quarters. Most of it is in stock, which means he'll have to keep up the fiasco for extra quarter or two to cash out.

At that point, I think we can expect him to leave SCO -- if there is any SCO left to leave. Maybe the final legal showdown will be Darl v. Ralph, to be filed in late 2004 or early 2005. We all know how much Darl loves to sue his employers.

Anyway, this means the SCO v. IBM case is not likely to ever make it to court because there's *no* motivation for Darl to go that far.

In the meantime, he'll do whatever it takes to show profit on the next two or three 10-Q's. He'll slash personnel, support, anything, doesn't matter how it affects SCO's long term prospects, as long as he shows profits each quarter.

He'll try to get people to pay for SCO IP in Linux licenses NOW, not after the case is resolved in court, because he doesn't care what happens that far down the line.

He needs the money on the books and in the 10-Q next quarter and the following quarter. He's got two profitable quarters in a row now, though he probably wouldn't have made it this quarter without cutting personnel and associated costs. Two more to go, and he's golden.

If he hasn't done it already, we can expect some *extremely* creative accounting over the next two quarters. Personally, I think that asset listed as "Goodwill" is just the start of SCO's attempts at creative accounting. Or maybe more money from MS. MS, according to the latest 10-Q (available at SEC), has apparently purchased those "expanded licensing options" that were mentioned in the April 30 10-Q.

Darl's biggest fear is that something will shut down SCO and/or it's FUD machine within the next two-three quarters. If he sounds irrational and afraid, well, that's because he is. He can't pull any more profits out of Germany. Australia, Austria, and Poland are lining up to gag him in their countries. Red Hat's trying to do the same in the U.S. Of course, none of this matters much as long as no court decisions are reached within the next 3 quarters. Which means delay, delay, and delay will be SCO's legal strategy going forward.

Microsofts use of UNIX code

[gazoombo]

What i find interesting is that Microsoft claims that it's OS is far better than the UNIX variants around today (Linux in particular) , yet they will still pay large sums of money for UNIX source to use in their Services For UNIX (SFU). Seems like they want all their bases covered.

Re:of course

[Tuqui]

I put it in another thread but your comment fall just in the point.
It looks that M$ is using their money not only directly in fiaSCO contracts. You can see what is happening with SCOX stock too here

12 months of cash flow

[Hamfist]

It also says that they have only about 12 months of cash left at the rate they're losing money. That means if they don't get more money from licensing, they will be broke before the IBM case comes to trial. If someone else sues them, they'll probably go under even sooner.

I sure hope someone else sues them soon.

Re:Not MOSTLY from Microsoft and Sun...

[_Sprocket_]

Are y'all sure that Sun did give SCO $$$ recently ?

Usually the glib responce is "RTFA" - in this case its RTF10K. To quote:

We initiated the SCOsource effort to review the status of these existing licensing and sublicensing agreements and to identify others in the industry that may be currently using our intellectual property without obtaining the necessary licenses. This effort resulted in the execution of two license agreements during the April 30, 2003 quarter. The first of these licenses was with Sun Microsystems, Inc. ("Sun"), a long-time licensee of the UNIX source code and a major participant in the UNIX industry, and was a "clean-up" license to cover items that were outside the scope of Sun's initial UNIX license.

...

The license agreement with Sun provides for an additional $2,500,000 to be paid to us by November 2003.

...

In connection with the payment of $2,500,000 to us by Sun during the quarter ended July 31, 2003, we granted a warrant to Sun to purchase up to 12,500 shares of our common stock, for a period of five years, at a price of $1.83 per share. This warrant was valued at $150,000 using the Black-Scholes option-pricing model and reduced our licensing revenue for the quarter ended July 31, 2003 by that amount.

The other licensee mentioned was Microsoft. There's your proof that the mystery license went to Sun. Unless, of course, you believe SCO lied in their filing.

Linux is HOT. SCO is NOT.

[Futurepower(R)]

Microsoft says Linux is hot: Get the Tools You Need to Compete with Linux

Microsoft is selling the CD: "Cost of CD is U.S. $3.50, plus shipping and handling."

Does this mean there should be a Linux "How to compete with Windows" CD, that you can download for free? I can see it now:

1. Don't pay Microsoft to be aggressive toward you.
2. Use Linux and don't worry about changes in the license agreement as part of a bug fix, after you have paid for the product.
3. No forced upgrades: Microsoft Bars Office 11 From Windows 9X
4. Using Linux and Open Office means never having a software funeral.

The fact that there is no "How to compete with SCO" CD available from Microsoft speaks loudly and clearly.

Revenue != Cash received for products or services.

[rice_burners_suck]

Don't forget something important: A large portion of these 15 million dollars in revenue is money that SCO never earned and will never get. That's because of the way accrual-based accounting works: Invoices written by SCO are considered Revenue in SCO's books and financial statements.

Remember when SCO sent out zillions of invoices for $699 per copy of Linux? I believe that they don't actually expect to get paid for these invoices. They sent them out to increase their revenue, making their company look more successful, and when they won't get paid, they'll write it off on their federal taxes as "bad debts." It'll be years before this gets to court. In the meantime, showing revenue makes SCO LOOK successful, increasing their stock price.

Some interesting statements ...

[richg74]

The first, in case anyone is still in doubt about who is bankrolling the SCO FUD machine:

During the three months ended July 31, 2003, Microsoft Corporation ("Microsoft") accounted for approximately 25 percent of total revenue and Sun Microsystems, Inc. ('Sun") accounted for approximately 12 percent of total revenue. During the nine months ended July 31, 2003, Microsoft accounted for approximately 16 percent of total revenue and Sun accounted for approximately 12 percent, of total revenue.

The second is, on the basis of the evidence I've seen, highly questionable:

As a result of our assertion of our intellectual property rights, we have been subjected to several denial of service attacks on our website which prevented web users from accessing our website and doing business with us for a period of time.

I guess it's that good ol' DoS attack that only happens outside office hours and on weekends in Utah.

Finally, there is this little gem, which I find intriguing:

During the quarter ended July 31, 2003, the Company issued a warrant to a consultant, as part of an agreement to assist the Company with its SCOsource licensing initiative. The warrant allows the consultant to acquire 25,000 shares of the Company's common stock at an exercise price of $8.50 per share for a term of two years from the date of the agreement.

Anyone care to venture a guess as to the identity of the unnamed "consultant"?

Rich
SCO delenda est.

Re:Two companies

[ckd]

why Sun?

Anti-AIX propaganda? They were sending out FUD emails to (among other people) a friend of mine saying "hey, we'll help you switch from AIX to Solaris, since we don't have any licensing problems"....

Re:Two companies

[zerocool^]

I just looked at it.

Though I have no love for solaris, and I like budget options, I always defend sun hardware. Probably because I work on it on a daily basis (we use everything from IPC's to our quad proc ultra II at Netmar).

The hardware is rock solid. I mean, you have to beat them with hammers to break them. The PROMS die before anything else goes bad, and that's just cause of the battery. And when the prom dies? Just boot it and make it set it's own mac address in the OS. The fact that we still use IPC's (as monitoring servers, rstat graph displayers, etc) is a testiment to how long they last.

I just looked at the sun website. The machine you offer does indeed cost $40k, or close to it ($35k). However, make sure you see what's included in that. It's 4x Ultra SPARC III Cu 1.05 Ghz processors, EACH with 8MB of cache. On top of that, there's 32 256MB sticks of registered memory, 2 10k RPM 73GB discs, 2 Gigabit ethernet ports, and dual 1440 Watt power supplies. That's a beast of a machine.

Oh, and wait, what's this?

I configure a machine almost matching the specs. The difference here is the processors, which are 2.8 Ghz Xeons, but ONLY 2MB OF CACHE, and they're also only 32bit. Otherwise, the same. 8GB of ram, 2 10k rpm 73GB SCSI drives. Guess what? It cost $28,000.

Between $28,000 for 32 bit procs with 2MB of cache, and $35,000 for 64 bit procs with 8MB of cache, I might go ahead and bump it up.

I wish people would realize that sun is rock solid hardware and not that much more expensive.

~Will

Re:Two companies

[mec]

As you said -- and, more importantly, as the 10-Q for the quarter plus the 10-Q for laster quarter said -- Sun gets options to purchase 2% of SCO. That's more than a cleanup license. That is a strategic investment.

Sun is helping desktop Linux a lot, specifically through Open Office. Sun is also attacking server Linux via its partnership with SCO. Sun is a Linux ally in cases where Linux competes with Sun's competitors, and a Linux foe in situations where Linux competes with Sun.

Re:Two companies

[Monkelectric]

I wish people would realize that sun is rock solid hardware and not that much more expensive.

I don't actually disagree with you :) Alot of people don't need rock solid though, and don't need to pay for it. At the university I worked at, we didn't need rock solid, but we could afford it. I'm not saying we ever bought a DELL server, we just threatened to to get Sun to lower their rediculous prices :) Negotiating with them always reminded me of the south park where cartman is selling fetuses, "oh jesus larry you're breaking my balls here." Sun tries to club you over the head with their *rediculous* list prices.

Once after I negotiated a pretty good deal (104k for A fire V440 with 4 procs, 4 gigs of ram, 2.6 TB of storage, and a tape library), I told one of my coworkers how proud I was of myself for getting us almost 50% off the list, and he said the funniest thing I've ever heard, "You should have asked them to raise their prices so we could have gotten an even better discount."

So anyways, I love suns, was a solaris admin for 2.5 years, and I dont really diasgree with you. Just saying the average business might not need all that horespower. In my entire time I had *one* sparc 10 give out that was ancient, other then that nare a hardware problem in 2.5 years.

Re:Revenue != Cash received for products or servic

[jazuki]

Actually this isn't quite true. Though IANAA (accountant), I seem to remember two rules:

1. Revenue cannot be recognized unless it's earned
2. Revenue cannot be recognized unless you're likelier than not to get paid

Thus, unless SCO wants to get into really hot water really quickly, with the SEC, and with stockholders, they could not recognize the invoices as revenue. If a court says that they actually have rights on Linux, that's another story. But keep in mind that so far, they haven't asked a court to rule on that matter. Their suit so far is entirely about IBM's alleged Sys V contract violation.