New Caldera CEO Has Rival Red Hat on His Mind

VARBusiness

"It's a tough, competitive force [but it's non-traditional," says Ballmer.

The unusual nature of the software--it's free and not dominated by any one company--confounds not only rivals such as Microsoft, but also some of its most ardent supporters, many of whom are struggling to build a successful, commercial business around Linux despite its widespread popularity.

That includes Lindon, Utah-based Caldera, which is going to great lengths to overhaul its business. In May, it joined with Conectiva, SuSE and Turbolinux to create a new organization called UnitedLinux, which aims to develop a uniform version of Linux. More recently, it recruited Darl McBride to serve as its new CEO, replacing Ransom Love, who will oversee the company's UnitedLinux work. A Novell veteran, McBride is the former CEO of PointServe and SBI and Company. He was also the force behind IKON Office Solutions' roll-up of more than a dozen integrators. Most recently, he served as president of Franklin Covey's online planning business. This week, he discussed with senior executive editor T.C. Doyle why he left for Caldera.

VB: So let me ask you a tough one: It's fairly obvious that Caldera has been struggling. It's had layoffs, losses and a stock slide that nobody wants. What, at the end of the day, made you convinced that this was the way to go?
McBride: Operating numbers that were similar to Red Hat, and a market cap that was like a fraction of Red Hat's. That's one thing to think about. I think in today's environment, finding a company that has revenue or starting a company that has revenue and customers is the single hardest thing to do. That's what everyone is just struggling with. 'How do I get new customers?' But Caldera is a company that has great customers.

The only issue is fixing some of the product-side problems, which I really don't think there are product problems because when I look at the products, they are strong in the installed base. Plus, the products coming out this fall are really great. Everybody is greatly anticipating these. And then there's our Volution product, which really hasn't been [introduced yet. So when I look at all this, I say 'Gosh, if we just do a few things right here and get the revenue turned around, we could have an $80 million to $100 million company.' That's roughly the size of Red Hat and they have a $1 billion market cap. And they are losing money.

VB: I've got to ask you about taking on the role of CEO in a publicly traded company today. The allure of running a publicly traded company ain't what it once was. Are you worried that messes at ImClone, Enron, Tyco, Andersen, WorldCom, etc., will make this job a living hell?
McBride: I actually factored that in when deciding about this. It used to be becoming a CEO was a badge of honor, just like starting up a dot com was. It's not only not as glamorous as it used to be, it's almost scandalous with all these deals going on. I looked at that, and what I looked at real hard here was the CFO. And every stone I turned over around Bob Bench, our CFO, revealed that if there was a negative, it was that he was too conservative. That's what you want to hear in today's environment.

VB: The company just announced a pretty significant reorganization in May that, obviously, you weren't a part of. That poses the question: Are you likely to follow somebody else's plan for the company, or, after some time, likely to go your own way?
McBride: As needed is the key thing. We're going to give this thing every chance to succeed. In the first phase, obviously, it's for me to get in and see what's going on and get absorbed in the operation. The general direction the company is going in is actually one that I am pleased with. As it relates to structurally how you get there, there's some great management talent here currently. I believe we have the key components to take this thing over the top. As we get down the road, obviously, you expect to make changes on an as-needed basis.

VB: UnitedLinux: Good idea, or are you of the mind that coalitions and consortia don't work and more commercial efforts are required to make something happen?
McBride: I believe that if the UnitedLinux group gets together and drives things more like a business, that there's huge opportunity. I think if they slowed into a Sematech consortium sort of a model, then the results will be like those similar-type of efforts--interesting standards types of things, but with what future and what direction?

My vision for UnitedLinux is what the customers are asking for. If the four companies that are involved in UnitedLinux really do what they say they are going to do, which is tighten down, it is a great opportunity.

VB: It's lacking Red Hat, though. Is that a future UnitedLinux company, or is it the enemy?
McBride: That depends upon Red Hat. How strongly UnitedLinux moves forward will probably dictate the position on how they want to play with that.

VB: Last you gave guidance, I believe it was May. I got to ask you: are you still on track for the quarter ending in July to be $14 million to $15 million and your annual revenue to be $60 million to $80 million?
McBride: We haven't changed anything since we last gave guidance.

VB: Your arrival has already sent things zooming; you're up 26 percent today, though it's a far cry still from the $7.24 where you were at the end of last year. What is the outlook for the stock and what impact will your stock repurchase plan likely have on that?
McBride: I think the repurchase plan is very significant to the company. Take any publicly traded stock in America--any of the 17,000 that are publicly traded that are out there--and put a third of their shares out there and I think you'll see the same thing. If you take that overhang off the market, you give yourself a fighting chance. At the same time, you're coming out with a new management team, a new outlook and the same good products, the same good customers and the same good channels, you can build momentum. Sometimes it doesn't take a lot of changes to go from being a lottery team to being the NBA finalist like the New Jersey Nets did this year. I'm not claiming to be as good as Jason Kidd, but there might be an analogy here. A few good changes could have a big, underlying impact.

VB: You mention the overhang, but when I look at your volume, I see that it's been nil for the last few months. There hasn't been a lot to move [your stock one way or another. If you take away some of that overhang, don't you take away some of the float and make it harder for you to get some bump with fewer shares out there to be traded?
McBride: We have to deal with the float issue. Before dealing with the float, we have to deal with the overhang. There're just so many shares there, that it's was problematic in terms of how people viewed the company. When you put a third of your shares on the market, what is the other message you are sending? To be honest with you, my bigger concern right now is that with the thinly traded nature of this company, it could get overheated. I don't want to get this thing on a rollercoaster ride. I want the stock to be an indicator of the company's performance. As we do that, the thing is going to go in the right direction in a very big way.

VB: By the way, what is your market cap?
McBride: We started [Tuesday it was about $8 million to $8.5 million.

VB: Is de-listing a concern?
McBride: Yeah, it is. It's another reason to be aggressive. The biggest factor that helps us avoid the de-listing is getting rid of that overhang. That's top-level priority.

VB: What is the plan for profitability? I know you're awfully new to be asking, but do you have plans internally? Is it fourth quarter this year? Is it still a ways out? Where are you in that?
McBride: I'd have to go back and see what we have said publicly.

VB: Obviously that will have a lot to do with the success you'll have in trying to lift the stock.
McBride: It's interesting. Of all the companies you can bet on today, which ones do you bet on? You have so many options in terms of perceived undervalued companies. I do believe that the companies that operationally get on top of their games can get the biggest benefit the quickest. So I am going to be paying a lot of attention to getting our operational engine running as smoothly as possible.

VB: A lot of companies are wondering, long-term, what real benefit you are getting from the SCO acquisition.
McBride: Well, right now we are getting three-fourths of our revenue, so that's definitely a benefit. We have huge customer accounts, which are great customers, so that's another benefit. Nasdaq, McDonalds, BMW, Target, etc. There are really two sets of customers and they are represented by 1,500 replicated site customers on one hand, and by 15,000 resellers in the SMB market on the other. The opportunity is pretty strong in both of those buckets.

VB: Last question: being a channel guy who has built channel companies and whose company now depends on channel partners, you know firsthand that many of these organizations have struggled. Is that a concern of yours? Do you think this is just a natural shakeout and that as weaker player fall out strong ones will emerge?
McBride: I think the shakeout is positive, probably for everybody though not all of us collectively are enjoying it. As we move forward, my expectation is that things are going to pick up. Those that can hang in are going to be well rewarded.

The Web services opportunity is one example. When you look at what CIOs are talking about for 2004, it's like some ungodly number--80 to 90 percent--are likely to move to some Web services. If you're in a position to take advantage of that, whether you're a supplier or one of the channel players, I believe you are going to be rewarded pretty nicely. We want to take the channel side of this equation and pay pretty top-level attention to it.

You know, Novell always used to talk about how it owned the channel. Well, they had a lot of attention from the channel when their product was hot and they gave them a lot of incentives. When those two things wound down, Microsoft stepped up. We know channel players will be opportunistic and that you have to keep providing value. I believe there is an opportunity at the channel level right now that as we move forward and provide competitive products and provide interesting propositions for the channel, there's tremendous upside to increase that business. I don't believe they have optimized the channel side of the equation since the acquisition of SCO.