Economic Realities Prompt Caldera To Adopt SCO Group as New Name

SCO Group’s decision lifts Unix loyalists, but unsettles some Linux enthusiasts

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Try as it might, Caldera never generated much in the way of Linux revenue. So when the company changed its name to The SCO Group earlier this week at its GeoFORUM conference for reseller partners, it was hardly a surprise that several hundred attendees in the audience stood to applaud the company's decision to re-emphasize its Unix roots.

Who could blame them? By its own admission, The SCO Group says Unix partners have been short-changed over the past few years as Caldera put Linux ahead of everything else. Try as it might to make a fortune around growing Linux popularity, the company has not been able to create a thriving business around the platform. Today, more than 80 percent of The SCO Group's revenue, for example, comes from the sale of Unix products, which include UnixWare and SCO OpenServer. Sales of these products have helped make The SCO Group the leader in Unix on Intel computing.

Despite this, Linux enthusiasts among the fray that I spoke to at the GeoFORUM event in Las Vegas, where I delivered an address on the state of the market, were somewhat rattled by the decision to change the brand and position of the company. Was The SCO Group abandoning Linux, they wondered?

Hardly, says CEO Darl McBride, who took over the company in June and promptly launched a stock repurchase program and reaffirmed the company's commitment to participate in the United Linux initiative. "We're just putting the proper emphasis on the products that generate the bulk of our revenue," McBride says of the name change.

As they have with other CEOs, economic realities have forced McBride to take a hard look at his company. What it is and what it hoped to be are, obviously, two different things. A Lindon, Utah-based company, Caldera was founded in 1994 by Ransom Love and Bryan Sparks. Ostensibly a would-be competitor to Microsoft, Caldera made a name for itself when it prevailed in a marquee legal battle with Microsoft that reportedly netted the company several hundreds of millions of dollars in settlement money. Last year, the company augmented its technology portfolio when it acquired the assets of the Server Software Division and Professional Services Division of The Santa Cruz Operation (SCO).

Since then, Caldera has struggled to find the right balance to its business model and revenue mix. That continued right through McBride's hiring. When he joined the company, one of the things he said he hoped to do was help lift Caldera's market cap to the level enjoyed by Red Hat, the current leader in Linux distributions. (Today, Red Hat boasts a market cap around $820 million. The SCO Group's, in comparison, is more like $34 million.)

Market caps aside, becoming the world leader in Linux distributions must take a back seat, at least for now, at The SCO Group, he says. That's because Linux sales haven't taken off. In fact, overall product sales have sagged for more than a year, resulting in significant restructuring and downsizing. Sales for the third fiscal quarter of 2002 at Caldera, released Wednesday, totaled $15.4 million. That's $3.5 million less than a year ago. For the period, the company reported a net loss of $4.5 million compared to a net loss of $18.8 million one year ago.

Though prospects are bleak for several Linux companies, the plucky SCO Group has more to fall back on. To turn things around, McBride has focused his attention on improving what is generating the most sales. At this week's event, The SCO Group promised Unix fans that it will release new upgrades to the company's two flagship server operating system products over the next six months, SCO OpenServer 5.0.7 and SCO UnixWare 7.1.3. The upgrades will provide new device drivers and USB support, plus new development tools. The SCO Group also announced plans to upgrade SCO Linux 4.0, providing Linux followers something to look forward to, also. That upgrade will include work jointly completed by the company's partners in the United Linux effort, including Conectiva, SuSE and Turbolinux.

Somewhat lost in all the product and branding news this week was a little noticed but potentially significant new initiative from the company, the new SCOx partner program, formerly known as the Caldera Solutions Partner Program. Of particular interest to solution providers: a provision in SCOx that will allow certain solution providers to sell their businesses to The SCO Group.

"With this option, SCOx partners have the option of selling the ASP part of their SCOx businesses to us, which could give them liquidity options provided by no one else in the industry," says McBride.

Even if you're disappointed about the company's shift in direction, you have to give McBride credit for recognizing what the company's current value proposition is. But if the market shifts suddenly to Linux, The SCO Group may find itself having to defend its most recent decisions to emphasize its traditional Unix business. That's the gamble McBride feels he must make, however, to build up the company.

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