SCO sends notices to 6,000 Linux licensees

The SCO Group announced Monday that it has begun sending written notices to its 6,000 Unix licensees requiring them to certify that they are in full compliance with their Unix source code agreements and aren't using Unix code in Linux.

In addition, SCO said it is sending a second set of letters outlining additional evidence of copyright infringement to a subset of 1,500 global Linux users that SCO first contacted in May about copyright infringement. And the company predicted that it could spend up to US$16 million in its current fiscal year on legal fees associated with its legal fight over Linux.

Chris Sontag, senior vice president of SCO, said the notices "formally communicate to Unix source code licensees and certain commercial Linux end users that they must utilize SCO intellectual property within the bounds of their existing legal agreements and the Digital Millennium Copyright Act."

SCO also announced its first full year of profitability today, reporting $5.3 million in net income for fiscal 2003, which ended Oct. 31, despite legal fees paid out to wage its Unix copyright fight. That fight began when SCO in March filed a $1 billion lawsuit against IBM for allegedly breaching its Unix licensing contract.

The company would have reported net income of $14.3 million for the year had it not reported a charge of nearly $9 million to pay law firms involved in the lawsuit and related efforts to "enforce its intellectual property rights," SCO officials said in a statement today.

The profit for the year came on $79.3 million in revenue, up 23 percent from $64.2 million in the prior year.

For the fourth quarter, SCO reported $24.3 million in revenue, a 57 percent increase over revenue of $15.5 million for the same quarter a year earlier. The fourth-quarter revenue included $14 million from sales of Unix products and services, with an additional $10.3 million from licensing agreements with Microsoft and Sun Microsystems signed earlier in the year. The $9 million charge for legal fees kept the fourth quarter in the red; the company reported a net loss of $1.6 million but said it would have seen net income at $7.4 million without the legal expenses.

SCO CEO Darl McBride noted that the company's financial position has been strengthened by a $50 million investment in SCO by BayStar Capital. Accounting for that investment had delayed the release of the yearly and quarterly financial results by two weeks.

McBride said SCO closed fiscal 2003 with $64 million in cash, which gives SCO "the resources and the flexibility to both enforce and protect its Unix intellectual property and expand its core business."

For the current quarter, which ends Jan. 31, the company expects total revenue to be between $10 million and $15 million, in line with the same quarter last year. The company also said expenses will rise in fiscal 2004 from SCOsource initiatives as the company "expands the scope of its legal strategy to enforce and protect its Unix intellectual property."

In a conference call today with analysts and reporters, SCO officials predicted that spending on legal fees will rise by as much as an additional $2 million per quarter in fiscal 2004, up from legal spending in fiscal 2003 of $2 million to $3 million per quarter.

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