SCO Due to Announce Second Straight Loss

FRAMINGHAM (07/25/2000) - More details about the future of The Santa Cruz Operation Inc. (SCO) are expected to be announced later Tuesday when the struggling Unix and Linux vendor announces the financial results for its third fiscal quarter, which the company warned two weeks ago would be much worse than expected.

The Santa Cruz, Calif.-based company may have more than just disappointing numbers to report, however. Along with the warning of a loss that's likely to be more than three times larger than what Wall Street analysts were expecting, SCO two weeks ago said it had hired an investment banking firm to help evaluate its financial options.

Rumors have been circulating that parts of the company could be purchased by Linux rival Caldera Systems Inc. in Orem, Utah. Officials at both SCO and Caldera refused to comment yesterday about a possible deal between the two companies. "At this point, they're just rumors," said a SCO spokesman.

SCO has dominated the Unix-on-Intel market for several years with its OpenServer and UnixWare products. But it has been hurt by the rise of Linux, and in March, SCO reorganized into three independent business -- a move that was widely interpreted by analysts as a possible prelude to the sale of one or more of the company's divisions.

The reorganization created separate units for SCO's server operating systems, its professional services group and Tarantella, a software product that allows browser-based clients to access applications running on Unix systems, Windows NT servers and mainframes. Last week, Caldera and SCO's Tarantella Inc. division announced the first bundling of the Web-enabling software for Linux.

SCO executives are "pretty concerned about the future" of the company's markets and its viability, said George Weiss, an analyst at Gartner Group Inc. in Stamford, Conn. He added that the company's financial troubles appear to be caused by its narrow focus on operating systems and utilities that aren't high-growth products.

SCO also sells mainly to smaller and medium-size companies, Weiss said, while larger users tend to turn to rivals such as Sun Microsystems Inc. or IBM because those vendors offer deeper services, higher performance and greater scalability. Because of its customer base, SCO's opportunities for revenue growth have been "relatively limited," Weiss said.

The financial results are scheduled to be released at 4:15 p.m. eastern time Tuesday, according to SCO. In its July 10 warning, the company said third-quarter revenue would likely amount to between $26 million and $28 million, compared with $57.1 million in the same three months of 1999. SCO's net loss -- its second straight quarterly deficit -- is expected to amount to at least 50 cents per share.

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