SCO expects larger loss, hires investment firm

For the second straight quarter, Santa Cruz Operation (SCO) on Monday warned that its financial results will be worse than expected. And the struggling Santa Clara, Calif.-based company said it has hired an investment banking firm to help evaluate its financial options going forward.

Doug Michels, SCO's president and CEO, said in a statement that the Unix and Linux software vendor is looking at the possibility of a "strategic combination" with one or more other vendors. Investment banker Chase H&Q is being brought on to assist in the process, he added.

SCO was expected to lose money in its third quarter ended June 30. But the company said the loss will be significantly larger than Wall Street analysts were predicting. The net loss now is likely to be at least 50 cents per share, more than three times the average deficit forecast by analysts who were surveyed by First Call/Thomson Financial.

Third-quarter revenues are expected to come in between $26 million and $28 million, compared with $57.1 million in the same three months last year, SCO said. The final results for this year's third quarter are scheduled to be announced July 25.

This will be the second straight loss for SCO, which lost $19.8 million in its second quarter -- a deficit that was increased by charges related to a restructuring and cost-cutting program announced earlier this year.

At the start of the third quarter, SCO officials "expressed concern about the short-term outlook for the Server Software Division and uncertainty about the rate of recovery in our [indirect] channel," Michels said. "Unfortunately, channel recovery from the impact of Y2k has been slow in coming."

He said several big government and corporate deals didn't close as planned in the quarter. In addition, SCO last month stalled the planned launch of its own version of Linux after some of its dealers expressed concerns about the impact that the product could have on sales of the company's other products.

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