SCO Reorganizes, Issues Profit Warning

The Santa Cruz Operation (SCO) warned investors yesterday that sales will be below analysts' estimates for its second quarter ended March 31. A reorganization aims to increase investment in the company's Tarantella software and in Linux -- and reduce expenses in the company's core Unix server business. The California-based company expects to report "significant losses" after reorganization costs.

SCO is blaming Y2K-related delays "and other effects" for the shortfall, according to a statement. "I am disappointed that the market for our Unix server software has not recovered as quickly as we expected following the Y2K period," said Doug Michels, SCO's president and chief executive officer, in a statement. Michels said that reseller activity has begun to return to previous levels.

SCO will be restructured into three divisions: Server, Tarantella and Professional Services.

Tarantella is a server product that allows browser-based clients to access applications running on Unix servers, NT servers and mainframes. It competes with Citrix Systems's MetaFrame. The new company structure will allow the product to be marketed and sold more effectively, said Mike Orr, who will serve as president of the Tarantella division. Orr said that Tarantella "needed more sales and marketing attention" than it was getting in the old structure.

The new structure will also make it easier for each division to pursue the Linux market, said Orr. The company has already announced significant steps in the Linux market, including professional services and a version of Tarantella for Linux.

Orr said the company now intends to take portions of its UnixWare operating system and market them as layered products on top of other Unix versions and Linux. "That way, we get a bigger market for each product individually," said Orr. Programming interfaces for SCO UnixWare and Linux will be "virtually identical," he said, and "increasingly, we will not care which one you use."

Orr did not say how these changes in plans and in structure will affect Project Monterey, the company's joint effort with IBM to develop a 64-bit Unix system for Intel Corp.'s IA-64 architecture based on UnixWare and IBM's AIX technologies. He did say that a major announcement concerning Monterey is due in May.

SCO will report its quarterly results at the end of next month. The company now expects that revenue for its fiscal year will be "significantly lower" than the original estimates of $250 million in revenue and 60 cents earnings per share.

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