Does Santa Cruz Operation Inc have a future? It hasn’t had a profitable year since 1994 and yesterday the Unix shop took the action it had warned of following its disappointing second quarter (CI No 3,149), axing 10% of its workforce, or some 120 staff, including 15% of its executive roster. The company will take a hit of $8m in its third quarter to the end of June to cover the cost and will reduce other unspecified fixed assets and costs. SCO also says it will reduce channel inventory through the quarter as it increases electronic sales of its products which will also hurt revenue in the short term. SCO says it does around 10% of sales electronically, though that’s obviously not its operating system products. SCO’s trying to reach the point where it is competitively profitable at its current revenue rate: second quarter net profit was down 67% at $974,000, on revenue that rose 7% to $54.1m. That’s not factoring in revenue from its much-touted but still unproductized any-application-to-any-client Tarantella technology which the company hopes will make it to market before Labor Day. If it does, there should be a much swifter increase in profit. SCO says the net savings of the reorganization won’t be fully felt until the fourth quarter, but it wouldn’t say whether it will show a profit for the year. To try and bolster its share price – down just over $1 at $4.25, not far short of its 52-week low at close on Wednesday – SCO says it will buy back a further two million shares in addition to the 5% of stock it said it would repurchase last August. We don’t know how many it has actually repurchased since then but the company now has 36.6 million shares outstanding compared with 39.4 million back then. Analysts surveyed by First Call had been looking for earnings of $0.09 in the third quarter and $0.12 for the year. Unix-on-Intel company SCO supplied 35% of all Unix server shipments in 1996 according to IDC, and SCO claims server software ships are up 30% in the first two quarters of 1997 over 1996.
Whipping boy
The company points to the departure of operating system development boss Scott McGregor as the jumping-off point for the current reorganization and merging of formerly separate products development and marketing teams, a move McGregor is said to have opposed. The recent realignment of SCO’s two technology development and marketing streams into a single unit under founder and CTO Doug Michels (CI No 3,169), was just a foretaste of yesterday’s events. Ray Anderson, now SVP marketing products division, has been given responsibility for all marketing in the products division and reports to Michels. Gary Daniels is now VP platform technology group and responsible for much of the operating system work McGregor oversaw. David McCrabb, former VP marketing for the Americas and once of NCR Corp has been made SVP market planning – but with apparently no staff- (we wonder why) reporting, along with Michels, to chief executive Alok Mohan. Ed Adams is acting VP marketing Americas. Most of SCO’s European and other international management stays in place, though we hear European OEM honcho Hugh Rocks has been given the heave-ho. Other notables also out are standards guy Tim Butler and Gemini developer Art Hertzog. Although SCO laid some of the blame for its poor second quarter at the fashionable whipping boy (Europe’s) door, European SCO executives we spoke to claim their group contributes more to the company’s profit line in terms of its size compared with SCO’s other units. Interestingly, while SCO’s US management was telling us that it does most of its electronic sales in Europe, its European people told us they don’t do much of that at all over there. News of the reorganization was made known internally on Tuesday and we’re told that some long-time Unix stalwarts were asked to leave immediately. Although folks seem happy McGregor has gone, they’re supposedly now afraid of Doug [Michels]; he’s on the rampage. Some changes in direction seem more ego-driven than rational. Plus ca change. The whole deal begs the
question of why Mohan is still at the helm of a public company when typically a technology CEO can expect a short tenure if the balance sheet isn’t made to look healthy and the share price isn’t rising within a relatively short space of time. SCO hasn’t had a profitable year since Mohan’s arrival at SCO as CFO in May 1994 from NCR Corp; he made CEO just about a year later. The answer, insiders say, is probably because SCO has few of the institutional investors who generally require impressive short term results.
