Santa Cruz Operation Inc chief executive of two years Alok Mohan has brought many changes to the Santa Cruz, California Unix-on-iAPX-86 company, biggest of all of course, the acquisition of UnixWare and the Unix technologies from Novell Inc last year. Mohan is currently in the process of changing the company’s structure, which will be reflected in the way it reports its figures. After the end of the current fiscal year in September, the company will split the figures in three. Santa Cruz is projecting total revenue for fiscal 1996 of $210.2m, according to figures Mohan showed to analysts and investors last week. That’s a 5.47% rise from the $199.3m it reported last year, which was up 8% on 1994. The share price stood at $7 even last time we looked, hardly the stuff of investors’ dreams, but Santa Cruz is not like most $270m-capitalized companies, holding as it does the future of Unix in its hands, even if they are bound tight with Hewlett-Packard Co bonds. Packaged products sold through channels and value-added resellers, basically OpenServer and a little bit of UnixWare, will be one revenue category; it accounted for 88% of revenue last fiscal, and 81% this time. Second comes UnixWare sold through OEM customers, to show the results of the acquisition from Novell, according to the company, with the 5% it gets to keep from the pre-UnixWare deals, and all of any new ones as users convert to UnixWare. Santa Cruz says UnixWare was worth $40m to Novell last year, and will net it $9.4m this year.
Internet
The third group is the company’s new business opportunities: layered products, Internet and client integration. Around a year and half ago these weren’t really in the picture at Santa Cruz, for reasons detailed later. This year they will account for $32.1m, or 15% of revenue, up from 12% in fiscal 1995, but down somewhat from what the company told us a month ago. But this is from a a mere six months’ contribution from the layered products and half that from the Internet. Who knows what the Internet products will contribute next year, including the NC/OS operating system for network computers announced a couple of weeks ago. At one point, the company was going to give it away, before deciding to charge a nominal sum. As for next year’s contribution from Ray Anderson’s client-integration division, it’s not inconceivable that it could double, Mohan said, speaking like the one-time chief financial officer that he is. The client integration technology is based on technology from the acquisitions of Leeds and Cambridge, UK personal computer-Unix communications companies VisionWare Ltd and IXI Ltd in 1993 and 1994 respectively. Mohan was clear where to the blame lies for the company’s mediocre performance of the last few years: It’s not the market that’s the problem, it’s the things we did; we did not recruit resellers and independent software vendors. Windows NT cannot and will not be blamed by Mohan for past failures either, we screwed up and it hurt, he frankly admits. He reckons the US operation is close to resolving the issue, although Europe appears to have a long way to go. More specifically, just two years ago, shortly before Mohan moved up from chief operating officer to chief executive, the company was actually cutting the number of resellers and independent software vendors it used. Soon after it decided there’s never enough. As a result of it’s Big E initiative to get OEM customers to standardize on UnixWare and recruit independent software vendors, Santa Cruz claiming a success rate of 66 out of 100 of the software vendors targeted.
And as of about a month ago, Santa Cruz now hands over all of its leads straight to independent software vendors, and is in the process of handing over the ones generated before that back into the channel. The move to signing up as many partners as possible is motivated by a desire to get a proper piece of the so-called enterprise pie with UnixWare and Gemini, to add to its small and medium business OpenServer cake. Santa Cruz wants to convince people that it is serious about winning the really big Unix customers and intends to use partners wherever necessary to help it achieve this, as well as moving its products to other Unix variants. The number of different partners it has attracted means Santa Cruz now has many more people to please – and potentially a lot more it could upset. Mohan implied this is part of the reason it has been tight-lipped about who is doing what in its Summit 3DA Unix work with Hewlett-Packard Co. Anyway, who wants to commit to dates and specifications two years or more out? True maybe, but we know Mother Hewlett-Packard also doesn’t look too kindly on idle talk. The turnaround in Santa Cruz’s US model was wrought by going to the extent of mail drops with resellers, and the company now holds a quarterly business briefing in 26 US cities to help bring in more partners. And it seems Europe must now do the same to satisfy Mohan. Geoff Seabrook was appointed to run the European, Middle East and Africa regions for Santa Cruz last month to add to his existing responsibilities for Asia-Pacific, all run from his UK office. The company is still looking for a replacement for the Asia-Pacific post, but nothing is expected to happen in the short term, as Santa Cruz wants to get someone from w ithin, and hasn’t got anybody suitable at the moment, according to Seabrook. The French business is said by Seabrook to be doing very well, SCO is Unix in France in many respects, he claimed, while the UK operation is being shaken up a bit, by Mic hele Fitzpatrick, who did the same in France. Seabrook assures us nothing is amiss in the UK; it was just getting a bit too comfortable, he said. Some $106m of the $199m total revenue came from the US last year, with about $93m from Europe. Seabrook points to the client-integration division as another example of how Santa Cruz has changed. Overall, I’m disappointed with Santa Cruz’s performance with VisionWare, he said. The company was used to selling operating systems through a multi-tiered sales model, and tried that with VisionWare and it didn’t work. We had to learn some new tricks, said Seabrook. But when it came to the FastStart Internet bundle Santa Cruz introduced a few months ago – a so-called layered product – which includes Netscape Communications Corp’s server and client software, together with OpenServer or UnixWare and various security and communications bits and pieces, Seabrook said that the company has learned from its mistakes about how to sell the stuff.
Whatever it takes
He added that when Santa Cruz’s operating systems compete head-to-head with Windows NT, the company is not losing that many deals; the problem comes when NT is mandated without Unix being an option, he added ominously. As for the buy-versus-build question, Mohan is open-minded for the future. If the company needs something that somebody else has got, we’re very open to buying technology and companies, said Mohan, whatever it takes. It should perhaps be noted that Santa Cruz’s research and development costs as a proportion of revenue have climbed steadily over the past few years. It was 16% at the end of the last fiscal year, and was 19.6% in the quarter to June 30 this year. Sales and marketing costs fell during the same quarter, but Mohan got probably the loudest cheer of the week when he said marketing expenditure would increase, although he declined to put a figure on it. Santa Cruz is a cash-rich company in relation to its size. It has about $15m net cash at the moment, according to Mohan, hence the share buy-back plans announced recently. The shareholdings make for interesting reading. Apart from the 12% each held by chief technical officer Doug Michels and his father Larry, who were the co-founders back in 1979, a venture capitalist holds around 6%. Microsoft Corp still holds about 11%, having been diminished by the 17% Novell took. The rest is spread around small shareholders and directors. Mohan left his second Forum pleased with his lot. I would not change our strategy one darn bit, he said. And he means it this time.
By Nick Patience
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