San Jose: SCO Warns of Second Quarter Loss Due to Y2K : LUSENET : TB2K spinoff uncensored : One Thread

Posted at 8:40 p.m. PST Tuesday, March 21, 2000

SCO warns of 2nd-quarter loss due to Y2K, and will restructure

BY CECILIA KANG Mercury News Staff Writer

Software maker Santa Cruz Operation Inc. warned Tuesday that it will report a loss for the second quarter because of Y2K-related sales delays.

The Santa Cruz-based company, which develops a version of the Unix operating system, also said it will reorganize its business to focus on the Internet. SCO said it will operate as three separate divisions: Unix server software; Tarentella, a software program running on servers that allows applications to run on the Web; and Internet services and support.

``We were caught a little off guard,'' said Doug Michels, SCO's chief executive officer. ``Resellers not only stopped installing systems around the end of December, but they also stopped later sales of new systems which disrupted the whole pipeline.''

The company also said fiscal year 2000 revenues and earnings will miss previous estimates. SCO will report full financial results April 25. Analysts polled by First Call expected second quarter income of eight cents a share.

Analysts said companies cut back on technology purchases late last year, fearing computers would incorrectly read the transition to 2000. Instead of buying new software, companies spent much of their 1999 technology budgets for recalibration of existing computer systems to ensure smooth transition into the new year.

Observers questioned the timing of the earnings warning and the announcement to restructure, saying the two statements seem to send different messages.

On the one hand, SCO said its second-quarter slump was temporary and didn't indicate problems within the company. Michels even said that he is encouraged that reseller activity improved in March.

Then in the same breath, SCO said it will restructure to focus more on the Internet.

``The reorganization seems like a knee-jerk reaction,'' said Harry Fenik, executive vice president at Zona Research in Redwood City. ``So while they may have been right in their assertion about Y2K sales slowness, they create an impression that that is a lie and that there is really a disaster going on.''

Jeff Hewitt, an analyst at Dataquest in San Jose, said SCO also faces a major competitive challenge from the much-hyped Linux operating system -- a free, open source operating system that closely resembles Unix. Linux, which for years gained quiet popularity among technicians and educators, has made surprising strides in the low-end server market, where SCO also competes.

In response to the threat of Linux, Michels pushed for investments in Linux companies like TurboLinux, which develops the Linux platform for servers.

``The restructuring will allow them to focus on Linux,'' said Hewitt.

Michels said the restructuring has been in the works for around six months and doesn't reflect larger problems at the software company. He said the company wants to distribute resources of the business so that its server businesses doesn't hoard attention.

-- viewer (, March 23, 2000

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