Unix operating systems vendor The Santa Cruz Operation finished off its fiscal 1999 with its fifth consecutive quarter of strong growth across the board. Revenue for the quarter reached $58.1m, 20% up on the same quarter last year, and net profit was $5.4m, over 100% up from last time’s $2.6m. Earnings per share came in a $0.14, just above analyst expectations of $0.13. For the year, SCO’s revenue grew 30% to $223.6m, compared with $171.9m last year, and the net profit for the year was $16.9m, compared with a net loss of $14.7m for fiscal 1998, and a $15.2m loss the previous year. Until now, SCO had been reporting yearly losses since fiscal 1995, the year it acquired the UnixWare product line from Novell Inc.
SCO’s CEO and co-founder, Doug Michels, called the year a turning point and the beginning of very strong ongoing business. European sales were particularly strong. Gross margins were up to 79.4%. And the company ended the year with $62m in cash and short-term investments, the most cash in hand it’s ever had.
After four years, said Michels, SCO is finally seeing the benefit of its UnixWare investment, with strong sales of the latest version, Release 7.1, which added improved performance, better scalability and clustering. SCO’s older OpenServer mainstream product line, however, also continued to grow throughout the year. Michels said he expects an eventual migration to UnixWare, but no immediate slackening on interest. IBM Corp is working on a joint sales and marketing program with SCO to boost sales of UnixWare on its Netfinity line of Intel-based servers. Meanwhile Compaq Computer Corp is using the appliance-oriented version of UnixWare for its NeoServer appliances, and SCO has a similar deal with Micron Electronics Inc for its NetNow appliance products and services. SCO says it will move its NonStop Clusters software, developed in conjunction with Compaq’s Tandem division, beyond Compaq and into the general OEM marketplace next year.
Meanwhile, SCO is investing in its future with the Monterey port of Unix to the IA-64 architecture, carried out in collaboration with IBM, and with its attempts to establish new line of businesses around the Tarantella web-enabling software line and a new services organization. Monterey is on track, according to Michels, and is up and running on early Itanium silicon, running both 64-bit native applications and 32-bit UnixWare binaries. SCO isn’t likely to recoup its investment in Monterey for a number of years yet, however.
More immediate is the Tarantella business, the first benefits of which are now beginning to show up on SCO’s bottom line. IBM and Compaq are both showing an interest in Tarantella, with IBM choosing it as a component of its service provider initiative, announced yesterday (see separate story). Compaq is working on joint deals with SCO aiming at telecoms companies. Version 1.4 of Tarantella began shipping in September, filling in some essential technical gaps, and Michels says the first major orders are now ready to go. He claims 50 major accounts are now in an active stage of deployment or pilots with Tarantella. But like UnixWare, Tarantella has been slower to take off than originally predicted, due to long sales cycles and continuing product evolution.
SCO also expects to be earning some $50m per quarter in service related revenue by the second half of next year. It’s concentrating on services for open source users, and earlier this month has invested in Linux portal site LinuxMall, a major reseller of the Linux operating system. Yesterday, SCO agreed to provide Linux professional services to customers of TurboLinux Inc, formerly known as Pacific HiTech. TurboLinux specializes in deploying web farms of Linux servers for ISPs. Services and maintenance revenue currently accounts for only 5% of overall SCO revenue.
Despite Michel’s predictions of strong business ahead, SCO is being cautious about predictions for next year. John Luhtala, senior VP of operations and chief financial officer, said he expects revenue in the range of $250 to $255m base case for fiscal 2000. That doesn’t take into account significant revenue from Tarantella, which SCO hopes to see this year but isn’t yet prepared to predict.
