I have been digging my way through the 1998/1999 Santa Cruz Operation SEC filings. I came across the 8K filed November 16, 1998 that first mentions the Project Monterey deal, and it has attached to it two press releases as exhibits, one from SCO, oldSCO, and one from IBM. I have marked in colored text the parts that seem most interesting, including an aspect of the deal I'd never noticed before, a mention of IBM's Power architecture, and a NUMA reference.
After reading all the filings, I don't think the SCO (newSCO) version of history we read in their 2nd Amended Complaint against IBM quite matches what I found. For starters, it appears oldSCO was not doing so well financially prior to the alliance with IBM.
First, here is the paragraph from the filing mentioning Project Monterey:
ITEM 5. OTHER EVENTS.
On October 26, 1998, The Santa Cruz Operation, Inc., a California corporation
(the "Company"), and International Business Machines Corporation, a New York
corporation ("IBM"), entered into a Joint Development Agreement (the
"Agreement") which provides for the licensing to IBM of certain operating system
technology, the licensing from IBM of certain operating system technology and
the cooperation between the parties for the development of a UNIX operating
system designed to operate on the 64-bit Intel architecture ("IA-64"). The full
text of the press releases announcing the Agreement are set forth in Exhibits
99.1 and 99.2 attached hereto and are incorporated in this report as if fully
set forth herein.
Notice that there were two parts to the deal? It wasn't just a deal to develop a UNIX operating system for the future 64-bit Intel architecture. There was an immediate licensing of some AIX technology to oldSCO, which is clearly stated in the press releases, below. And when you compare oldSCO's financials pre- and post- this announcement, you will find they went from declines1 and a net loss2 to an upsurge in revenues3, so I can't help but think they benefited from the Project Monterey announcement and the association with IBM right away, even though eventually it was clear that Linux was taking over the market they had hoped to reach with the second part of the agreement. [On the footnotes, you can jump back and forth by clicking on the footnote number.]
Reading the SEC filings makes it so clear that oldSCO was all about working well with Microsoft. Microsoft at the time was a shareholder (12.3%) in Santa Cruz. But the world changed. You first find Linux mentioned in oldSCO's filings as a competitor in 1998 ("Over the past months competition from companies
selling versions of the Linux Operating System has increased.") and in 1999 they started offering Linux services themselves. 4 The world was changing and even oldSCO had to change to meet it. This is before IBM is accused of throwing its support to Linux, by the way. So oldSCO viewed Linux as business competition prior to IBM's 2000 Linux announcement that got newSCO in such a flutter, to hear them tell it. So much for SCO's Linux-was-a-bicycle analogy and only a hobbyists' operating system prior to IBM's involvement.
I also found this intriguing sentence:
year 1996, SCO acquired the UnixWare(R) product line and UNIX system technology
from Novell, Inc." Product line? Technology? That's all they got? There is a mention of "core intellectual property", however, in one filing, see below, which leaves it a toss-up in my mind as to which is correct and what exactly Novell sold to oldSCO.
I also found these telling paragraphs in a 10K for the fiscal year ending September 30, 1998, the Annual Report :
SCO believes, however, that UNIX technology is only the beginning of the
solution, and that considerable value must be added to the basic technology in
order to create a family of products that solve complex customer requirements
for business critical servers. Business and government organizations are
increasingly demanding adherence to standards-based open systems to protect
their computing investment and avoid reliance on a single vendor's hardware or
software. For such customers, the proprietary implementations of the UNIX System
that dominate the technical and scientific workstation market are unacceptable.
These proprietary versions of UNIX systems run on hardware architectures that
are expensive relative to PCs, are tied to the proprietary hardware of
particular vendors and have failed to meet the increasing demand for
hardware-independent, Intel CPU-based systems. Business and government
organizations also require broad availability of third-party applications
software so that they can use predefined solutions and, to the extent possible,
avoid having to develop custom applications. . . .
6) PROVIDING TRUE OPEN SYSTEMS PRODUCTS
Because customers are increasingly reluctant to be restricted to a single
computer vendor, the Company has designed its software products to support
industry-accepted open systems standards. Open systems are those systems which
conform to established industry standards such as I20, XPG-4, Spec 1170, DCE and
OSF/Motif(R) from The Open Group, POSIX(R) from IEEE, Federal Information
Processing Standard (FIPS) from the National Institute of Standards (NIST), and
Internet standards. SCO continuously works with standards organizations such as
The Open Group to assure continued conformance to open systems standards.
Industry standards may be established by organizations composed of vendors, by
government agencies, by academic institutions, or by market acceptance. Industry
standards typically are based on specifications which allow competing
implementations. Because these standards are open, competitors can readily
access the technology to include in their products. . . .
December of 1995, SCO purchased the UNIX Systems technologies from Novell, Inc.
and is now a primary driving force behind this open systems platform. . . .
Over recent years, operating systems such as GNU, Linux, FreeBSD and others
developed using collaborative and "open source" techniques have gained
popularity with highly technical users, and some integrators. Some of SCO's
competitors may exploit this technology to build competitive products, or the
market for SCO's products may be reduced by either technical users using these
products or the products becoming easier to use and more stable. . . .
The Company's strategy is to offer products that conform to industry standards.
Industry standards may be established by organizations composed of vendors, by
government agencies, by academic institutions, or by market acceptance. Industry
standards typically are based on specifications for which there can be competing
implementations. Because standards are open (not proprietary), competitors can
readily access the technology to include in their products, and SCO does not
believe that offering products conforming to industry standards will provide SCO
with a competitive advantage. . . .
In addition, SCO is working with The Open Group, a major
international standards group, to support the implementation of standard
application programming interfaces (APIs) that will support applications
compatibility across different versions of UNIX systems. To date, SCO and other
major UNIX vendors have adopted varying schedules for compliance with these API
specifications, and there can be no assurance this effort will be successful. . . .
The Company attempts to protect its software with a combination of copyright,
trademark, and trade secret laws, employee and third-party nondisclosure
agreements, license agreements, and other methods of protection. Despite these
precautions, it may be possible for unauthorized third parties to copy certain
portions of the Company's products or reverse engineer or obtain and use
information the Company regards as proprietary. While the Company's competitive
position may be affected by its ability to protect its intellectual property
rights, the Company believes that trademark and copyright protections are less
significant to the Company's success than other factors, such as the knowledge,
ability, and experience of the Company's personnel, name recognition, and
ongoing product development and support.
The Company's software products are generally licensed to end users on a
"right-to-use" basis pursuant to a perpetual license. The Company licenses its
products to end users primarily under "shrink-wrap" license (i.e., licenses
included as part of the product packaging). Shrink-wrap licenses, which are not
negotiated with or signed by individual end-user licensees, are intended to take
effect upon opening of the product package. Certain provisions of such licenses,
including provisions protecting against unauthorized use, copying, transfer, and
disclosure of the licensed product, may be unenforceable under the laws of
certain jurisdictions. In addition, the laws of some foreign countries do not
protect the Company's intellectual property rights to the same extent as do the
laws of the U.S. . . .
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid - . . .
Purchase of UNIX assets with common stock -- 43,773 . . .
NOTE 14 - ACQUISITIONS
In December 1995, the Company acquired from Novell certain assets
related to UnixWare including the core intellectual property. The consideration
consisted of 6,127,500 newly issued shares of non-registered common stock.
Additionally, cash payments to Novell with a present value of $84 million will
be paid periodically by SCO provided certain unit volumes of UNIX distribution
are achieved. To date, distribution unit volume of UNIX has not reached levels
which have required the Company to make cash payments to Novell. Such payments
terminate at the end of calendar year 2002.
Here are the press releases that spell the point out about the two parts to the deal even more clearly. None of this should be news to newSCO's R. Duff Thompson, since he was on the Board of Directors of Santa Cruz Operation, oldSCO. Of course, newSCO tells it that he was on the Board of Tarantella. The nice thing about SEC filings, though, is they never disappear and history never gets smoothly rewritten.
PRESS RELEASE DATED 10/26/98
Monika Laud, SCO
SCO AND IBM FORM BROAD STRATEGIC ALLIANCE
SCO'S UNIXWARE 7 BECOMES KEY MEMBER OF IBM'S NEW UNIX PRODUCT LINE; ISVS AND
CUSTOMERS TO BENEFIT FROM SINGLE INDUSTRY-STANDARD UNIX PLATFORM THAT SPANS
ENTIRE ENTERPRISE ENVIRONMENT
SANTA CRUZ, CA (OCTOBER 26, 1998) - SCO (NASDAQ:SCOC) today announced that it
has entered into a strategic business agreement with IBM (NYSE:IBM). SCO and
IBM, in collaboration with Intel and other key partners, will aggressively
accelerate worldwide growth of Intel processor-based UNIX servers for the
enterprise, and will deliver a single UNIX product line for today's Intel IA-32
systems and future IA-64 systems. The result will be a single product line that
will run on IA-32, IA-64 and IBM microprocessor systems that range from entry-
level servers to large enterprise environments.
Under the new agreement, IBM will make SCO's UnixWare 7 its 32-bit UNIX
operating system for the high-volume Intel-architecture enterprise market. IBM
will apply substantial resources to promote and sell the UnixWare 7 operating
system worldwide, and will offer it as a member of its new UNIX product line.
In addition, IBM will contribute AIX technology to SCO's UnixWare to enhance its
scalability and enterprise capability. This will complement the data-center
engineering collaboration by SCO's OEM partners (Compaq, Data General, ICL and
Unisys) to integrate extensive data-center capabilities into the UnixWare
platform. IBM is also allocating engineering resources to ensure the
availability of IBM and AIX middleware on the UnixWare platform.
Over time, SCO and IBM will increase compatibility between UnixWare and AIX,
providing ISVs a single platform to port to for UNIX systems on Intel and Power
processors, while giving enterprise users greater choice and opportunity in
utilizing key applications.
Furthermore, SCO and IBM's 64-bit development teams are collaborating to develop
a 64-bit UNIX operating system. The companies are working closely with ISVs to
make it the industry-standard UNIX system on IA-64. SCO will handle general
channel distribution for the jointly developed product.
"We are extremely pleased that IBM is making this strong commitment to SCO, and
has taken action to immediately begin selling and supporting UnixWare 7 through
its worldwide sales force," said Doug Michels, president and CEO, SCO. "And
since applications are the key to the success of both a platform and its users,
SCO is especially excited to be working with IBM and Intel to make it easy and
attractive for ISVs to create software for a single target UNIX System
environment that covers the entire range of enterprise computing."
"IBM's AIX enterprise technology when combined with UnixWare's technology and
SCO's market share leadership will create the high-volume platform for Intel-
based servers," said Dr. John E. Kelly III, vice president of Server Development
at IBM. "With Intel's support, this platform will become the leading UNIX
operating system for Intel-architecture based servers."
IBM joins other leading OEMs committed to selling UnixWare 7 into enterprise
environments of all kinds. IBM will apply significant sales and marketing
resources to drive UnixWare 7 volume in the enterprise.
In addition, IBM and Intel will drive a substantial ISV recruitment program
designed not only to increase the number of applications available for UnixWare
7, but to also make UnixWare 7 a top tier port with all key ISVs. IBM will begin
immediately by moving a broad range of IBM and AIX middleware to UnixWare 7.
"Intel strongly supports this product line as the leading UNIX for IA-32 and IA-
64," said John Miner, corporate vice president and general manager, Enterprise
Servers Group, Intel Corporation. "Intel is working with IBM and SCO to make
this the first UNIX port and volume leader with all ISVs."
Visit http://www.sco.com/monterey and http://www.ibm.com/servers/monterey for
more information on today's announcement.
SCO is the world's number one provider of UNIX server operating systems, and the
leading provider of network computing software that enables clients of all kinds
- - including PCs, graphical terminals, and NCs - to have Webtop access to
business-critical applications running on servers of all kinds. SCO designed
Tarantella software, the world's first application broker for network computing.
SCO sells and supports its products through a worldwide network of distributors,
resellers, systems integrators, and OEMs. For more information, see SCO's WWW
SCO, The Santa Cruz Operation, the SCO logo, SCO OpenServer, Tarantella, the
Tarantella logo, and UnixWare are trademarks or registered trademarks of The
Santa Cruz Operation, Inc. in the US and other countries. UNIX is a registered
trademark of The Open Group in the US and other countries. Java, Java Studio,
Java Workshop, Sun, and Sun Microsystems are trademarks or registered
trademarks of Sun Microsystems, Inc. in the US and other countries, and are used
under license. All other brand and product names are or may be trademarks of,
and are used to identify products or services of, their respective owners.
PRESS RELEASE DATED 10/26/98
IBM LAUNCHES MAJOR UNIX INITIATIVE
Significant support from SCO, Sequent, Intel and OEMs
SOMERS, N.Y., October 26, 1998 . . . IBM today announced a major UNIX operating
system initiative with a number of industry partners. This initiative will
create a high-volume platform that will expand business opportunities for ISVs
As part of this initiative, a UNIX operating system will be developed for
Intel's IA-64 using IBM's AIX operating system's enterprise capabilities
complemented with technology from SCO's UnixWare and Sequent's PTX operating
system. IBM will also transfer AIX technology to SCO's UnixWare and promote the
offering in the UNIX on IA-32 market. The result will be a single UNIX operating
system product line that runs on IA-32, IA-64 and IBM microprocessors, in
computers that range from entry-level to large enterprise servers.
IBM will make significant investments to make this the leading UNIX operating
system. IBM's investments will be directed at: porting IBM's middleware
portfolio; operating system development to exploit Intel IA-32 and IA-64 and
IBM's Power architecture; and investments in technical and marketing support for
Intel is providing substantive technical and marketing support to make this
operating system the leading UNIX for Intel platforms. IBM and Intel are
creating a multi-million dollar ISV fund for this UNIX. This will help software
companies deliver middleware tools and application programs for this UNIX
In support of this initiative, IBM has forged alliances with SCO and Sequent,
and has gained support from leading OEMs and ISVs.
SCO, the market share volume leader of UNIX operating systems, and IBM will
collaborate to accelerate enhancements to SCO's UnixWare product for IA-32.
Also, SCO and IBM will work together to co-develop and market this UNIX for the
IA-64 based market.
Sequent, the leading provider of high-end, Intel-based UNIX systems, will be a
co-developer, contributing its cc:NUMA technology and Intel architecture
"The combination of IBM's enterprise expertise and software, SCO's shrink-wrap
UNIX expertise and channels, Sequent's system expertise on IA, and the price-
performance benefits of Intel architecture will make this a high-volume UNIX
leader," said John Miner, vice president and general manager of Intel's
enterprise server group. "Intel strongly supports this software initiative, and
will work with IBM and SCO to make this the first UNIX port for all computer
manufacturers and software developers."
"We're extending into broader markets with our award-winning AIX software that
delivers the reliability and security required of an enterprise-class operating
system," said Bob Stephenson, senior vice president, IBM Server Group. "Working
with these companies, we're capitalizing on the base of proven leadership
technologies to deliver the world's best UNIX on Power microprocessor and high-
volume Intel microprocessor systems."
"SCO is delighted to be at the heart of this major announcement," said Doug
Michels, SCO's CEO. "It's a great opportunity to take SCO's products to a new
range of enterprise customers. Customers can now deploy major applications on
both 32-bit and 64-bit technology, with the volume economics of a reliable,
scaleable UNIX-on-Intel. We see this collaboration with IBM -- the company that
invented enterprise computing -- and Intel, as a major benefit for our
customers, OEM partners, and ISVs."
"Sequent is committed to delivering our customers the industry's leading UNIX
for IA-64 with the introduction of Merced-based systems. The AIX partnership
provides the clear choice, combining proven technology, tremendous resources and
unprecedented industry support," said Casey Powell, chairman and CEO of Sequent.
A number of computer systems manufacturers announced their plans to use the new
UNIX software. They include Acer, CETIA (a subsidiary of Thomson-CSF), Groupe
Bull, ICL, Motorola Computer Group, and Unisys Computer Systems.
Leading software companies announced their support for the new UNIX software.
They include BEA Systems, BMC Software, Data Pro Accounting Software, Informix,
Infospace, Micro Focus, Netscape, Novell, Pick Systems, PeopleSoft, Progress
Software, Real World, Risk Management Technology, Software AG, SAS Institute and
IBM also announced it will deliver its software products, such as the DB2
database program, on the SCO UnixWare software.
UNIX is a trademark of The Open Group
All other trademarks are the property of their respective companies.
1"Net revenues for the three months ended March 31, 1998 were $50.5 million as
compared to $54.1 million for the same period in fiscal year 1997. For the six
months ended March 31, 1998, net revenues decreased 11% to $98.0 million from
$110.7 million in the six months ended March 31, 1997."
2 "The Company reported net losses of $14.7 million, $15.2 million and $22.4
million in fiscal 1998, 1997 and 1996, respectively."
3"Net revenues for the three months ended June 30, 1999 increased 126% to $57.1
million from $25.2 million in the same period in fiscal 1998. For the nine
months ended June 30, 1999, net revenues increased 34% to $165.5 million from
$123.3 million for the nine months ended June 30, 1998."
4"The Professional Services
division of SCO offers a series of Linux-related services to help enterprise
customers evaluate and manage the cost, benefits and risk of Open Source
technologies. These new services are part of SCO's ongoing strategy to fully
support the increasingly popular network computing model, which favors
heterogeneous client devices and application environments from multiple vendors."