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AutoZone Will File to Correct SCO's "Material Misstatements"
Friday, June 03 2005 @ 02:15 AM EDT

This isn't a surprise, not after reading SCO's Report Regarding Discovery in the SCO v. Autozone case yesterday: AutoZone has issued a statement that it will file a document to correct the record in SCO v. AutoZone:

"AutoZone will file a response with a court to correct the record regarding what we believe to be material misstatements contained in the recent SCO filing," AutoZone spokesman Ray Pohlman said in a statement.

Them's fightin' words. If there are material misstatements, it's of note that there is a similar paragraph about the AutoZone case in an 8K filed with the SEC June 1st.

Here's what SCO says about the AutoZone case in the 8K, and it's essentially what Darl McBride read in the financial conference call this week too:

The Company has concluded the initial discovery allowed by the court and filed its report with the court on May 27, 2005. Contrary to AutoZone's own statements to the court, the Company found through discovery, including depositions and other admissions of AutoZone, many instances of copying of programs containing SCO OpenServer code. AutoZone has represented that it has now removed all of the SCO code and proprietary information it copied or used in its migration to Red Hat Linux. Because AutoZone represents it has removed or otherwise is not using SCO code and proprietary information, the Company currently does not intend to move for a preliminary injunction. AutoZone does not admit that it violated the Company's rights or caused the Company damage in that migration process, which are still points of dispute between the parties. Given the stay issued by the court in the case, the Company reserves the right to pursue infringement and damages in the future based on these issues and other issues stayed by the Court.

Matt Whipp, in PCPro's coverage of the financial conference call, notes that while Darl McBride speaks positively about SCO's Unix business, a recent SEC filing indicates that the company expects Unix to continue to decline in the marketplace.

Analyst Gary Barnett of Ovum says SCO's Unix business is in "a steady but terminal decline":

Notwithstanding the caveat that anything can happen in a courtroom, we believe that it is extraordinarily unlikely that SCO will prevail.

The apparently significant reduction in the company's net losses belies the fact that SCO over the first six months of this fiscal year the company has spent $1million less on R&D and nearly $4million less on sales and marketing. While this might be characterised as prudent cost management we think it signifies the fact that SCO's primary mission is not the development and sale of Unix and that the company sees relatively little up-side in competing with Linux anywhere but in the courts. . . .

We believe that the most likely outcome in SCO's case against IBM is failure and our advice to existing users of SCO's technology is to make plans to migrate away from it.

There is another new SEC filing, POST-EFFECTIVE AMENDMENT NO. 2 TO FORM S-3 ON FORM S-1, also filed on June 1st, in which SCO says this:

The success of our UNIX business will depend on the level of commitment and certification we receive from industry partners and developers. In recent years, we have seen hardware and software vendors as well as software developers turn their certification and application development efforts toward Linux and elect not to continue to support or certify to our UNIX operating system products. If this trend continues, our competitive position will be adversely impacted and our future revenue from our UNIX business will decline. The decline in our UNIX business may be accelerated if industry partners withdraw their support from us for any reason, including our SCOsource initiatives.

If the market for UNIX continues to contract, our business will be harmed.

        Our revenue from the sale of UNIX products has declined over the last several years. This decrease in revenue has been attributable primarily to increased competition from other operating systems, particularly Linux. Our sales of UNIX products and services are primarily to existing customers. If the demand for UNIX products continues to decline, and we are unable to develop UNIX products and services that successfully address a market demand, our UNIX revenue will continue to decline, industry participants may not certify to our operating system and products, we may not be able to attract new customers or retain existing customers and our business and results of operations will be adversely affected. Because of the long adoption cycle for operating system purchases and the long sales cycle of our operating system products, we may not be able to reverse these revenue declines quickly. . . . Revenue from our UNIX business decreased by $2,577,000, or 23 percent, for the first quarter of fiscal year 2005 compared to the first quarter of fiscal year 2004. The revenue from this business has been declining over the last several quarters primarily as a result of increased competition from alternative operating systems, particularly Linux. If revenue from our UNIX business continues to decline and we are unable to generate positive cash flow, our UNIX business will be adversely impacted.

        We have decreased our operating costs and increased our gross margin percentage. Operating costs for our UNIX business decreased from $11,085,000 for the first quarter of fiscal year 2004 to $7,038,000 for the first quarter of fiscal year 2005. These cost reductions have primarily been attributable to reduced headcount and continued operational efficiencies generated in our UNIX business as well as from the consolidation of certain facilities.

        In our UNIX business, we have reduced the number of full-time equivalent employees from 292 as of January 31, 2004, to 165 as of January 31, 2005. We have taken these headcount reductions and reduced other discretionary spending while still maintaining a worldwide presence. Based on our cost-cutting actions, we anticipate that our UNIX business will continue to generate positive cash flow throughout fiscal year 2005.

The decrease in revenue in the UNIX business of $2,577,000 for the first quarter of fiscal year 2005 compared to the first quarter of fiscal year 2004 was primarily attributable to continued competition from other operating systems, particularly Linux. We anticipate that for the remainder of fiscal year 2005 our UNIX business and the related revenue from the UNIX business will face significant competition from Linux and other operating systems.

        Sales of our UNIX products and services during the first quarter of fiscal year 2005 were primarily to pre-existing customers. Our UNIX business revenue depends significantly on our ability to market our products to existing customers and to generate upgrades from existing customers. Our UNIX revenue may be lower than currently anticipated if we are not successful with our existing customers, or if we lose the support of any of our existing hardware and software vendors or our key industry partners withdraw their marketing and certification support or direct their support to our competitors. This may occur as a result of the decline of our UNIX business and our SCOsource initiatives.

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