SCO predicts a comeback for Unix after 4-year dip

Vendor investment puts its money where its mouth is. Cath Everett in Santa Cruz reports.

The key message to emerge from the Santa Cruz Operation (SCO) Forumn Santa Cruz reports. developers' conference this year was that Unix is not dead and neither is the company, despite what critics might say to the contrary.

While the Unix operating system supplier would appear to have hit hard times over the past couple of years with flat revenues and four years of losses, it is now adamant that it is in the throes of reinventing itself and is implementing a strategy for growth.

Ray Anderson, senior vice president of marketing at Unix, said: 'The core trend for our revenues is flat. The Unixware OEM business is broadly flat, the IXI/Visionware business is broadly flat, the SME business market is a very good one for us and is profitable, but it's also flat. So we're assuming the business will remain as flat as it has been since 1994.'

As a result, there are two areas SCO is investing in heavily. The first is IXI/Visionware, the second is Tarantella, its next generation emulation software which could be spun off as a separate entity.

Doug Michels, SCO president and chief executive, predicted that the Unix industry is likely to keep growing over the next few years, particularly at the high-end market, due to several factors.

'Unix has become more mature, stable and dependable. It may be boring, but that's a good thing because it has become a reliable, ubiquitous system,' he pointed out. 'Maturity is not the same as death. Unix is the dominant platform for relational databases and 55 per cent of the internet is based on Unix, so it is a practicality for businesses needing to deliver mission critical applications.'

Michels claimed Unix would remain at the centre of the transition to network computing, but the market may also get a boost from legacy systems because of the year 2000 problem.

Anderson stated: 'We believe that over the next five years about 20 per cent of the market will move to NT, while about 70 per cent will stay with their existing Unixes.'

On the other hand, Michels also expected users to consolidate their servers into bigger boxes for mission critical applications, something that he claimed only Unix can do.

However, Anderson acknowledged that brand recognition of the SCO name among enterprise customers was low. 'We haven't got a $1 billion marketing budget, so we'll focus on where the highest market uptake will be. We're already in the enterprise market, so we can go back and target customers with particular systems through direct mail and targeted campaigns,' he said.

Meanwhile, to try to back up its move into the enterprise space, SCO is also in the process of building up its professional services organisation to increase activity to meet the demands of that market. Michels said although SCO already had a handful of staff working in this area, it is a very small part of its business.

'If we had to deliver professional services to win a large deal, we would do it out of necessity, but we have to be a lot more willing and able to jump into projects because the enterprise expects you to be there,' he added.

'Revenues are negligible now, but the unit already has a separate profit and loss account and the sales force will now have a quota to sell services, whereas before it was told not to sell them.'

Since April, SCO has reorganised its business model, a move prompted by Michels' assumption of the position of president and chief executive at the start of the year. He has since introduced an executive team and rejigged the company so it has centralised marketing and sales worldwide.

Previously, SCO recognised revenue based on product sold to its distributors.

However, the inventory write-down of $60 million, which resulted in the company making losses last quarter, now enables it to book sales when licences are sold by distributors to resellers, rather than when distributors take them, so ensuring revenues will be more consistent in future.

'Distribution cost us two points of gross margin and we can eliminate half of that with electronic licensing,' Michels argued.