SCO lays off 19 per cent of its staff

Battered recently by lower-than-expected revenues and earnings and a sell-off of two of its units last month, The Santa Cruz Operation Inc. (SCO) has announced it will lay off 19 per cent of its workers.

The Santa Cruz, Calif.-based company said it will cut 190 employees to prepare for the pending acquisition agreement with Linux vendor Caldera Systems Inc. in Orem, Utah. That agreement is still awaiting shareholder and regulatory approvals.

The two companies worked together to identify the staffing needs of the new companies, leading to the layoff announcement.

“In order to be successful, we have to make some tough decisions,” said Doug Michels, SCO’s CEO, in a statement. “This reduction will lower expenses to better reflect SCO’s recent performance in our server software and professional services divisions.”

“I believe that [these] actions, as painful as such reductions always are, will pave the way for the creation of two world-class, high-growth, pure-play software companies that are leaders in serving their respective markets,” Michels said.

He said SCO will work to help the laid-off workers find new jobs.

Last month, Caldera and SCO announced that Caldera would purchase SCO’s server software and professional services divisions, leaving SCO with its Tarantella Web-enabling software division. SCO also announced it will be changing its name to Tarantella Inc. to reflect the new focus of its business.

SCO said it will take a one-time charge estimated to be between US$5 million and US$6 million as a result of the layoffs.

Eric Klein, an analyst at The Yankee Group in Boston, said the layoffs don’t necessarily mean there should be new concerns about SCO, which has suffered from several disappointing quarters in a row.

“I personally think that the new company does have a lot of potential in the market. What SCO does own with its Tarantella platform and its Web-top offerings have always been very interesting,” Klein said. “I just don’t think they’ve caught on.

“The technology they possess is quite good,” he said. “So it’s a matter of execution, and maybe Caldera will help them do that.”

SCO’s fiscal third-quarter earnings and revenue were down substantially from 1999, apparently putting the company under pressure to make its recent moves.

Third-quarter revenue was US$27 million this year, compared with US$57.1 million last year in the same period. The net loss for the third quarter this year was US$19.2 million, or 54 cents per share, compared with US$4.5 million, or 32 cents per share, in the same quarter last year.

SCO had dominated the Unix-on-Intel market for several years with its OpenServer and UnixWare products. But it had been hurt by the rise of Linux. In March, SCO reorganized into three independent business, a move that was widely interpreted by analysts as a possible prelude to the sale of one or more of the company’s divisions.

The reorganization created separate units for SCO’s server operating systems, its professional services group and Tarantella, a software product that allows browser-based clients to access applications running on Unix systems, Windows NT servers and mainframes.