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SCO: A Hefty Payout Could Be Due


In less than a month, an earnings surprise lofted shares of SCO Group (SCOX) -- from 3.55 in mid-May to 8.65 on June 11. Instead of the expected quarterly loss, SCO, formerly Caldera International, earned $4.5 million, or 33 cents a share, vs. last year's 47 cents loss. Moreover, some think SCO, a provider of Unix-based software and owner of the license to distribute the Unix platform, will get a windfall from a $1 billion lawsuit it filed in March against IBM. SCO, which licenses Unix software to thousands of companies, including Microsoft and Sun Microsystems, charges that IBM violated its pact with SCO by using Unix trade secrets in developing products based on the freely available Linux systems. The law firm of David Boies is representing SCO. The suit has wide ramifications: SCO CEO Darl McBride contends that Linux infringes on Unix' intellectual property. Jonathan Cohen of JHC Capital Management, who is buying shares, says that even if SCO settles for just 10% of the $1 billion, "the impact on the bottom line of SCO, with a market cap of just $115 million, would be huge." Settlement or no, SCO is on track to generate earnings in fiscal 2004 (ending Oct. 31) of $13 million, or $1.30 a share, says Cohen, who sees SCO doubling in 12 months.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them. By Gene G. Marcial


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