SCO Slides Again

Picking on SCO Group (Nasdaq: SCOX  ) is really too easy. Unfortunately, it's also necessary, if only as an ongoing cautionary tale for Foolish investors. This is a business with decent possibilities in the form of its high-margin UNIX business. But bad leadership insists on sticking to a monstrous, bungling, money-burning plan to litigate its way to bigger riches.

I won't bother to rehash all of SCO's claims against IBM (NYSE: IBM  ) , AutoZone (NYSE: AZO  ) , and DaimlerChrysler (NYSE: DCX  ) , nor remind you that, by management's logic, every Linux user in the world owes the firm a licensing fee. See the bottom of this article for links to that material.

Instead, let's just descend into our secret lab and dissect the latest numbers. For the third quarter, revenues fell 46% to $11 million. The bottom line shows net income of $0.38 per share, but don't be fooled by that. Actually, the firm lost $0.37 per share but for the contribution from the fallout resulting of BayStar Capital's investment -- the one that spawned all those conspiracy theories because of an email between the investment firm and someone at Microsoft (Nasdaq: MSFT  ) .

Management was proud to point out that SCOsource took in $678,000 this quarter. That's a 91% drop from last year, but it is better than the absurd $31,000 total from the first two quarters.

However, consider this: SCOsource cost the company more than $7 million dollars this quarter. That's a negative $6.6 million return. How much would you pay for a share of that?

SCO's real problem is that CEO Darl McBride and Co. continue to burn through cash to support losing efforts, such as the abovementioned SCOsource, and the expensive legal battles. True, today's release details an offer to cap legal expenditures at $31 million, but it also means SCO's lawyers will be taking a much bigger chunk of any settlement, leaving shareholders who gamble on that bet with a smaller potential payoff -- and that percentage has not yet been made public.

After dodging a bullet from BayStar -- which forced SCO's hand a few months back because it thinks the firm's only real asset is its long-shot legal claims -- management seems to be fearing for its future. A "shareholder rights" plan was also unveiled today, typical in that it seeks to prevent anyone from taking control of 15% of the firm without running the offer through the board. Of course, as is so often the case, the plan looks more like job protection for a management team that's put this company into a stumbling, deathlike trance.

Fools have had plenty to say about SCO:

Seth Jayson was really hoping for something good to report about SCO, but c'est la vie. He has no position in any company mentioned. View his Fool profile here.


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