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Visions of Ka-ching Dance in Their Heads
Tuesday, September 23 2003 @ 09:18 PM EDT

When SCO CEO Darl McBride wrote his open letter last week, he seemed to indicate a hope there could be a viable future partnership between his company and Linux. There is more than a hint as to what that partnership might be like in two research papers prepared back in March and April by Renaissance Ventures, a VC firm that invested in SCO.

The first document is an explanation of Renaissance's reasons for thinking SCO was a good investment. I know you've been wondering what in the world those folks in the stock market have been thinking. The second is an analysis of the SCO v. IBM lawsuit. They are both so blazingly wrong in both facts and conclusions that I fully grasp for the first time how some people may have invested in SCO, based on such misinformation.

First, the investment document. It is based on SCO's telephone conference call in February of 2003. You can listen to it yourself on mp3 here. Renaissance thought it sounded like SCO's bottom line was about to get "prettier" because they believed what SCO reportedly told them in that phone call, namely that most companies were reacting to the new SCOsource licensing program in a positive way.

Renaissance also bought the story -- hook, line and sinker -- that SCO owned the UNIX tree trunk, so to speak, and that all other versions of Unix were branches, or derivatives, off of their tree, including, so they imagined, Linux. (I'm using their language, by the way. They actually mean GNU/Linux, the kernel plus the applications, not Linux the kernel.) They planned on hijacking the GNU/Linux applications and if that meant the death of Linux, so what?

That's their business proposition? And GNU/Linux gets what out of this, other than ripped off and ruined?

Their original strategy was based on the fantasy that the world was clamoring for the ability to stay with UNIX and yet run GNU/Linux applications, and there they'd be, like a troll hiding under the bridge, ready to exact a toll on all those wanting to cross.

SCO, in their daydream, thought they could be the gatekeeper making it possible for companies already on UNIX to sort of transition to Linux, which they knew everyone wanted to do, without leaving their UNIX environment behind. Next step? Backcharge for UNIX shared libraries they believed had been used inappropriately and start scooping the money up in royalties for UNIX code.

Why they imagined companies would rather follow that convoluted, expensive route instead of just running Linux itself is one of those mysteries the tech community can never solve, because it's not based on technical realities but on financial yearning. The tech makes no sense at all. But the ka-ching started ringing in Renaissance's ears, and you know how compelling that can be, like when your telephone starts ringing and you think you have to answer it. But the whole structure is based on a lack of technical knowledge and not enough true facts and a grievous miscalculation about the market. If ever there was a situation illustrating the importance of CEOs and financial analysts comprehending tech, this story is it. Money got invested in a dream that isn't coming true.

Let me let you read it for yourselves, because it's beyond my descriptive abilities to capture all the repulsive nuances, not that this is a subtle document. They begin by describing the conference call and then explain the math potential as they see it:

"We believe management's forecasted $10 million of SCOsource revenue in 2Q represents near-term settlement of possible license violations in arrears (related to heretofore unlicensed use of the SCOsource shared libraries) from one or more large vendors of Linux solutions, but we are unable to glean more specifics at this time. . . . SCO management also stated . . . that the vast majority of interactions with customers and other software vendors with respect to the SCOsource initiative were positive. Our view is that lumpy, and possibly large, bookings of SCOsource license fees will continue for several quarters while these negotiated settlements of prior license violations in arrears work their way through the pipeline. SCO's resulting balance sheet should soon look a lot prettier, though we doubt the market will value such lumpy SCOsource fees as part of a consistent and predictable earnings stream -- until all or most SCOsource arrearages are cleared and these license fees become part of normalized product revenue.. . . We currently estimate the net present value of SCOsource 'Extraordinary Items' (arrearages settlements related to prior license violations . . . to be $35.8 million or $3.18 per share, exclusive of the company's current cash generating status and its earnings power based on current and new products."

So much for experts. How much of that came true? But prior violations? What could that mean in the Sun/MS licensing picture? Or maybe the Renaissance pundits missed the boat on that guess too.

The vast majority reacted positively? Was that truthful? Were investments made based on that information? Well, for sure Renaissance bought in for that reason, at least in part, and we know that because they say so in this paper. The report also mentions that "SCO effectively owns the root of the UNIX tree that has branched -- through license agreements with SCO and its predececessors -- into various flavors of UNIX, including IBM's UNIX ('AIX'), Hewlett-Packard's UNIX, Sun Microsystems's UNIX, Silicon Graphics' UNIX and Linux; and Linux is derived from UNIX."

That isn't accurate either. Linux is not a branch off of the UNIX root. If people invested based on a belief that Linux is a derivative of UNIX, I think they got snookered.

It gets more misguided as the report continues. They say they think a "large and growing number of business enterprise customers desire to marry their existing UNIX applications and environments to Linux products, and because of the legal need to license the UNIX shared libraries from SCO, it will drive many customers to SCO's products (that include the shared libraries) in preference to the products of other Linux vendors."

Says who? Dream on, fellows, dream on.

They do. They say that because Caldera has spent years "marrying" Linux and UNIX, it can now "deliver its legacy UNIX customers a migration path to robust, new Linux-based business software applications and server products." Because they believed that all such Linux/UNIX integration projects "require the UNIX shared libraries to port UNIX applications to Linux" and that many systems integrators "have made unlicensed copies of these shared libaries from other non-SCO sources," the licensing program would be a money maker for SCO. They note a January study by Goldman, Sachs that said Linux would emerge as the dominant operating system in corporate data centers, so in Renaissance's mind, this meant dollars and more dollars as far as the eye could see for SCO, the gatekeeper.

They imagined a market for the offspring of this unholy marriage Caldera had brokered, the hybrid UNIX/Linux monster, and so they decided to hog that area of the enterprise market. The problem with the plan is, there doesn't seem to be a huge market for what they are offering.

So there you have it, ladies and gentlemen. What Sco Wanted and why some invested in what they thought would be a sure thing. SCO would spiff up its legacy code with the new and robust Linux applications and products and make money -- from the hard work of thousands of good-hearted and creative programmers who volunteered to give free software to the world and were beating proprietary UNIX in the market. They thought Linux needed its UNIX shared libraries to go forward, so that, in their mind's eyes, equaled "Profit". They now have done an about-face and are offering the Linux Kernel Personality so customers can "escape" from Linux back to UNIX, but that's another sad story.

And the killing off of Linux? If it led to profit, so be it, according to the Renaissance analysis:

"One possible outcome of the IBM lawsuit is the death of Linux, in which case, we believe, SCO owns the bulk of the intellectual property -- the 'root of the UNIX tree' -- for the world's dominant, hardened enterprise operating system. Certainly software markets would be in disarray, but given the practical alternative to unplugging the lights, we believe a worst-case scenario of the world abandoning Linux and flocking back to UNIX would not be so bad for SCO. SCO once held the dominant UNIX market share, and we believe SCO's current management team is capable of delivering that again if it needs to do so."

Hmm. This is a stickup, as business model. So, this entire legal scheme was built on mistaken facts, not enough tech comprehension, and a moral vacuum. All Renaissance needed to do was ask one of their sys admins and he could have explained in less than 5 minutes that they were barking up the wrong tree. Linux isn't a derivative of UNIX, it doesn't need UNIX shared libraries and it can live without everything SCO "owns", which isn't, by the way, all of Unix, merely one flavor, if that.

I think computer science 101 needs to be taught in business school. Maybe a refresher course in ethics would be good too.

The world can't afford to let boneheads make decisions that affect all of us. Do we want tech idiots with their finger on the button, so to speak? Software runs the world now. The economy, the world's security, business, the military, education, governments, even the entertainment world, which represents the US' largest export (at least that's what they told us when they passed the DMCA), all depend to one degree or another on software, and GNU/Linux software is playing a significant role in all these fields. I think you could make a reasonable argument that GNU/Linux is too valuable a resource to allow a group of greedy, small-minded idiots to disrupt its progress. Not that I'm calling anyone in particular an idiot, mind you. The business model SCO proposes is to kill off the golden goose, GNU/Linux, for short-term financial benefit to themselves. A world that would let that happen would be foolish indeed.

What makes GNU/Linux software work is the open source model, the ability to share ideas and work together freely. It's not communism. It's the scientific method, which works well for physicists, doctors, and researchers. It's ideal for software creation too.

If they are allowed to achieve their dream, SCO would close off the software, block the sharing, and the ideas would dry up. They are too shortsighted to care. But somebody needs to.

What about the Renaissance paper on the lawsuit? It's equally illuminating, particularly with regard to whether or not SCO had any thought of suing Red Hat prior to Red Hat filing suit against The SCO Group. There is an entire section on Red Hat, written by those Renaissance scholars. Your first guffaw will occur when you read that United Linux is causing Red Hat to have to play catch-up in "the enterprise space":

"We believe SCO is the top of the food chain in a Red Hat/SCO Group universe".

Ah, yes. If wishes were fishes. Why do these financial wizards reach such a fascinatingly wrong conclusion? Because SCO follows a business model they have seen before and recognize; it gets 80% of its revenue from software sales and subscriptions (back then) and Red Hat gets about half its revenues from services, not from sale of software "which carries higher profit margins", the report says. So, they thought SCO would end up top dog because it is following an old-fashioned business model they understand, because they've seen it before. Were they right about United Linux and Red Hat?

The undeniable fact that software is becoming a commodity is not on their radar at all, so they don't see that there is little future in that quaint business model SCO clings to for dear life. It's impossible to resist sharing one last little snip of their wisdom, their prediction in April that IBM was sure to settle the lawsuit:

". . .SCO refers customer inquiries related to resolving any unpaid licenses back to IBM, hence . . . resolution of IBM’s customers concerns has become a core business issue for IBM more than an intellectual property dispute, with meaningful impact upon its reputation and relationship with its customers.

"We believe SCO's claims against IBM are well founded and that SCO has additional credible claims it can make against other vendors of Linux products. Please refer to our base report on SCO dated March 6, 2003 for a discussion of the deep intrinsic value of SCO’s intellectual property ownership.

"At the end of SCO's 100-day fuse on SCO’s contractual cure, on June 13, 2003, SCO has the specific authority per the license agreement to revoke IBM’s AIX/UNIX licenses and require IBM to return or destroy all copies of its software products subject to the license. We believe the aforementioned contractual cure would be upheld by the court and mandated upon IBM, and would then wreak havoc on IBM's large corporate customers bringing serious injury to IBM's business reputation and customer relationships, unless the matter is settled prior to trial. We believe the business risk to IBM is too high. Therefore, we believe IBM will settle the case prior to trial."

Now, there's a business model. Destroy your competitor's reputation so they feel they have to pay you to shut you up. Last I looked, they have some legal names for that, which you'll find in IBM's counterclaims. And who do you think they mean in the report when they say that SCO "has additional credible claims it can make against other vendors of Linux products"? Red Hat, maybe? You think? No, we all know that SCO has crossed its heart and hoped to die it never dreamed of suing Red Hat, and since they told that to the court, it must be true.

Finally, here is how Renaissance Ventures describes itself on its homepage and its About Us page:

"Renaissance Ventures, LLC and its affiliates invest in special situations across multiple asset classes including mis-priced equity and debt securities and buyout situations in both public and private markets. Renaissance generally looks for businesses generating positive free cash flow in stable or growing industry sectors where it can apply its operational, strategic and cost savings expertise."

"Renaissance subscribes to contrarian theory and believes the best opportunities now exist in microcap public companies that are orphaned from Wall Street with no institutional sponsorship. We will invest in mis-priced public securities and take an activist role in enhancing returns or sponsor management buyouts of undervalued public companies with high intrinsic value."

So now you know. The world of finance. Feeling like the little boy in the Emperor's New Clothes, huh? Or is it closer to the feeling you get when you pick up a rock?


  


Visions of Ka-ching Dance in Their Heads | 113 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Visions of Ka-ching Dance in Their Heads
Authored by: Anonymous on Tuesday, September 23 2003 @ 11:37 PM EDT
There's an ancient saying that says when you get to the root of lie, you
destroy the evil. I believe you have founde the root of this whole debacle.
It's incredible that these documents were even availble on the web. This is
tremendous research worthy of Woodward and Bernstein.

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Anonymous on Tuesday, September 23 2003 @ 11:58 PM EDT
PJ,

You are really great! Where and how did you manage to get this information?
I am a shareholder and do buy some managed fund from a particular fund company.
With this article that you've just presented, I am now more incline to check
and verify the technical know how of CEO's before putting my money to the
fund.

freedom-OSS

[ Reply to This | # ]

What we don't know
Authored by: Anonymous on Wednesday, September 24 2003 @ 12:13 AM EDT
Very revealing. IBM and Red Hat's lawyers need to see this! What we don't
know, is which came first, the chicken or the egg.

1. Did Renaisance come up with the scheme, and SCO attempt to follow it

or

2. Did SCO come up with the scheme, and Renaissance merely report it

or


3. Some combination. For example, SCO gave Renaissance info of their plans,
Renaissance wrote their report, which then drove SCO to new actions.


I would personally opine, it must be 2 or 3. I do NOT think it can be 1, as
there are too many details of SCO's claims, for the those details not to have
originated in SCO.

[ Reply to This | # ]

  • What we don't know - Authored by: Anonymous on Wednesday, September 24 2003 @ 12:24 AM EDT
The corporate model itself is faulty
Authored by: freeio on Wednesday, September 24 2003 @ 12:21 AM EDT
I believe that this descends directly from the modern conception of the
corporation, that which sees the corporation as having no duty whatsoever other
than the fiduciary responsibility to the owners. Thus there is no need for
either morals (which would address the expectations of a higher order) or of
ethics (which would address the expectations of some commonly accepted decency).
Whatever immediately gratifies the current owners is the only reasonable
action. There is no future in such behavior, but the owners hope to have sold
the stock to some sucker at its high point, and be on to owning some other
entity and repeating the process. Remember, the owners of stock are virtually
immune from any penalty, beyond the fact that their investment is at risk. If
someone gets fined, or goes to jail, it will not be them! Thus, there is an
element of absolute corruption which is intrinsic to the modern corporate model.


The corporation is an artificial entity, created by law to behave on its own, as
would a natural person. We expect that natural persons will be bound by some
set of socially acceptable guiding principles, ranging from major laws to mere
etiquette. On the other hand, it would appear that many modern corporations are
run by the rules of the Spartans, wherein the wrong was in getting caught, not
in the act itself.

---
TRVTH

[ Reply to This | # ]

Let's Make It Official
Authored by: Alex on Wednesday, September 24 2003 @ 12:22 AM EDT

PJ is a goddess.

Wow PJ, that's incredible, particularly this:

We will invest in mis-priced public securities and take an activist role in
enhancing returns or sponsor management buyouts of undervalued public companies
with high intrinsic value.

When you go over to the Yahoo SCO group and start to read those posters who
believe that someone is artificially propping up SCO stock, the quote above
really hits home.

PJ, you're simply incredible.

Alex

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: shaun on Wednesday, September 24 2003 @ 12:31 AM EDT
PJ you are absolutely AMAZING. I do believe you deliverd the death blow to SCO.
How on Earth you ever came across these documents I have no idea. You struck 24
Karat gold with these babies.

Kudos and if Perens, Torvalds, Raymond and any other high end OSS types (Yes I
know but you know what I mean) don't throw a banquet in your honor I will damn
well figure out how to instead.

God I could just kiss you.

--Shaun

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: fb on Wednesday, September 24 2003 @ 12:33 AM EDT
So this is the bill o' goods that Darl&Co sold.

Most the public singing and
dancing from SCO would be for the benefit of Renaissance, then. Not the market,
not IBM, not Red Hat, not the Open Source community. The suckers at Renaissance,
just to keep up the charade that they weren't conned.

Lovely. Where's Yarro in
all this, do you think?

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Alex on Wednesday, September 24 2003 @ 12:38 AM EDT

So what's our strategy?

Alex

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Hygrocybe on Wednesday, September 24 2003 @ 12:41 AM EDT
Very well done PJ - I think the word 'repulsive' is an excellent descriptor
for the machinations that have taken place behind the scenes. The lack of
business ethics that have now been displayed almost defies the imagination. I
am hoping shortly to see very large legal action taken within the USA. Surely
someone over there must be ready to move ?

---
LamingtonNP

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: fb on Wednesday, September 24 2003 @ 12:41 AM EDT
BTW, PJ, Sixty Minutes or somebody like that ought to be paying attention. They should snap you up as a producer of investigative segments as soon as this is over. If they don't, they're just lame and useless, that's all.

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: fb on Wednesday, September 24 2003 @ 01:04 AM EDT
Couple of other interesting points in the first Renaissance doc:

(1) Boies was
originally retained, it's claimed, to develop the shared library licensing
strategy. So apparently he signed on based on this same lousy information, and
for a smaller, more circumscribed task than demolishing all Open Source.

(2)
$18/share was indeed a magic figure, stipulated by Renaissance. Hence all of
the manipulation to keep the price at or above that figure.

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Alex on Wednesday, September 24 2003 @ 01:18 AM EDT
Did anyone go over to their website? I noticed this wonderful notice:

"JOINT VENTURES

We are pleased to discuss possible joint ventures with capital sources, company
management teams and fund managers.

Through our broadening business relationships, we are actively sourcing
investment opportunities and deploying our own capital. Please contact us to
discuss possible templates at jointventures@renventures.com."

One wonders about this "joint ventures" business. Did SCO come to
them? Did they go to SCO? This is starting to sound a lot like some kind of
conspiracy. **Tinfoil hat on**

What I'm writing is just a hypothesis, but it looks like SCO and Renaissance
Ventures (possibly MS and Sun too) formed an unofficial "joint
partnership."

SCO provided the "intellectual property."

MS and Sun provided seed money.

Renaissance propped up SCO's stock and leaked their report to everyone and
their mother.

SCO attacked IBM and Linux with a load of lies and they were off and running.

Scary. **Tinfoil hat off**


Alex

[ Reply to This | # ]

Renaissance and Canopy Linkage?
Authored by: fmckee on Wednesday, September 24 2003 @ 01:52 AM EDT
It seems around November of 2000, Renaissance and Canopy invested in the same
company, Mi-Co. I wonder what is meant by "angel investors"? Is
that the one and only Angel Partners?

"Cary—Mi-Co (www.mi-co.com), a developer of systems for PDA's, received
$2 million in venture financing in October 2000. Investors included Canopy Group
Inc. The round was a follow-up to a $1.5 million Series A round of funding from
Renaissance Ventures LLC and angel investors. Contact: Daniel Leslie
(919.485.4819)."
http://www.cednc.org/publications/venture_update/volume_4_2000/nov_n10.html

So, was Renaissance really "tricked" by SCO? Or is there a link
between the two? I don't have time to research this further right now, but I
will later....

BTW, some of us at VarLinux.org love the work you've done PJ! Top shelf, all
the way.

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Rob on Wednesday, September 24 2003 @ 02:25 AM EDT
Here is the Google cache of the Lycos PR blurb that, according to Lycos
"appears to have been removed by the provider":
http://216.239.33.104/search?q=cache:52ZrO_msI9UJ:finance.lycos.com/home/news/st
ory.asp%3Fsymbols%3DNASDAQ:SCOX%26story%3D33979393+%22renaissance+research+group
%22&hl=en&lr=lang_en&ie=UTF-8

Doing a whois on each of rv-research.com, renventures.com, and
shannonjacksonpr.com gives me the sense that RRG and its PR flack are
each small (one-person) operations that share the same office. A Google
search for shannonjacksonpr.com gives three hits, two of which point to the
'story' in the Google cache link above. Then there is the similarity in the

last names of the person who wrote the RRG reports and the namesake of its
PR representative. I do not think that either of these persons should give up
his/her day job.

[ Reply to This | # ]

Somebody Was Lied To
Authored by: Anonymous on Wednesday, September 24 2003 @ 02:29 AM EDT
SCO once held the dominant UNIX market share, and we believe SCO's current management team is capable of delivering that again if it needs to do so.

SCO has never held the dominant UNIX market share. Not once. Not ever. Never.

Somebody has been lied to. I wonder who was telling the fibs.

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Anonymous on Wednesday, September 24 2003 @ 04:20 AM EDT
McBride: Here's the plan. We hijack Linux and we hold the world ransom for...
one million dollars! Muhahahaha. MUHAHAHAHAHAHA-- what? ... really... OK, then
we hold the world ransom for... one hundred... billion dollars!

-----

SCO – vs. – IBM Settlement Matrix

Lawsuit Settlement Amount, BSF Legal Fees, Net Settlement to SCO, Net to SCO Per
Fully-
Diluted Share

$200,000,000 $50,000,000 $150,000,000 $8.50 / share
$350,000,000 $87,500,000 $262,500,000 $14.87 / share
$500,000,000 $125,000,000 $375,000,000 $21.25 / share
$750,000,000 $187,500,000 $562,500,000 $31.87 / share
$1,000,000,000 $250,000,000 $750,000,000 $42.50 / share
* Using 17,648,000 Fully-Diluted Shares Outstanding

[ Reply to This | # ]

Linux is not Unix
Authored by: Anonymous on Wednesday, September 24 2003 @ 05:14 AM EDT
"SCO effectively owns the root of the UNIX tree that has branched -- through license agreements with SCO and its predececessors -- into various flavors of UNIX, including IBM's UNIX ('AIX'), Hewlett-Packard's UNIX, Sun Microsystems's UNIX, Silicon Graphics' UNIX and Linux; and Linux is derived from UNIX."

Linux Is Not UniX
=.....=..=...=..=

[ Reply to This | # ]

My wordy analysis
Authored by: mec on Wednesday, September 24 2003 @ 05:56 AM EDT
This is rambling and wordy and uneven. In parts I talk in financialese (because
that's my professional language and how I think), and in parts I stop and
explain. Hope it helps.

=== Page 1:

March 6, 2003. "The SCO Group, Inc."

WTF? On March 6, 2003, the name of the company was "Caldera International
Systems, Inc.", with a d/b/a "The SCO Group", with no
"Inc." on it. Check the original SCO versus IBM complaint dated
March 6, 2003, to see this. Also see press releases and SEC filings from that
time to see "The SCO Group" with no Inc. on it.

Looks like Ren jumped the gun a couple of months on the legal name change.
Probably no big deal.

=== Page 2:

"We believe management's forecasted $10 million of SCOsource revenue
represents near-term settlement of possible license violations in arrears
(related to heretofore unlicensed use of the SCOsource shared libraries) from
one or more large vendors of Linux solutions ..."

Got that wrong. It was $8 million from MS+Sun and $0 from licensing of
SCOsource shared libraries.

This is material because there's a limited number of companies willing to pay
for the service of bashing Linux, and SCO's probably tapped that market out.

"SCO management also stated ... that the vast majority of interactions
with customers and other software vendors with respect to the SCOsource
initiative were positive."

My favorite response is IBM's response: "if you go down this path, we
will disengage with you. We will not do any more business with you, and we will
encourage others not to do business with you". I guess SCO management
thinks this is an isolated response in the IT community.

"SCO's resulting balance sheet should soon look a lot prettier."

Got that right. The balance sheet does look better. The SCO Source revenue has
already saved the company from pursuing "strategic alternatives"
such as selling off parts of the company and closing divisions.

"Until such point as SCOsource license fees reflect current product
revenues, not arrearages, we will continue to reflect such arrearages
settlements for prior SCOsource license violations as extraordinary items in our
SCO earnings model."

Ren is right. That is a good model. Let me translate the financialese into
English here:

There are two types of earnings, "extraordinary" and
"recurring". "Extraordinary" is one-time stuff, like
your grandmother dies and leaves you $500,000. "Recurring" is stuff
that happens every year, like your salary.

If grandma dies, and you use the money to buy a house, that is cool. But if you
use the money to party like you're David Boies for a year, then you are OUT of
money and your income is not like David Boies, and that is not cool.

Or, to put it another way: how much would you pay for an envelope with $10 in
it? Obviously, $10. How much would you pay for an envelope with $10 in it
*every year*? About $500 (with a 2% interest rate). That's why
"recurring income" is much more valuable than "extraordinary
income".

Ren is saying that the first wave of SCO Source license fees will be
"extraordinary", catching up with past violations (all those Linux
users using SCO shared libraries to run Progress and stuff). The SCO Source
license fees to date are probably still "extraordinary", although
they come from a different source.

One can make a case that SCO source revenue is "recurring" because
MS+Sun will keep funding SCO until Linux dies or a court kills SCO, whichever
comes first. But this is really just 2-3 years of extraordinary income, not
recurring.

"Our current thinking is that by 3Q or 4Q, SCO will have booked many of
the "arrearages" ..."

How about NONE. ZERO. ZIP. NOBODY has bought a license for SCO Unix Libraries
for Linux. NOBODY has bought a Linux Running License, as of 2003-07-31.

"... and move at least a portion of SCOsource into the recurring
"Product Revenue" category."

Note that the Running License does not recur, because it's a one-time $699
license.

"New products are driving increased revenues at SCO".

No, revenues for everything except SCO Source continue to decline.

"SCO has retained David Boies of the law firm Boies, Schiller and Flexner
... to develop SCO's licensing strategy for its "UNIX shared
libraries".

MONEY SHOT!

When SCO hired Boies, they weren't hiring him to sue a company that he worked
for for 13 years, so there was not a problem at that time with attorney conflict
of interest. Now there IS. I don't expect to see Boies inside the courtroom
on this case at all.

"SCO effectively owns the root of the UNIX tree that has branched
..."

... yes they do.

"... into [AIX, HP/UX, Solaris, Irix] ..."

... yes they do.

"... and Linux; Linux is derived from Unix".

... no they don't, and no it isn't. At the extreme, Linux may contain code
illegaly copied from Unix. But Linux was never derived from Unix; Linus started
from scratch -- and that is very easy to prove.

=== PAGE 3

"SCO's "Unix Shared libraries" represent the shared source
code at the root of these various UNIX / Linux operating systems."

This is not just wrong; it's fatuous. The Shared Libraries are in user space,
above the kernel. The kernel is at the root of the operating system.

And I'm not just picking on picky things (except for the "The SCO
Group" name on page 1). This is an important point in Ren's analysis.

"We believe a large and growing number of business enterprise customers
desire to marry their existing UNIX applications and environments to Linux
products, and because of the legal need to license the UNIX shared libraries
from SCO, it will drive many customers to SCO's products ..."

Man, Ren is outdated here. This analysis was correct in 1998, maybe even as
late as 2000 or 2001. Not any more. These days, when a customer wants to run
an application or an environment on Linux, they call up the vendor and buy the
Linux version that runs natively on Linux and uses the Linux shared library. No
UNIX anywhere.

"Our twelve-month stock price target is $18".

Ren is right. The stock went to $18. That was a pretty ballsy thing to say on
March 6, and they were right.

But I don't think it can stay at $18.

"Bigger Picture"

Essentially correct. The Forbes quote is accurate.

"Red Hat may now be playing catch-up ... since four Linux sellers ...
formed their UnitedLinux consortium".

Not baldly wrong, but basically wishful thinking. It would be more accurate to
say "Red Hat faces increased competition from UnitedLinux".

"Learning from IBM's mistake with Microsoft ... we believe hardware
vendors and business customers will avoid reliance upon one major vendor of
Linux enterprise solutions ..."

Ren gets it. Linux is good because vendor competition is high and vendor
lock-in is low.

"... thereby creating the possibility of a duopoly in Linux systems from
the two dominant vendors in the Linux space, Red Hat and The SCO Group".

This is stupid. It's like saying "the two dominant vendors of desktop
software, Microsoft and OpenOffice", or "the two dominant political
parties, Democrats and Greens". It's picking one clear leader and then
saying "and my little wannabe" to make the two look equal.

"... the only two dominant -- and publicly traded -- pure Linux solutions
providers"

Oh god, here we go again with SCO as a "dominant Linux solutions
provider".

SCO provides Linux solutions the way Orkin provides termite solutions. Go
termites.

=== page 4

Some Red Hat smack about how Red Hat's new revenue model was unproven. Well,
it was unproven on March 6, but the latest results look pretty good to me.
Another bad prediction from Ren.

The service model: Ren is correct, on a deep level. Open source is all about
super-cheap prices for the things that can be replicated (the software bits).
There will be little money in those parts of the business. The only money will
be for things that cannot be replicated, namely human attention. The rest of
the money will stay in the pockets of IT customers instead of going to IT
vendors.

Ren then throws away its insight and argues that SCO will make more money
because they sell bits, not human attention. No, I predict instead that SCO --
and everybody else -- will make less and less money from bits.

"Whether these legacy UNIX systems are IBM, Hewlett-Packard, Sun, Silicon
Graphics or SCO variants, all such Linux / UNIX integration projects require the
UNIX shared libraries to port UNIX applications to Linux."

Call Oracle and get a freaking clue, Ren. Native Linux applications do not
require UNIX shared libraries. Everybody's going native.

"... with SCO selling SCOsource licenses into Red Hat / IBM systems
integration projects."

Not happening now, not gonna happen in the future.

"Our Fair Value Model for SCO"

Baically busted because it's based on their bullshit SCO Source assumptions. A
real fair value model for SCO is based on: estimated value of IBM lawsuit plus
estimated value of OpenServer/UnixWare plus estimated value of Web Services.
I'm pretty sure that the OS/UW value is $0. Dunno about Web Services but
likely $0 too. IBM lawsuit is a wild card, maybe $50 million to $100 million
after lawyer fees, maybe $0.

"New Product Developments"

"SCO Source"

They mean the shared libraries. Got that.

"Server Solutions"

Nitpick about the mainframe offerings: Unix was developed on departmental
computers, not mainframes. Not important.

Ren says that Linux+Intel is gonna kill proprietary solutions. I agree. I also
think SCO is part of the proprietariness that is gonna die.

"Desktop Solutions"

Ren talks about Itanium. Horse-laugh. Itanium is not about desktops, Itanium
is about servers. When they talk about desktops, they should talk about
Pentium, Athlon, etc. and maybe mention Itanium at the end, maybe not. Ren is
getting snowed by the buzzwords again.

"Business Solutions", "Internet Solutions",
"Services"

Mail server, password manager, blah, blah, these products are not selling much.

"Customers, New Customer Wins"

Interesting, but not important compared to SCO/IBM, Shared Source, Linux FUD,
Microsoft+Sun, et cetera. Based on normal customers and normal software and
services, SCO is worth $10 million to $50 million, which translates to $0.50 to
$3 per share.

=== Page 6

Very interesting quote from McNealy. McNealy says that Linux is impacting so
hard that IBM and HP are "apparently abandoning their enterprise-class
UNIX in favor of Linux". Good for them. Bad for Sun. This points up why
Sun is deathly afraid of server Linux; although Sun contributes big-time to
desktop Linux to beat on Microsoft in the desktop wars.

Caldera repurchased stock from Tarantella and MTI -- okay fine.

"Historical Earnings, Comments, Estimates and Revisions"

Revenue for the quarter ended 2003-01-31 was less than revenue from the quarter
before that. Ren explains it away. Ren doesn't foresee the core revenue
continuing to decline for 2003-04-30 and 2003-07-31, but as we know now, it
did.

Management predicts revenue for $25 million for 2003-04-30; revenue actually
came in at $20 million.




[ Reply to This | # ]

renventures.com runs on Redhat
Authored by: davidw on Wednesday, September 24 2003 @ 07:40 AM EDT
@ashland [~] $ serversoftware www.renventures.com/
Apache/1.3.27 (Unix) (Red-Hat/Linux) FrontPage/5.0.2.2510 mod_ssl/2.8.12
OpenSSL/0.9.6b PHP/4.3.1 mod_perl/1.26

I sent an email to the person listed in the contact information in whois asking
if they are going to pay the SCO license fees, and if I may quote him
publically.

---
http://www.dedasys.com

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Anonymous on Wednesday, September 24 2003 @ 07:46 AM EDT
Is it possible to fix the horizontal scrolling???

I can't read the comments :(((

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Wesley_Parish on Wednesday, September 24 2003 @ 08:28 AM EDT
Absolutely brilliant, PJ!

Only thing now is, Renaissance Ventures doesn't sound right. Repulsive Vultures sounds a lot better.

And how are we going to clean up after all this mess? I vote a "Do not pass jail" card to everybody whose names have been mentioned as being part of SCO or Repulsive Vultures, though seeings as how I live in NZ, I doubt I can get that happening.

---
finagement: The Vampire's veins and Pacific torturers stretching back through his own season. Well, cutting like a child on one of these states of view, I duck

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Anonymous on Wednesday, September 24 2003 @ 08:59 AM EDT
Well, my initial thoughts are (and I'm coming from a job in financial
research):

1. It's a conflict of interest for them to put out favorable research if
they're heavily invested. That much is pretty obvious.

2. Worse, investment research analysts should NOT be commenting on pending
litigation. They're not lawyers and it is not their job to handicap the
outcome of litigation. As conflicted as bulge bracket investment banks are,
even their compliance departments have all kinds of problems with analysts
speculating on litigation. At best it's ill advised, at worst it could open
the door for legal action against them if the court decision goes the wrong way.
Generally, research properly done would say something like, here are the
FACTUAL issues gong on in the case (liberally sprinkled with "SCO
believes..."), and we have no opinion regarding the likely outcome,
investors are advised to form their own opinions.

3. My belief is that they simply are taking SCO at their word. In general,
analysts will assume what the company is saying as correct. If SCO said they
were the #1 provider of UNIX, then the analyst will likely report it unless from
past experience they know otherwise. Similarly, if you were to assume SCO were
right here, then lo and behold, their case has merit. (And this piece of
research has as its only cite SCO's website in the discussion of SCO's
intellectual property). This is also why point #2 is also a big deal: analysts
are (hopefully) good at figuring out the earnings stream of a company; they are
not good at determining the merits of a legal argument over in part contract
law.

4. To some extent, SCO is taking advantage of that uncritical trust, by really
taking this legal process public. Typically corporations don't make a case for
a high valuation of their company based on a favorable outcome of a court case.
Mostly, they hedge, saying "we cannot determine the outcome of this
case." It's actually troubling that Boise, Schiller don't make them be
a little more quiet about this case - and it's a big reason why I'm not
particularly frightened about SCO's representation - they're not even doing
their most basic jobs properly. (Have we heard a peep from IBM's lawyers?
That's because they're doing their job)

So I think what we have here is a firm that's made an investment in SCO, put on
its rose-colored glasses and simply acquiesced to being another outlet for
propaganda. This guy hasn't done his homework on the case, and the way the
research is written, without the requisite acknowledgement of risks in investing
in SCO (gee, what if SCO does lose?) tells me this analyst isn't doing his job.

[ Reply to This | # ]

sco is sooooooo confused about what they said
Authored by: brenda banks on Wednesday, September 24 2003 @ 10:24 AM EDT
http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/09-24
-2003/0002023386&EDATE=


---
br3n

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: brenda banks on Wednesday, September 24 2003 @ 10:30 AM EDT
http://www.siliconvalley.com/mld/siliconvalley/6849017.htm

"The indemnification program is limited to customers who receive a Linux
distribution from HP, run it on HP hardware and have a support contract with HP.
There's no additional charge for the protection."

kind of still makes it free doesnt it?
hehehehe


---
br3n

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Anonymous on Wednesday, September 24 2003 @ 11:27 AM EDT
You'd hope so, and good ones will do so. Especially after all that's gone on
in the research world, banks are quite careful that reports are balanced. And,
if one can prove that the issuer of the research did have material information
regarding strong opposition or whatever, it is the analyst's ethical and legal
duty to reveal it. So, either this guy simply is not doing his job or he's
doing something at best unethical and at worst illegal.

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Anonymous on Wednesday, September 24 2003 @ 03:01 PM EDT
The address of Angel Partners is 240 West Center Street, Orem, Utah, the
same address as the Canopy Group. (I think they may have changed their
name to something else and are not called Angel Partners anymore, but I
haven't found out the new name yet.)

Despite their stated mission of "support" for the LDS Church it is
very
unlikely that there is any affiliation; probably the charity donates money
to LDS humanitarian efforts like disaster relief or something.

Utah Contributor

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: brenda banks on Wednesday, September 24 2003 @ 03:25 PM EDT
i would sure hope that darl didnt involve the Mormon Church in its shenanigans
but with the morals they have shown so far it wwouldnt surprise me
i have a lot of respect for Mormons
sigh


---
br3n

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Anonymous on Wednesday, September 24 2003 @ 03:36 PM EDT
This is all about money- SCO thinks it can get free money, MS and Sun think that
the FUD will turn people away from Linux, so they can keep making money. For my
own personal use, since the 1980s, I have spent tens of thousands of dollars on
MS and Sun software products. I decided early this summer that I would never
purchase from these companies again. Will this have any effect? Well, the
actions of one user will not- but the actions of many users will. I think a
boycott is in order here, against SCO, MS, and Sun.

Since June, my own purchasing has resulted in denial of over $3600 in revenues
to MS. My views have resulted in several family members purchasing computers
without MS products installed. And several friends doing likewise.

If everyone makes an effort to do as I have done, and if a boycott is declared,
these companies will feel it where it counts- in their bottom line. And maybe
that will keep them from playing unfairly.....

[ Reply to This | # ]

SCO vs IBM lawsuit, Trade Secrets and RCU
Authored by: Sri Lumpa on Wednesday, September 24 2003 @ 04:10 PM EDT
There is one thing that particularly rattles me by its total lack of logic
(well, more so than the rest of the SCO discourse) in the SCO vs IBM lawsuit.

Basically, the lawsuit is SCO saying IBM cannot disclose certain things like
SMP, NUMA, RCU, JFS because they claim they are derivative of SysV Unix and IBM
is not allowed to reveal SysV Unix trade secrets.

The illogic in this is that some of these technologies (at least RCU) are
patented by IBM (and Sequent) which, by definition, means that they are not
trade secrets anymore.

So, does that mean the the SCO contracts were violated when IBM sought patent
rights to these technologies (this seems preposterous but in line with SCO's
argument taht IBM cannot disclose Unix related trade secrets) or (more likely)
that the presence of these patented technologies in a trade secret lawsuit is
one more clue to SCO's total lack of credibility.


Also, while I am at it, there is something that I noticed a few weeks ago but
didn't explore further at the time and that I just checked now. It concerns
IBM's possible strategy with respect to AIX and Dynix/ptx.

In SCO's amended complaint there are the following averments:

26. IBM's UNIX-based operating system is known as "AIX." AIX is a
modification of, and derivative work based on, UNIX System V source code.

27. Sequent's UNIX-based operating system is known as "DYNIX/ptx."
DYNIX/ptx is a modification of, and derivative work based on, UNIX System V
source code.

And their response in the IBM answer/countersuit:

26. Denies the averments of paragraph 26, except admits that IBM
markets a UNIX product under the trade name "AIX".

27. Denies the averments of paragraph 27, except admits that
Sequent marketed a UNIX product under the name "DYNIX/ptx".


Now, we all have been talking about how even if the collective work called AIX
is a derivative of SysV Unix it doesn't follow that a piece of that work taken
individually (like JFS or RCU or NUMA) is also derivative if it wasn't present
in the original SysV code but it seems that IBM seems to want to argue that the
whole of AIX and Dynix are NOT derivative of SysV Unix.

Is it possible that over the years all the sysV code was removed from AIX/Dynix
and now IBM wants to contest any derivative rights whatsoever SCO might have
over them? If so, it would neatly cut any leg SCO might be standing on for this
lawsuit.

So, anybody got any thought about this?


[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Anonymous on Wednesday, September 24 2003 @ 04:55 PM EDT
This is a great piece of work, you have discovered what I've always suspected -
this is a con job by the management group at SCO. I truly believe that the whole
SCO/IBM/Linux play is to give Darryl and his cronies and exit strategy out of
the company while cashing in their stock options. As the current events a
showing SCO stock prices have gone through the roof, at these prices the stock
options held by the executives are really worth something. Yet here is the
problem, they cannot be cashed because of the typical time limitation set on
exercising the options, but if Darryl were to be sacked by the board he either
has a golden parachute that allows him to cash options immediately or the
company has to pay him off.

Here is the beauty of this scheme, if Darryl got sacked because of incompetence
the valuation of this stock options last December probably would of been zero.
That would not be a very savory option; so what is a man to do? First you must
raise the market valuation of the stock and then get yourself sacked for
incompetence and hence the beauty of the whole scheme. Any of his technologists
would of told him that he was out as mind if it thought he could win this case;
but winning the case was the last thing on Mr. McBride's agenda. The strategy
is simple; make progressively more outragoius claims in the press about the case
raising the valuation of the company and at the same time undermining your own
credibility within the company. This will go on until somebody in the Board
realizes that Darryl is out of his mind and decides the only exit strategy for
SCO is to sack the entire management team or risk the company completely going
under. He has done this before, and has understood how to use the legal system
as a way to leverage stock prices. An even better result would be for IBM to
buy SCO and it would have to be at the current inflated market price.

As the recent case against Microsoft to shown, you don't have to do anything
useful like build any software or converts some flimsy idea into a marketable
product and then successfully establish a market for such a product. All you
need to do is sneakily file a patent in some interesting and developing areas
and wait for real engineers and real companies - forgive me for those who do not
think so but Microsoft is a real company that does produce real products-to
create a market and to successfully compete in that market. Once all that hard
work has been done, you file a lawsuit showing a vague patent, that was granted
by somebody who had better things to do with his or her time than to read this
rubbish, and the courts will make you an instant millionaire. All you had to do
was to spend a couple of thousand dollars filing a patent and sit on your butt
and wait for a poor devil to do all the real work to actually make you rich -
wonderful.

[ Reply to This | # ]

Shared Libraries?
Authored by: Anonymous on Wednesday, September 24 2003 @ 05:23 PM EDT
What's all this garbage about shared libraries? That sounds like stuff from v1
of the SCO lawsuit which was later reworded. I can tell you that the Linux
kernel doesn't use any shared libraries. Heh. That claim is so crazy it is
actually amusing.

And as for userspace... shared libraries can be installed from just about
anywhere. But the main Linux libraries like glibc are written by the FSF and
are not tied to Linux. And there is no way that SCO shared libaries are
required to use Unix applications. Ever heard of recompiling?

Now if people want to run SCO binaries on Linux I guess they might need SCO
shared libraries. But IBM, Red Hat, and 99.9% of Linux users (desktop, server,
or "enterprise") don't need that. And if they do I don't see what
stops them from legally using binaries from an otherwise unused UnixWare
license. Is there something in the license which doens't allow them to be used
on another system?

I think people are majorly confused. SCO has the the most possbile to maximize
confusion and paint the widest possible picture of infrignement against Linux.
But the truth is there is nothing that SCO owns in the Kernel or userspace which
wasn't legally contributed under SCO's previous name... Caldera.

They are the one's trying to claim ownership of other people's work. They are
trying to tell IBM, SGI, etc. that their own work should be under the control of
SCO.
They are calling the kernel developers "pirates" for trying
to use their own work. And the idea that copyright covers the right of end
users to run a program is just about the saddest legal theory ever.

SCO: you need to be specific. _What_ shared libraries are you talking about and
_who_ is supposedly misusing them? _Where_ is the code that was "cut and
pasted" into the Linux kernel? How can end users possibly be responsible?
How is it possible that Red Hat shouldn't fear a lawsuit from you while you
are threatening to sue them and other Linux vendors?

[ Reply to This | # ]

FIX the WRAP Please.
Authored by: Anonymous on Wednesday, September 24 2003 @ 07:21 PM EDT
I'm getting a message field that is way wider than my screen, which makes
reading difficult. Can it be fixed?

[ Reply to This | # ]

Visions of Ka-ching Dance in Their Heads
Authored by: Anonymous on Friday, September 26 2003 @ 06:08 PM EDT
The stock is up from when they invested in SCO. How exactly were they wrong to
invest?

[ Reply to This | # ]

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