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TheStreet Open House

Loss Widens at SCO Group

SCO Group, (SCOX), the tiny software company that has sued IBM (IBM) over Linux, on Tuesday reported that its fourth-quarter loss tripled on a sharp drop in sales.

Lindon, Utah-based SCO reported a loss of $6.5 million, or 37 cents a share, in the fourth quarter. That compared with a loss of $1.6 million, or 12 cents a share, in the same period a year earlier.

The loss includes a $2.7 million restructuring charge.

Revenue fell more than 50% to $10.1 million from $24.3 million a year earlier.

Only one sell-side analyst, Dion Cornett with Decatur Jones, covers SCO. Cornett expected SCO to lose 18 cents a share on $10.8 million in revenue in the fourth quarter. (Cornett's firm doesn't do investment banking.)

SCO has been embroiled in a fight against Linux since the company sued IBM in March 2003, claiming Big Blue's Linux business misappropriated SCO's Unix code. Since then, IBM has countersued, Novell (NOVL) has claimed ownership of the Unix copyrights, SCO has sued Novell for slander and SCO has sued Linux users DaimlerChrysler (DCX) and AutoZone (AZO).

SCO has hired high-profile attorney David Boies to lead its Linux legal battle, with his law firm agreeing to cap the overall cash cost of SCO's litigation at $31 million. That cap enables SCO to finance the litigation to the end, including appeals.

Legal news has been the primary driver of the stock, which has fallen about 77% from a 52-week high of 19.31. The company has drawn its share of investors betting against it, with the short interest at 53% as of Nov. 8. Shares of SCO Group fell 33 cents, or 6.8%, to close Tuesday at $4.51.

Upcoming legal battles could again put the stock into play. Among them: a potential hearing at the end of January on IBM's partial summary motion judgment; a judge's ruling on a motion by SCO to compel IBM to produce discovery documents; and a Jan. 7 trial date in the Daimler-Chrysler case, which a judge significantly stripped down .

Meanwhile, IBM and SCO continue to spar over discovery documents, an effort by SCO to file a third amended complaint and IBM's request for summary judgment. A jury trial for the IBM case is set for Nov. 1, 2005.

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