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To: Jim McMannis who wrote (92486)	11/15/1999 11:41:00 AM
From: Tony Viola	Read Replies (1) \| Respond to of 186894

Jim, well here's the future, starting next year...Itanium, IBM and SCO. Who's AMD got for alliance partners in 64 bit so far? Zero, zilch, nada and I expect it to remain that way, as enterprise computing is quite serious business, not expected to be trusted to a company that loses money in almost every quarter in the last several years. mercurycenter.com Posted at 1:27 a.m. PST Monday, November 15, 1999 Santa Cruz Operation gets back on track Two years ago, Santa Cruz Operations Inc. was struggling to stay afloat. Microsoft Corp.'s Windows NT operating system was expected to push out competing Unix operating systems and SCO's business operations were a mess. As a result, the software company's earnings and stock price sank. Today, Unix continues to be the operating system of choice for companies that conduct business over the Internet. And SCO, the biggest provider of Unix operating systems for servers fueled by Intel microprocessors, is making a comeback. The software company is riding the wave of computer server demand by the scores of new companies getting on the Web every day. SCO also overhauled management, giving the reigns to insider and software veteran Doug Michels. Earnings doubled in its recent fourth quarter and SCO's stock has more than tripled to $11.75 on Friday from its 52-week low of $3.75 in January. Michels spoke with Mercury News Staff Writer Cecilia Kang about the company's rebound. This is an edited transcript of their conversation. Q: What is behind SCO's turn around? A: I took over as CEO and we created a management team around me that balanced out my skills and had an aligned set of goals for what we wanted to accomplish. Also, the company was difficult to predict because we had pretty large levels of inventory in our distribution channel. What's happened over the last decade is the channel has become incredibly efficient; it's completely automated and has incredible warehouses with robotic systems. So we decided in the third quarter of last year to bite the bullet and go to zero inventory. It was a hard decision and involved a $16 million charge against revenues. Q: What is the status of Project Monterey, your effort with IBM to create a new version of Unix on Intel's 64-bit microprocessor? How big of a business with this be for SCO? A: The Unix operating system is our biggest business. Project Monterey came out of trying to understand how the world is changing as Intel is introducing its 64-bit chip, Itanium, which is a pretty radical shift. It's still a ways away. We're going to see Itanium start shipping next year, but we're looking at a process that's going to evolve. As we go to that new generation (of Intel Itanium chips), we asked what will be the operating system on it. We knew it would be the type of operating system that was going to be for very high-end, powerful computer that would be a big investment of money, staff, expertise and technology. If we really wanted to guarantee that SCO would be part of that generation, we wanted to partner with somebody who was complementary to what we had to bring. SCO is the expert in volume Unix operating systems on Intel processors and IBM is the master of mainframe computing, big systems and data warehousing. So looking to the future, we think Project Monterey is the key to our success on that class of computers. It has also helped us because people now believe that we are going to be in the operating system business for the long haul -- our relationship with IBM gives us credibility. Q: Can you detail what your role will be in Project Monterey? What are you and IBM providing technologically? A: IBM has a very mature 64-bit enterprise Unix operating system called AIX. SCO has a very mature 32-bit Unix operating system that runs on Intel processors. We have combined our development team and we're both investing heavily in it. When we're done, we'll both distribute through our traditional mechanisms of distributors, resellers and other OEMS. Q: Characterize Unix's market share compared to Windows NT and where do you see that relationship going forward. A: We are seeing a resurgence. Unix is back in vogue after a few years of being out and that's one of the things that has helped SCO. The Internet has been a great boost to Unix. The Internet really was a push-back away from the client-server model that Microsoft was pushing. The only servers that were robust enough and scalable enough to drive that Internet application set were Unix servers. Q: Given your recent investments in Linux businesses like TurboLinux, what is SCO's overall strategy with Linux operating system? How does Linux technology fit with SCO? A: Linux is a real phenomenon here and has clearly caught a lot of people's imagination. Linux is basically a version of Unix -- it looks like what Unix looked like a few years ago. We call it the smaller cousin of Unix. The excitement and energy of Linux has added excitement and energy to Unix. It's all part of this ``Unix is cool' idea. You see Unix servers at the high end, running the Internet. At the other end, you see Linux as the choice of hobbyists and schools. So we've got the high end covered, and Linux has the low end covered, and it's all in one family. Q: Are your investments in Linux expected make reap financial gains? A: Well nobody really knows. The Linux phenomenon has a lot of enthusiasm right now. Some of it is well-placed and some of its is just people jumping on because it just looks exciting. There's got to be some shake out. But clearly, anything with this much investment money behind it, this much technical expertise and enthusiasm is going to lead somewhere. Definitely there are going to be interesting things to come out of it and some of these things are going to be in the Unix space. And certainly a lot of it is taking away from the NT enthusiasm. Q: What are SCO's investment plans in Linux technology? A: We've made a major push in professional services. We've identified that we want a higher percentage of our revenues coming from consulting services. Services are now around 5 percent of revenue and we want to see that get closer to 20 percent. We're trying to grow the revenue stream at a healthy rate and make professional services a bigger share of it, so that's a huge growth requirement on the professional services division. So we're staffing that division up and one of the things we announced was a general set of offerings to the Linux professional services. Q: What are the hottest software trends to watch in the next few months? A: For one, the transition of computing models is profound. Now, desktop machines are not the center of computing. And that's a huge shift that's driven by the Internet. The other thing is the whole application service provider market and the notion that an awful lot of businesses and consumers really want their applications to run for them and don't want to worry about backups and data integrity and all that IT stuff. The Internet has opened up the option to run applications remotely and efficiently. And the third is the appliance server initiative. This is a big trend we're seeing: the move away from general-purpose devices. It's kind of gone full circle. It used to be that you'd buy a word processor machine and today you buy a computer that runs word processing software on it. The pendulum is actually going to swing the other way where we find general purpose has introduced so much complexity that the cost for people is often too high. Q: How much credit do you give yourself for SCO's rebound? A: It's a team effort. One thing I do think is really important is to have technology companies led by technologists at some level. I think having leadership of something this technical in the hands of a technologist that is really passionate about the technology and understands it is very important.