Love goes to the heart of UnitedLinux effort

By Stephen Shankland, CNET News, 28 June, 2002 11:24

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Linux seller Caldera International has replaced longtime chief executive Ransom Love and agreed to buy back shares held by two major investors. Darl McBride, formerly president of the online planning business of Franklin Covey, which sells calendars, planning software, handheld computers and training materials, will now lead Caldera, the company said on Thursday. Caldera hopes the stock buyback will help it survive long enough to see an economic recovery spur more customer spending. For one, the buyback ends a deal under which Caldera had to give 45 percent of OpenServer revenue over a certain amount to Tarantella. And secondly, it opens the way for future investment in the company before the end of the Caldera's fiscal year, 31 October. "We've relieved a large overhang...that has been a real distressing factor in our stock price and has been an inhibiting factor in our raising capital," chief financial officer Bob Bench said in a conference call, noting that Caldera paid a "slight" premium for the stock over market rates. "We expect that before...31 October (we'll) be able to raise additional capital and make some acquisitions." Caldera faces a challenge, though, with customers tightening purse strings and rival Red Hat boasting comparative strength. "Whenever you get beyond Red Hat, most of the other Linux distributors are really struggling to generate significant revenue," though Caldera at least has the benefit of a strong customer base, said Aberdeen analyst Bill Claybrook. "Red Hat is moving like a firestorm." Caldera's stock, which had plunged on Wednesday from 77 cents to close at 60 cents, regained some of those losses on Thursday, rising to 70 cents in midday trading. Utah-based Caldera was one of the first companies to benefit from early investor enthusiasm about the Linux operating system. But recently the eight-year-old company has been struggling through declining revenue, sustained unprofitability, layoffs and the threat of Nasdaq delisting. Caldera had hoped in 2001 to boost its position by acquiring the Unix products from Tarantella, formerly the Santa Cruz Operation. Instead, the move increased expenses and failed to provide the expected gains. McBride said in the call that he expected little change to the company's business strategy. "I think this company is poised for some interesting growth," he said. Though Caldera got its start selling Linux, a key product for the company has been the OpenServer version of Unix, installed to run cash register servers and other tasks at thousands of chain stores, such as McDonald's. It remains popular, even though the Santa Cruz Operation ceased new development of the product and tried to steer customers to the higher-end UnixWare software. Caldera is supplementing the operating system products with management software that works on Linux, Unix and even Windows. Two major investors, Tarantella and MTI Technology, have been seeking to sell their shares in Caldera since July 2001. On Tuesday, Caldera announced it would buy those shares back -- about 4.4 million shares, or 31 percent of Caldera's outstanding stock -- for $4.1m. The stock sale is expected to close in July. As a result, Tarantella and MTI will lose their seats on the board, and Caldera no longer will have to share with Tarantella its revenue from sales of OpenServer product. "Two of our largest shareholders were companies in need of cash in their operations. They have for the past nine or 10 months been looking for an opportunity to liquidate their holdings in Caldera," Bench said. Under the deal with Tarantella, Caldera had to provide 45 percent of OpenServer revenue past $22m to Tarantella in the current second year of the deal, Bench said. In the third year, 45 percent of all revenue beyond $9m would have to go to Tarantella. Caldera may now keep that revenue, though Bench declined to predict how much it would be. "We expect that as the economy turns, we will be over the $9m number," Bench said. "How to project that early on is very difficult, (but) that would be a very substantial savings to us." McBride has known Love since they worked together in the 1990s at networking-software maker Novell, a company that spawned Caldera but failed to withstand the onslaught of Microsoft. Love now will lead Caldera's UnitedLinux work, a movement to ally Caldera with SuSE, Turbolinux and Conectiva -- three other companies that sell Linux, a clone of the Unix operating system. UnitedLinux is widely viewed as an effort by second-tier Linux companies to gain the critical mass held by Linux leader Red Hat, but industry watchers are sceptical it will triumph. Love will be able to work on hammering out membership agreements, development plans and other UnitedLinux details, he said. That includes trying to find a way to include members such as Debian or Slackware, which don't have the commercial focus of the current UnitedLinux partners. Linux began as a hobby nearly 11 years ago. But through the efforts of a host of programmers sharing the software, it has expanded to hold a place alongside Windows and Unix at the world's largest computer makers. Profits, however, have been more elusive. The operating system is chiefly used on powerful, networked server computers, not on the desktops and laptops used by average people. Caldera had a net loss of $6m on revenue of $15m for its quarter ended April 30. It had operating expenses of $16.5m for the quarter and cash and equivalents of $22m.

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