SCO To Take Novell's Unix Business

Novell is cutting its losses. After spending two years and hundreds of millions of dollars trying to develop a NetWare-UnixWare strategy that would sell, the networking giant, to the relief of many, announced on Sept. 20 that it is getting out of the Unix business.

Speaking at the Unix Expo conference in New York, Novell CEO Robert Frankenberg revealed that the company's Unix holdings--including the UnixWare operating system, the Unix System V Release 4.2 (SVR4.2) source code, and at least some of its Unix developers--will be turned over to Unix-on-Intel expert the Santa Cruz Operation.

In exchange, SCO will pay Novell approximately 6.1 million shares of SCO stock, or about a 17% equity stake in the company. With Unix royalties still accruing to Novell, the deal is worth more than $150 million, according to sources.

SCO plans to license Novell's NetWare Directory Services and other NetWare 4 technologies. SCO will merge the SCO OpenServer Release 5 and UnixWare 2 product lines to create a standard high-volume Unix operating system, due in 1997, that will contain integrated NetWare networking services.

A third partner in the deal is Hewlett-Packard, which will take the lead in developing a next-generation 64-bit implementation of Unix that will combine HP-UX, SCO Unix, UnixWare, along with NetWare services. "These three companies realize that there have been huge overlapping investments in Unix," says Frankenberg. "We decided to do something about that."

One beneficiary is Intel. It is HP's partner in developing the next-generation P7 microprocessor--an advanced combination of RISC (reduced instruction-set computing) microprocessor technology and Intel's traditional CISC (complex instruction-set computing) architecture--which HP will use as the basis for its 64-bit Unix operating system. That would put Intel in the enviable position of being chip provider for three of the dominant computing platforms: Microsoft Windows, NetWare, and Unix.

If all goes as planned, Novell's Unix handoff, scheduled for Dec. 1, should benefit users. Unix will be in the hands of experienced players. And Novell's operating system division, unencumbered by Unix, will be able to throw its resources at the company's core business, the NetWare network operating system. "We don't need more than one operating system," says Toby Corey, VP of marketing in Novell's NetWare products division.

On Sept. 21, Novell unveiled a technology road map that no longer includes its lofty plans for an integrated UnixWare/NetWare product, formerly dubbed SuperNOS. "We will not sell a combination of Unix and NetWare," says Frankenberg. "We will be selling NetWare services."

On the other hand, the deal, if mishandled, could further divide an already fragmented market. According to a source close to Novell, relationships with UnixWare manufacturers are a concern. Compaq, ICL, Fujitsu, Siemens, Unisys, and others may not like the idea of licensing their Unix operating systems from SCO, a much smaller company, or HP, a competitor.

Indeed, SCO is the wild card. The Santa Cruz, Calif., company is the No. 2 supplier of Unix systems, behind only SunSoft, according to International Data Corp. But with annual revenue of about $200 million, SCO is dwarfed by other Unix vendors. And many of SCO's sales are to small businesses and branch offices.

Sources say that if SCO is to be successful as the guardian of UnixWare, the company must make some adjustments.

"Novell is easy to work with," says Dan Busarow, a software developer with DBC in Dana Point, Calif. "But SCO is very rigid, surprisingly so for the size of the company."

Adds David Strom, a network consultant in Port Washington, N.Y.: "SCO is not a traditionally strong player in large corporations. They've had their share of successes and they have an installed base, but it's mostly in small offices and small businesses."

Novell is scuttling UnixWare development just as it was beginning to build a customer base. Novell shipped an estimated 35,000 copies of UnixWare in 1993; 70,000 in 1994; and is on track for 100,000 in 1995. Users include Holiday Inn, Ford Motor, Chrysler, and the Army.

Will this deal put a chill on UnixWare customer plans? Not necessarily. "We're toying with UnixWare, along with [Windows] NT, to figure out which to use for a Web server," says Clem Bowen, a systems programmer at Buck Consultants Inc., a financial services company in New York.

"It wouldn't affect our decision one way or the other if Novell sold it; it's still Unix no matter who's selling it."

One more wrinkle: Unix-basher Microsoft owns 14% of SCO. As the deal is now structured, Microsoft and Novell would both hold minority stakes in SCO--and by extension, in SCO's Unix technology. "It should make for some pretty interesting board meetings," says Alok Mohn, president and CEO of SCO.

With so many players involved, it's easy to think that this latest turn in the Unix saga won't be the last. But users can take heart that Unix has found a new--and perhaps better--home.

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