Shares of the Redmond, Wash., software maker plunged nearly 11% in super-heavy volume Friday, as shareholders bailed on the name amid a slew of analyst downgrades. Around midday, the stock was down $2.99, or 11%, to $24.26. Earlier, it hit a fresh 52-week low of $24.

More than 325 million shares had traded by midday, about four times the average daily volume.

At the current quote, Microsoft is trading for 18.4 times the Thomson First Call consensus earnings estimate of $1.32 a share for the year ending in June. It's at 15.9 times the fiscal 2007 consensus of $1.53. a share.

Among analysts, CIBC lowered Microsoft's shares two pegs to the equivalent of sell, saying the company is spending too freely. Morgan Stanley lowered the stock to equal weight from overweight, citing margin pressure.

Microsoft's plan to forego profitability in favor of investment, a "strategic decision," as CFO Chris Liddell calls it, explains the company's surprisingly weak bottom-line performance in the just-completed third quarter. It is also behind disappointing earnings guidance for the fourth quarter and fiscal 2007.

Late Thursday, Microsoft announced that it had earned $2.98 billion, or 31 cents a share, (excluding a legal charge of 3 cents a share) on sales of $10.9 billion.

Although that represented year-over-year revenue growth of 13% and earnings growth of 17%, it fell short of Wall Street's expectations. Analysts were looking for $11 billion on the top line and 34 cents a share on the bottom line.

The sudden bout of bottom-line blues surprised Microsoft bulls and gave skeptics like Pat Adams, chief investment officer of Choice Investment Management, more reason to stay away. "There's just no reason to be in this stock until new products ship," he says.

Microsoft, the world's largest software maker, attributed the miss to heavy spending in a number of areas, including the Xbox 360 product costs, accelerated hiring, more R&D and heavy marketing as the company prepares for the launch of Vista, the new version of its flagship Windows operating system.

"We're willing to make those tradeoffs for growth," Liddell said during a conference call with analysts.

Surprising as the third-quarter miss was, the weak earnings guidance was simply stunning. "I'm blown away," commented Richard Williams, chief software analyst for ICAP.

EPS in the June, or fourth, quarter will be about 30 cents, the company said, compared to expectations of 34 cents. Revenue will range from $11.5 billion to $11.7 billion, the company said; Wall Street was looking for $11.6 billion.