Microsoft Marks Time

When Microsoft(MSFT Quote) CFO Chris Liddell reports his company's third-quarter earnings Thursday afternoon, investors are going to be listening hard for the word they least want to hear -- "delay."

Microsoft bulls are counting on Vista, the oft-delayed new version of the company's flagship Windows operating system, to breathe life into the stock. "We want them to say the dates we're looking at now are firm," says Alan Lowenstein, senior vice president of American Fund Advisers, which has a position in the stock.

Another delay, investors say, would be bad news indeed. Earlier this year, Microsoft said it wouldn't quite make the end-of-year deadline it set for itself to launch Vista. Instead, it scheduled a staged rollout, with business-oriented versions of the operating systems going to market late this year, while consumer versions will appear in early 2007.

"A lot of investors are hanging their hats on the Vista cycle," says Daniel Morgan, portfolio manager for Synovus Investment Advisors, which owns shares of Microsoft. "You can talk about the Xbox, and MSN and SQL Server, but the reality is that 65% of [Microsoft's] profits are determined by the PC business."

Vista aside, Microsoft's third quarter looks fairly routine. Most analysts are looking for an in-line quarter, with the possibility of a modest upside bonus. That means the stock is unlikely to break out of its nearly 18-month trading range of $24 to $28 in the immediate future; real gains, say the bulls, are to be expected after Vista and other new products, such as the latest version of Office, begin clicking with corporate and consumer buyers.

But until then, there's no particular catalyst for the stock. Indeed, Goldman Sachs analyst Rick Sherlund says "anticipation of Vista may be a damper on revenue and earning growth rates in the first half of fiscal 2007."

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