Microsoft Feels Like Lead

If you're holding your shares of Microsoft(MSFT) until you can book a 10% capital gain, we have a bit of bad news.

You may be waiting a very long time.

Despite a spate of happenings at Microsoft -- including its much heralded $3 dividend and the hiring of Ray Ozzie and the acquisition of his company -- the giant tech stock has refused to edge upward.

Making matters worse, Microsoft's inertia doesn't seem to be a short-term malady. The company's top-line growth has slowed while buyers wait for the next generation of Windows and a raft of related products. And even when the new software hits the market in late 2006 and 2007, it is not at all certain that it will give sales the kind of boost needed to get the stock moving.

"There's no real reason to sell Microsoft now, but there's no compelling reason to buy," says Pat Adams, chief investment office of Choice Funds, which holds the stock.

Talk about faint praise. But considering how poorly Microsoft's stock has performed, it's probably fair. In two years, Microsoft's shares have appreciated by just 8%, while the Nasdaq Composite gained 47%. This despite the company's decision to pour at least $30 billion into a special dividend last year.

If dividends didn't boost the share price for more than a few months, what could move the needle? Strong sales of PCs, nearly all of which run Windows and Office, would certainly help. But that won't happen in the short term. Growth in the worldwide market for PCs is expected to slow to 9% in 2005, down from last year's faster clip of 11.6%, according to Gartner, a technology research company.

Although the PC slowdown is not dramatic, there's a sobering bit of news in the Gartner report: The most recent upgrade cycle by businesses -- when corporations buy new hardware -- "peaked in 2004 and will decelerate sharply over 2005," says Gartner analyst George Shiffler.

Paste Microsoft looks stuck

Source: BigCharts.com

The news is especially painfully, because there was a general assumption in the market that the upgrade cycle, the first since 2000, was still in its prime.