Microsoft Aims to Unstick 'Laggard' Label

Although Microsoft(MSFT - Cramer's Take - Stockpickr) is betting heavily on its Longhorn operating system -- still some two years away -- company bulls are counting on a menu of other products to drive growth in the interim.

But are these offerings meaty enough to help Microsoft's shares lose their recent reputation as a straggler?

The company's stock has slumped nearly 4% from a year ago vs. a 1.7% rise in the Goldman Sachs Software index. The shares haven't broken the $30 mark since March 2002, stubbornly eluding analysts' one-year price targets that reach as high as $35.

Longhorn, the next version of the company's flagship Windows operating system, has been hailed as the likely driver of Microsoft's largest upgrade cycle ever.

Last month, the company put to rest speculation about its launch date by announcing that the new desktop operating system will be released in the second half of 2006 and that the new server OS will be released in 2007. That was earlier than conjectured in the trade press, perhaps because Microsoft had to drop an often-touted, new file system to meet the date.

"Everybody is making a big thing about Longhorn, and it should be a big thing because that's the next big OS," said David Hilal, an analyst with Friedman, Billings, Ramsey & Co. But "there's a slew of intermediate products coming out, which I think in aggregate are pretty solid." (Hilal, who projects 5% top-line growth for Microsoft next year, has an outperform rating on the stock, and his firm hasn't done any banking with Microsoft.)

The releases slated by Microsoft between now and Longhorn include:

• a 64-bit version of Windows Server, which has been delayed to the first half of 2005;

• a new version of Microsoft's SQL Server database software, code-named Yukon, coming in the first half of 2005;

• Visual Studio 2005, the next major release of Microsoft's development platform, to be rolled out with SQL Server next year; and

• the next-generation Xbox console, rumored to be hitting shelves by the 2005 holiday season.

Those touting Microsoft say the company's server business -- which represented 23% of total sales last year -- will continue to help the world's largest software maker post steady growth until Longhorn arrives. Last year, the server business posted the biggest percentage sales jump of Microsoft's largest business divisions.