Microsoft has a "problem" other companies could only wish for: what to do with its huge hoard of cash?

And everyone seems to have an answer for spending the $38.7 billion in cash and short-term securities reported on Microsoft's balance sheet on June 30. Consumer advocate Ralph Nader believes the Redmond, Wash.-based behemoth should pay a dividend. Credit Suisse First Boston analysts want the company to buy back more stock. And one investor joked that Microsoft could have helped bail out WorldCom by giving the bankrupt telco a few billion dollars.

Don't look for any of those options from Bill Gates and Co. For one thing, Microsoft's cash balance is not as enormous as it seems by at least one measure. And with big plans to expand into new markets such as entertainment and wireless -- plus the antitrust cases still looming -- Microsoft is more likely to reinvest in itself than declare a dividend or embark on a major acquisition in the near future. Microsoft, stung by bad investments during the Internet boom, is also more cautious now about where it puts its money.

" Microsoft is continuing to use its cash in a strategic way rather than issue a dividend, although the board does consistently review the issue of whether to issue a dividend," said Microsoft spokeswoman Katy Fonner.

Investors say Microsoft's stash is just another reason to buy shares these days, but they generally agree that nearly $39 billion is more than even Microsoft needs. Just consider other companies. Wal-Mart ( WMT), ranked the sixth-largest company by Forbes -- compared to Microsoft's position at 17th -- has only $2.4 billion in cash on its books, although it reported more than seven times as much revenue as Microsoft in its latest quarter. Tech giant IBM ( IBM) had $3.6 billion in cash in its most recent quarter -- under one-tenth of Microsoft's war chest -- although IBM's revenue was more than twice as large.

Rainy Day Frame of Mind

Matt Rosoff, an analyst at Kirkland, Wash.-based Directions on Microsoft, a market research firm that tracks the company, noted that Gates has always said he wanted to have enough cash for the company to stay in business if it did not sell a single product for one year.

That would mean a cash balance of roughly $18 billion based on Microsoft's guidance for next year's operating costs.

But "you wouldn't want to see them take their cash balance and cut it in half," said First Albany analyst Mark Murphy, who believes maintaining the current balance would be fine. Murphy, who has a strong-buy rating on Microsoft, noted that relative to its market cap, Microsoft's cash balance is not as large as it first appears. His firm hasn't done any banking with Microsoft.

Microsoft's cash represents about 15% of its market cap. That's not out of whack with other software companies. Oracle's ( ORCL) cash balance is about 10% of its market cap, but both Siebel Systems ( SEBL) and PeopleSoft ( PSFT) boast higher proportions, at about 48% and 31%, respectively.

And because Microsoft is such a widely traded stock -- an average 49 million shares changed hands daily in the past 30 days, according to Baseline -- the company doesn't even generate enough cash flow in a month to buy back all the shares traded in a single day, noted Murphy. Microsoft churned out an average $1.2 billion a month in cash from operations in the past fiscal year, which ended in June.

Spending more of that cash, however, is unlikely until the antitrust clouds hanging over the company clear, many believe. And then there are the multi-pronged battles Microsoft has waged against major players: Nokia ( NOK) in wireless, Sony ( SONY) in video games, IBM in software, plus its .Net initiative.

Similarly, large acquisitions also are probably not in the cards because, after all, it wouldn't look too good for a monopolist to gobble up competition with an antitrust case still pending in court. Both Gates and CEO Steve Ballmer said at the company's recent analyst day that they prefer smaller acquisitions.

Not Saying the "D" Word

The word "dividend," meanwhile, wasn't even uttered during the daylong event. But that doesn't stop some investors from wanting the company to share its profits with stockholders through dividends.

"They have more cash on their balance sheet than annual revenue. That's bizarre," said Gordon Fines, vice president and senior portfolio manager American Express Financial Advisors. "I'm a believer in dividends, and I think that is one of the missing parts of the equation now," added Fines, who thinks the annual dividend should be at least 3% of the current stock price.

With stock prices down, Fines believes total rates of return, and consequently dividends, will become more important to investors. "I think the public or shareholders are going to be more demanding about some upfront return" from Microsoft, he said.

Like other investors though, Fines' thwarted desire for a dividend is not enough to turn him against the company. Microsoft was among the top three holdings in two of American Express' growth funds, according to Morningstar.

Indeed, Microsoft probably couldn't have picked a better time to have such a large piggy bank. "Right now the strength of the balance sheet is pretty important in this market with all the uncertainty," said Rod Berry, co-portfolio manager of the AIC Global Technology Fund and ING Technology Fund, which hold about 64,000 Microsoft shares. "Anyone who has a lot of debt is being punished in this market, and obviously Microsoft doesn't have that issue. They have plenty of money to get them through any type of slowdown."

Microsoft watchers say that the company is unlikely to declare a dividend in the next few years. And it's not because of the higher taxes that management -- who are large shareholders -- would have to pay, as Nader and others have suggested.

"A dividend equals no-longer-a-growth company," First Albany's Murphy said. And that acknowledgement could cause the multiple that investors are willing to pay for Microsoft -- which already has fallen to 26 times forward earnings -- to contract even more.

Credit Suisse First Boston's chief U.S. investment strategist Michael Mauboussin and enterprise software analyst George Gilbert prefer a stock buy-back program to a dividend in part because of the higher taxes charged on dividends. In a recent call with investors, Mauboussin noted that Microsoft would enjoy a nearly 16% return from buying back shares priced at $45, assuming the value of the stock is $72. Gilbert has a strong-buy rating on Microsoft and his firm has done banking with the company.

Microsoft already bought back 127.9 million shares at a cost of $6.1 billion in the last fiscal year. But that has primarily offset dilution from options as the number of shares outstanding has remained stable in the past year at about 5.6 billion.

Microsoft may step up stock purchases, but don't look for the company to announce it. Ballmer has decried announcing such programs because it drives up the price, Murphy said.

Investments are the only other alternative for Microsoft to put its cash to use, but the company's record there is hardly stellar. In the fourth quarter alone, Microsoft recognized $1.2 billion in impairments on investments primarily in AT&T and other telecom companies. In the past few years, Microsoft made a disastrous investment on cable, which lost $9 billion of a total of $12.4 billion invested. The company has said it intends to be more discriminating in the future.

James Love, director of Nader's Consumer Project on Technology, points to that dismal record as another reason for declaring dividends. Currently "you have Bill Gates managing your money, where he's turned out not to be a phenomenal investor," Love said.

The project is planning this fall to petition the Internal Revenue Service to review whether Microsoft has violated U.S. tax law that subjects a company with accumulated earnings "beyond the reasonable needs of the business" to a tax of 39.6%.

Maybe then, if Nader gets his review, will Microsoft's cash hoard truly become a "problem."