Microsoft ( MSFT) didn't blow the doors off the hinges Thursday -- it didn't have to.

The company's solid second quarter answered the most important question facing it and set the stage for a slow but steady appreciation of the stock.

Analysts looking at the quarter and the software giant's guidance for the rest of 2007 say the following:
  • The better-than-expected level of deferred revenue is probably a harbinger of strong sales for the new versions of the company's cash cows -- Windows Vista and Office 2007.
  • Microsoft did blow away its own projections for sales of the Xbox 360 game console, although there is confusion over the company's decision to cut sales guidance for the game console over the rest of the year
  • .
  • Sales of enterprise products, historically not the company's strongest suit, continue to improve, while the online unit is still underperforming.
Shares of Microsoft ran up strongly through the back half of 2006, gaining nearly 40%, largely in anticipation of the launch of Vista, the first new version of Windows in five years, and a bevy of other major products.

Thursday's announcement gave the stock a modest bump after hours, and in recent Friday trading, shares were up an additional 40 cents, or 1.3%, to $30.85.

Is there still room to grow?

"It can go higher," says Loomis Sayles analyst Tony Ursillo. "It isn't expensive compared to the rest of the tech universe, it's still a strong generator of free cash with a high return on capital, and that translates into a healthy valuation," Ursillo said in an interview.

Piper Jaffray analyst Gene Munster articulated a similar view, saying, "We believe Microsoft is well-positioned to post upside in the March and June quarters, given that its guidance is based on a 'conservative view of the second half,' and the company has its strongest product lineup in 11 years shipping next Tuesday."

Munster, whose firm has no investment banking relationship with Microsoft, was referring, of course, to the second stage of the Vista launch.

Enterprise customers have been able to buy the software since late November; on Tuesday consumers will get a chance to buy the product at retail outlets and preinstalled on a huge percentage of new PCs sold worldwide.

PC Prowess

The company had expected $1.5 billion in deferred sales of Vista and Office via upgrade coupons distributed before the products were ready to ship. The total came in at $1.64 billion.

Analysts generally saw that as an augury of strong sales of the products throughout the year, though Ursillo said the upside may have come from the stronger-than-expected sales of PCs in the quarter. His company owns shares of Microsoft.

In any case, it was clearly a very strong start for the company's most important product cycle in years, and it should provide ample opportunities for upside over the next few quarters and into 2008.

"We continue to believe that consensus expectations underappreciate the potential positive impact of the impending Windows Vista cycle," says Sanford Bernstein analyst Charles Di Bona, whose company does not have an investment banking relationship with Microsoft.

The biggest question mark in the report was Microsoft's decision to cut guidance for cumulative shipments of Xbox 360 to 12 million (from 13 million to 15 million) by the end of June.

Why the forecast was cut so sharply isn't clear, though CFO Chris Liddell made references to unsold Xboxes in the distribution channel and Microsoft's desire to make the entertainment unit profitable by 2008.

Despite the lack of clarity, there was little indication that demand for the console is falling short, and the game unit's 75% rise in revenue was a pleasant surprise.

Shortly after Thursday's earnings announcement, one buy-side analyst likened Microsoft's stock to an oil tanker -- slow to get moving, hard to stop.

That tanker is moving, and there are no obvious icebergs in sight.

More from Technology

Why Does Elon Musk Keep Buying Tesla Stock?

Why Does Elon Musk Keep Buying Tesla Stock?

Decision on AT&T's Merger With Time Warner Marks a Monumental Week for M&A

Decision on AT&T's Merger With Time Warner Marks a Monumental Week for M&A

Tesla Slumps After Mary McCormack Tweets Husband's Flaming Model S

Tesla Slumps After Mary McCormack Tweets Husband's Flaming Model S

5 Stock Picks Under $10 for Millennials

5 Stock Picks Under $10 for Millennials

3 Apps Than Make Retirement Planning Fun for Millennials

3 Apps Than Make Retirement Planning Fun for Millennials