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."

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