REDMOND, Wash. -- ( TheStreet) -- Microsoft's ( MSFT) disappointing quarterly results raise the question of why it hasn't used its ample cash reserves to buy faster-growing companies in a manner similar to its larger rivals IBM ( IBM) and Oracle ( ORCL).

Last week's earnings results sent the software giant's shares tumbling 10% Friday. The biggest reason for the drop was the $1 billion shortfall in revenues which surprised analysts.

Microsoft's operating results clearly do not mirror those of Google ( GOOG) or Yahoo! ( YHOO) in the search market (both had weaker results) and they do not mirror IBM's surprising upside results in the services market.

Despite its five business segments, Microsoft's fortunes (and its stock price) most closely rise and fall with the fortunes of the PC market. As that market continues to struggle in the recession and while many customers wait for the rollout of Microsoft's Windows 7 in October and Office 10 next year, Microsoft experienced a strong pull-back in orders in the quarter and the first ever 12-month decline in revenues.
Yahoo! and Microsoft Take On Google

Microsoft bulls argue that the latest results look backwards, and the stock's price is going to reflect investors looking forward to the new product releases being rolled out starting in October with Windows 7. They say that the stock is already heavily discounted relative to its peers, even though its runup is more than 50% since its March lows. That leaves ample room for the stock to move up further. I agree with this view.

Microsoft has a bigger problem, even with the coming product releases. The company's revenue stream is thinning, and it takes a lot of new revenue to keep this elephant looking like it's still dancing and deserving a higher P/E multiple.

Although search engine Bing's successful rollout and a potential deal with Yahoo! are important bricks for Microsoft, their revenue impact to the company will still be very small for a long time. Even with the new products coming on stream, the market will be asking, "What's next?"

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