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Microsoft Learns Its Lesson

Don't expect another analyst day slip-up from the software giant.



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stock price dropping for eight out of 10 trading sessions since the

release of its latest version of Windows, some investors expect major news out of Thursday's analyst meeting.

Chances are, they won't get it.

The biggest clue to what Citigroup analyst Brent Thill is calling "a nonevent" is the time allotted for the New York meeting -- just 60 minutes.

"With only one hour on the schedule, we expect it to be nothing more than a cheerleading session around Vista/Office 2007, and an update on the online and the entertainment initiatives," Thill wrote in a note to clients.

Wall Street fears a repeat of last year's July surprise when Microsoft said at an analyst meeting that it will

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boost spending by more than $2 billion in an effort to kick-start a variety of new businesses.

It's certainly possible that history will repeat itself, but given the length of the meeting, and signals from sources in and around Microsoft, that hardly seems likely.

Moreover, the company already has said that it doesn't plan to update guidance, another signal that there won't be a major change in spending plans.

CFO Chris Liddell, who has become increasingly popular on Wall Street, learned a lesson about blindsiding Microsoft investors, and probably won't make the same mistake twice.

He's moved to improve communications between Wall Street and the software giant, and Thursday's meeting may well be an update of how Microsoft can redeploy some of the Vista resources to other emerging initiatives, says Thill, whose company has an investment banking relationship with Microsoft.

Nervousness aside, the stock has clearly lost the momentum it gained last year when shares appreciated some 40% from mid-June to late January 2007. The most likely cause? An old-fashioned "sell on the news" reaction.

On Thursday, the stock closed with a gain of 37 cents, or 1.3%, to $29.40.

With Vista, Office 2007 and other new products finally out the door -- but not likely to become big sellers until 2008 -- the stock lacks a catalyst.

The good news about the strong new-product cycle is already baked in to the share price, and unless revenue spikes earlier than expected, the stock isn't likely to make a sudden, major move.

Cowen analyst Walter Pritchard foresees solid, if not spectacular, gains this year, saying in a note to clients: "We believe, and most Street numbers properly account for, healthy investment in the business in FY08. We believe the stock will outperform the market by 10% to15% over the next 12 months as financial momentum accelerates." Cowen does not have an investment banking relationship with Microsoft.