Microsoft (MSFT) - Get Report investors' patience has been rewarded as shares have appreciated nearly 33% in the second half of 2006.

And with the software giant set to report first-quarter earnings after Thursday's closing bell, most analysts are expecting a largely in-line report that probably won't move the stock sharply in either direction.

"I think the stock is fairly priced now, and I'm not expecting much of a move pre-Vista," says Chuck Jones, a technology analyst with Atlantic Trust Stein Roe, which holds shares.

Vista is the latest and oft-delayed version of Microsoft's Windows operating system. Fears of yet another delay weighed on the stock earlier in the year, but at this point it appears that the software will ship on time, meaning that it will be in the hands of business customers in November and on store shelves sometime in January.

Even Goldman Sachs analyst Rick Sherlund, who fretted about the launch date in note after note, now says it appears "on track."

The Vista launch, and the related debut of a new version of Office, are more than ordinary product releases. Windows and Office together still account for about 60% of Microsoft's total revenue. With the existing version of Windows now five years old, most analysts figure the pent-up demand for an upgrade should drive significant revenue.

The issue, though, is when.

Microsoft will get an immediate revenue boost after the launch because all, or nearly all, new consumer PCs (excluding Apple products, of course) will ship with Vista pre-installed. But businesses, which make up the bulk of sales, will be much slower to upgrade. Indeed, many businesses still run Windows 2000, even though XP has been available since 2001.

"I don't expect major uptake by businesses to even begin until the second quarter of calendar 2007 -- and maybe later," says Michael Cherry, an analyst with Directions on Microsoft, a research and consulting company founded by former Microsoft employees.

Businesses are slow to upgrade operating systems because their IT departments must be sure that the new software is compatible with existing hardware and software -- a process that can easily consume several quarters.

There have been reports of a spat between Microsoft and third-party security software vendors, including

Symantec

(SYMC) - Get Report

that could slow adoption of Vista. But a Symantec spokesman says the dispute is confined to 64-bit versions of Vista, which are not likely to be adopted for at least several years. Security software to run with the mainstream 32-bit version of Vista will be ready on time, according to Symantec's Cris Paden.

Overall, analysts polled by Thomson First Call expect Microsoft to post a quarterly profit of 31 cents a share on sales of $10.75 billion. Those numbers are very close to Microsoft's most recent guidance, which calls for a profit of 30 cents to 32 cents a share on revenue ranging from $10.6 billion to $10.8 billion.

Although a blowout quarter is probably not in the offing, there is some sentiment for a mild upside surprise. "Companies like

Oracle

(ORCL) - Get Report

have been reporting good numbers; PC sales and corporate spending are holding up fairly well. I'm looking for an in-line quarter -- or maybe a bit better," says Alan Lowenstein, a portfolio manager who focuses on the technology sector for American Fund Advisors, which holds shares.

Another reason Vista and Office are so important to Microsoft is the inability of the company to turn its video-game and Internet offerings into profitable ventures.

The Xbox 360 and its predecessor have consistently lost money on a per-unit basis, and game-software sales have not been strong enough to pull the group into the black. In the fourth quarter, for example, the Entertainment and Devices division, which is responsible for the Xbox 360, grew revenue strongly to $1.25 billion from $667 million the year before. But the unit's losses widened by 86% to $437 million.

Microsoft says the division should become profitable during 2007.

Profitability in new areas is all the more important because of the slowdown in PC sales. A year ago, worldwide PC shipments grew by 16.1%. But in the last quarter of this year, growth will drop to 8.5%, according to Charles Smulders, an analyst with Gartner, a market research company.

Even so, it would be surprising if the client division, which sells Windows, doesn't outpace growth in the PC market, says UBS analyst Heather Bellini. She estimates that client division revenue grew by 6% year over year in the first quarter, which is slightly higher than management's guidance, and she expects it to grow by 9% to 11% in the second quarter, with the aid of a

technology guarantee plan announced late Tuesday. UBS has an investment banking relationship with Microsoft.

The plan allows customers who buy PCs loaded with Windows XP to upgrade whenever Vista is available. However, Microsoft will have to defer $1.5 billion in second-quarter revenue to the third quarter. Goldman's Sherlund reacted to the plan by shifting 5 cents of earnings from the December to the March quarter, and said the plan is not likely to affect the stock because it had been expected for some time and was already priced in. Goldman Sachs has an investment banking relationship with Microsoft.The accounting change will not affect the fiscal year as a whole.

Excluding the deferred revenue, analysts expect the company to earn a second- (or December) quarter profit of 37 cents a share on sales of $13.5 billion.