Microsoft (MSFT:Nasdaq - news - commentary - research - analysis) is expected to prove once again this week that it offers investors a safe ride amid the wild ups and downs of a tech sector roller coaster.The Redmond, Wash.-based software behemoth is widely expected to meet or exceed estimates when it reports fourth-quarter results Thursday after markets close. While other PC-dependent companies such as Intel (INTC:Nasdaq - news - commentary - research - analysis) have disappointed, Microsoft is expected to buck that trend, thanks in part to a new payment plan with a looming July 31 deadline. While it's open to debate how much of the revenue from the new payment program will show up in Microsoft's top line or as deferred revenue on its balance sheet, many believe it will be enough to help push Microsoft's fourth-quarter revenue beyond current estimates. In April, Microsoft said it expected fourth-quarter revenue to range from $7 billion to $7.1 billion and earnings to range from 41 cents to 42 cents a share. Analysts surveyed by Thomson Financial/First Call are expecting Microsoft to bring in 42 cents a share in net income on $7.08 billion in revenue in the fourth quarter, which ended June 30. That would represent a one-penny decline in earnings compared to a year ago, but a 7.6% increase in revenue. Microsoft will enjoy the biggest benefits from its new licensing arrangement in the fourth quarter and first quarter of 2003, which began July 1. It has set a July 31 deadline for customers to switch to the new payment plan. The customers, business buyers of its Windows and Office software, could revolt and continue using their old versions of Microsoft software or sample rival Sun Microsystems' (SUNW:Nasdaq - news - commentary - research - analysis) StarOffice, but most are expected to sheepishly sign on. Staying"I haven't spoken to any clients who to my knowledge have pulled the trigger and have already said we've made a commitment that we're getting off Microsoft products," said Alvin Park, a Gartner research director in the software asset management division. For Microsoft customers, the costs of changing software and retraining employees, combined with the potential risk of it not being compatible with outside organizations, are hurdles too large to allow them to leave Microsoft, Park said. Officials at Sun Microsystems and Ximian, which sells a desktop alternative to Microsoft that includes StarOffice and sits on top of a Linux operating system, say they're seeing growing interest from Microsoft customers who are angry, frustrated and confused. On Tuesday, the Norwegian government became the latest Microsoft customer to say it would not renew a software contract with the company. But rather than a wholesale abandonment of Microsoft, most customers are choosing alternatives as pilots with small groups of users, Ximian and Sun officials said. Under the new subscription payment program, business customers would buy an initial three-year license to use the company's products and then renew it for another three years or annually. Customers pay whether they want the new software or not, just for the right to keep using the software. By contrast, under the old system, customers who buy software licenses from Microsoft get to use them "perpetually," even after the initial term of their license expires. They only pay for upgrades if they want the company's latest version of the software. No SquattingThe new payment program helps address the pesky problem of some businesses using software indefinitely rather than upgrading every time a new version is released -- often because they don't find that version compelling enough to buy. The other difference is that under the new program, Microsoft will recognize the subscription revenue over the course of the contract, booking a portion of it every quarter. Until now, Microsoft has typically recognized the bulk of its software revenue upfront. Computer Associates (CA:NYSE - news - commentary - research - analysis) launched a similar subscription model, but with mixed results. The company came under fire for recrunching numbers from previous years to compare revenue under the old and new models, and some have suggested CA switched to the subscription model to mask a drop in revenue. One difference with Microsoft is that it isn't recrunching its numbers, said Prudential Securities analyst John McPeake, who covers both CA and Microsoft. The other difference is that CA's change affected about 85% of its revenue, while Microsoft's switch is expected to affect only about one-third of revenue, McPeake added. McPeake has a hold rating on CA and buy rating on Microsoft. His firm hasn't done any banking with either company, but McPeake or a member of his household owns Microsoft shares. But there's still controversy swirling around Microsoft's subscription model. To switch to the new plan, Microsoft is requiring that customers pay to bring their software up to date. That has created an uproar because if customers don't switch, in the future they'll have to pay a higher price if they eventually want a newer version of Microsoft software. Milk MoneyIn some circles Microsoft's new payment scheme has been characterized as a bullying tactic by a monopolist. But some analysts praise it for delivering a steadier flow of revenue and reducing Microsoft's reliance on PC shipments. "By transitioning an increasing portion of its pricing model to subscription-based pricing, MSFT is continuing the process of moving towards a more stable and visible revenue model," Sanford C. Bernstein analyst Charlie Di Bona said in a June 13 note on the transition. Di Bona has an outperform rating on Microsoft and his firm does not do investment banking business. Di Bona predicts Microsoft's fourth quarter should benefit from normal calendar midyear and end-of-fiscal-year seasonality amplified by the looming July transition period. The first quarter of 2003 also should benefit from a surge in last-minute upgrades to comply with the new model, while bookings in the second quarter will slacken with the passing of the transition deadline, setting up a relatively challenging quarterly comparison, Di Bona predicted. Prudential's McPeake believes the transition will primarily increase the balance sheet's unearned revenue line in the fourth quarter and first quarter and lead to a more gradual boost to the income statement's revenue line. He forecasts the July 31 deadline will increase unearned revenue by $900 million in the fourth quarter and by $1.05 billion in the fourth quarter, while he expects the deadline will contribute to $410 million of revenue in the fourth quarter and $600 million in the first quarter. McPeake expects Microsoft to beat estimates by a penny or two -- not because of the new payment system but rather because of a shift of customers toward pricier versions of Windows. First Albany analyst Mark Murphy is expecting the new payment plan to raise deferred revenue by between $400 million and $950 million in the fourth quarter and first quarter. That represents 30% to 40% year-over-year growth, up from 25% during the past year. Murphy has a strong buy rating on Microsoft and his firm hasn't done any banking with the company. "Although this transition may not occur completely smoothly, it does boost long-term revenue visibility relative to competitors," Murphy said in a recent note. And in this murky environment, investors certainly appreciate all the visibility they can get.