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Updated from 12:43 p.m. EST

SAN FRANCISCO -- With tech stocks down about 9% from the head-fake rally they completed in the year's first week, one couldn't blame investors for beginning to think about bargain-hunting.

The problem comes in figuring out when, if ever, these new rock-bottom prices are going to turn higher, and how long they'll stay there.



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, for example. The software maker's stock has been as unpopular as a credit-default swap in 2009, plunging 20% to a 52-week intraday low on Friday of $16.75 from its recent Santa Claus rally high of $21.

On Monday, shares bounced back 3.1%, to $17.73 before settling a bit lower at $17.34.

A quick eyeballing of the relative performance of Microsoft shares and the


over the past three months screams the idea that the stock's selloff, at least relative to other tech issues, is a tad overdone.

While the Nasdaq closed Friday down about 8% from three months ago, Microsoft had fallen 23%.

As unpleasant as the company's second-quarter earnings report last Thursday was, it would be instructive for traders still kicking the tires of the likes of




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Advanced Micro Devices

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(or any semiconductor stock, really) to remember that Microsoft still offers the proverbial rock in the sea of tech-stock instability.

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That is, after having your expectations about an economic recovery in 2009 deflated on an almost daily basis, have you no room in your portfolio for a stock with a $158 billion market cap that continues to generate $20 billion in annual operating cash flow while storing another $20 billion in cash in the cupboards?

Oh, and did I mention the 3% dividend yield?

But there is the matter of that latest earnings report, and that hissing sound heard last Friday was the air being let out of Wall Street price targets after analysts were underwhelmed by Microsoft's plans to manage its way through the recession with just a few nips and tucks.

It was an unfortunate irony for Microsoft shareholders that the stock's downtrend that coincided with rumors of imminent job cuts on the magnitude of up to 15,000 employees (more than 15% of the company's workforce) was nothing compared to the stock beating that came with the ultimate news last Thursday that the company was only going to trim about 3,000 jobs overall.

As Stanford analyst Kevin Buttigieg pointed out in a research note, the company's implied second-half revenue decline of 7% coincides with an implied second-half revenue operating expense rise of 11% -- a discrepancy that doesn't inspire much confidence for near-term margins.

Microsoft also didn't help matters -- for itself, or the market overall -- with its decision to join the legions of tech companies that don't even want to hazard a guess anymore as to future financial results.

Goldman Sachs analyst Sarah Friar framed the issue quite succinctly: "The suspension of financial guidance and management commentary about the re-setting of economic activity to a sustained lower level underscores our view that we are only just entering the worse of the downturn for IT vendors."

Therein lies the rub for shareholders who would rather not embrace the idea that the Street's new near-term price target of $22 is the best they can hope for. All of this disappointed chatter about margins and expense cuts underscores the central theme for Microsoft: There is no real growth on the horizon, and any significant increases in profit are going to come from cutting costs.

As we all know, Microsoft's fortunes are hugely tied to the health of IT spending and the growth (or lack thereof) in personal computer shipments, but there's little the company can do to affect demand one way or another. In the fourth quarter, worldwide PC shipments fell 0.4%, according to IDC, following roughly six years of growth.

Microsoft's latest iteration of its Windows operating system, Windows 7, is tentatively expected in the second half of this year. And so what? The beta version recently received the stamp of approval from

Wall Street Journal

tech guru Walt Mossberg, but how many people do you know that are planning to buy a touch-screen PC this year to take advantage of the new Windows' niftiest feature?

Or, put another way: Which do you trust more, the prospects of Windows 7 to revive the tech sector later this year, or Microsoft's decision to not forecast its fiscal-year results.

Even Microsoft knows that Windows 7 is no match for a global recession.