) has had little in the way of new products to drive sales growth. So when CEO Steve Ballmer has addressed financial analysts each summer at the company's annual gathering, he focused on earnings growth. To anyone who wondered what happened to the booming growth of the 1990s, Ballmer would chide that the company had simply grown too large to expect much in the way of growth.
But now that the product pipeline is filling up, Ballmer is pitching a different message: "I am very bullish about our prospects for growth," he told the 300-or-so analysts who made the trek to Redmond, Wash., for the annual confab July 28. Microsoft, which grew only 8% in the fiscal year that ended June 30, said a week earlier that it expects sales to climb 10% to 12% in the current fiscal year.
But Microsoft shares barely budged on the new sales projections. And it's largely because Wall Street is still wary about Microsoft's growth prospects. Investors see a mature company with single-digit growth -- an outfit that is getting trounced in new markets such as Web search, where Wall Street darling Google (GOOG
PREMIUM VERSIONS. Ballmer says investors are missing the big picture. "I believe in the future of Microsoft, from an innovation perspective and from a growth perspective," he says. "I believe in it I think more than you do, I'll be honest."
Wall Street is quick to write off Microsoft's twin monopolies -- the Windows PC operating systems and the Office productivity suite. In the last fiscal year, Windows sales grew 6% and Office by 3%. Without offering specific numbers, Ballmer says that the pair of anchor businesses "are poised for very steady, robust growth."
One strategy to drive that growth: more premium versions of the two products. When the next version of Windows ships at the end of 2006, it will include an Enterprise version, in addition to the Home and Professional versions that Microsoft already ships in Windows XP. Ballmer points out that Windows Profession added "billions" in revenue since its 2005 introduction.
DIMINISHED SPARKLE. Investors also have been wary about the amount of money Microsoft has spent jumping into new markets, such as video-game consoles and software for small and midsize businesses. Those operations have added little in the way of profit. But Ballmer says that they "are really poised to take off."
With the slow growth and maturation of its product line, Microsoft has lost some luster. Indeed, investors have been keen on competitors such as Google and Apple, pushing their shares up while Microsoft's stagnated.
Ballmer says don't count Microsoft out. "We're going to be major players in every significant area, including areas like search and music," Ballmer says. "And we're thinking our future is bigger and bolder and brighter than I think many of the folks who watch us."
THEORY AND PROOF. Separately, Microsoft won a temporary restraining order that effectively prevents a former top researcher from joining Google. King Country Superior Court Judge Steven Gonzalez enjoined Kai-Fu Lee from working at Google in any job that related to search technology or work related to developing computer search technologies in China until the matter is decided at hearings starting Sept. 6. Google poached Lee away from Microsoft July 19 to start a research center in China.
At the conference, analysts mostly bought Ballmer's message, even if the stock isn't budging. Charles DiBona, an analyst with Sanford C. Bernstein, says that the stock -- stuck largely where it's been for most of the last three years -- should begin to climb as Microsoft introduces a series of new products in the next few months. "Once people start to believe, it'll start to move," DiBona says. If Microsoft delivers on the growth Ballmer promised, finding believers will become a whole lot easier.
Greene is BusinessWeek's Seattle bureau chief