HOWZAT

It’s a similar story with mobile e-mail. As in music, Microsoft is painstakingly working with several partners to create e-mail-capable “smartphones”. But so far at least, the popularity of these Windows Mobile devices has been dwarfed by Research in Motion’s Blackberry.

However, Colony argues that Gates’s biggest worry should be Google, and a coming change in the nature of the internet that could undermine Microsoft’s business.

The worldwide web makes reams of information available in the form of simple files. Useful as this is, Colony predicts that the internet will soon offer not just information but applications (“the executable internet”) — applications currently sold by Microsoft.

The first evidence of this was seen last month when Google released an improved version of its desktop search tool. Desktop search is one of the most important new features to be included in Windows Vista. Anyone downloading Google Desktop 2 will find that a narrow strip of their computer’s screen has been taken over. Besides allowing users to search the contents of their computer easily, Google Desktop offers up news, weather, share information and quick access to the Gmail e-mail service.

In an interview last week with CNET News.com, Gates was dismissive of the threat from Google. “They really haven’t done that much,” he said. “Google people, because they are in the honeymoon phase, think that they do all things at all times in all ways. “We’ve had lots of competitors in their honeymoon phase. I’d say this is the biggest honeymoon I’ve ever seen.”

Despite Microsoft’s sluggish shares, financial analysts on Wall Street are noticeably optimistic about its prospects.

In the year to June, Microsoft made net profits of $12.2 billion (£6.8 billion) on sales just shy of $40 billion. The consensus of forecasts suggests sales will rise by 11% this year and next, to $44.2 billion and then $49.2 billion. Profit growth will be modestly faster.

At UBS, Bellini said that for such a big company “10% growth a year is pretty good”. Even after agreeing to return $75 billion to shareholders, Bellini forecasts that Microsoft’s cash pile will be approaching $50 billion again by June next year. She said the company was likely to increase its dividend sharply, and perhaps double it.

Tom Berquist, at Smith Barney, Citigroup’s research arm, said: “In the long term there’s definitely a question mark about growth. They’re just so large that it will be hard to show the growth that they showed through the 1990s.”

However, Berquist believes the busy product release schedule over the next 18 months should allow Microsoft to grow by 12% in 2007.

Richard Williams, analyst at Garban International Equities, is more sceptical of the company’s ability to get customers to upgrade to the new versions of Windows and Office, at least in the short term.

However, even though Williams has a “sell” recommendation on Microsoft, he remains optimistic about Microsoft’s longer-term future. He said the company could do for e-commerce software what it did in 1989 with Office — pull together a number of applications that work seamlessly with one another.

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