After transforming itself into a blue-chip stock with predictable dividends, Microsoft Corp. (MSFT) faces its toughest sales pitch ever — convincing investors it's still a growth stock.

So far, the effort by the world's largest software maker has been unsuccessful. Its shares have fallen 8 percent from a year ago and lost half of their value in the last five years since the peak of the tech boom.

Microsoft sees "significant continued growth in the decades ahead," Chief Executive Steve Ballmer (search) told shareholders last year.

The company known for its ubiquitous Windows operating system (search) is investing in software from home entertainment to accounting programs for small companies.

For the current fiscal year ending in June, however, Microsoft is targeting modest revenue growth of 2.7 percent to 6.5 percent, its slowest ever, from the $36.8 billion in its last fiscal year.

When Microsoft reports fiscal second-quarter earnings next week, analysts are expecting the company to head toward the top end of that forecast, with $10.5 billion in quarterly revenue and a profit of 29 cents a share, according Reuters Estimates.

Analysts said they'll be looking for signs of improved profitability in Microsoft's Xbox (search) home business during the last three months of 2004, which could raise hopes for a strong debut of the next generation of its Xbox video game console, which is widely expected to be unveiled in time for the 2005 holiday season.

"The home and entertainment business, they'll be a lot closer to profitability," said Matt Rosoff an analyst at Directions on Microsoft, an independent research firm based in Kirkland, Wash. "That will be interesting to watch."

After paying out its first-ever dividend, ending employee stock options and doling out the biggest-ever cash payout by a U.S. company, Microsoft is finding it tougher to convince investors that it is a high-growth company, analysts said.

At Friday's close of $25.65, Microsoft's shares are trading at roughly 35 times earnings, a valuation between high-growth tech stocks and blue-chip stocks.

"The stock is still tied to growth in the units of PCs," said Alan Davis, analyst at McAdams Wright Ragen.

Technology researcher IDC said this week it expects yearly PC shipment growth to slow in 2005 to 10 percent from 14.7 percent in 2004.

But Davis also noted that competition from Linux (search) in the market for server software means that Microsoft won't be able to capture as large a share of PC sales as it did in the past.

Microsoft, based in Redmond, Wash., is still working on the next version of Windows for desktop and servers, code-named Longhorn (search), that it hopes will better compete against Linux. Longhorn is due out in 2006, nearly five years after the release of Windows XP (search).

"They've successfully made that transition from hypergrowth and now they're a more stable, blue-chip company," Rosoff said, "People are not expecting 20 percent growth anymore."