The company’s shares finished the week ending April 28, 2006 at $24.15, down $3.10 or 11.4%, hitting a 52-week low. It was Microsoft’s biggest single-day drop since the dot-com crash at the start of the century.

The decline came after Microsoft said it expects $0.30 per share profit in the current fourth fiscal quarter, four cents lower than Wall Street analysts were, on average, expecting.

The shortfall will come, according to statements by CFO Chris Liddell during an analyst conference call, due to aggressive spending on marketing, hiring and product development in over a dozen markets where Microsoft is not the market leader.

While some speculated that the company has something a bit special up its sleeves or in its labs, perhaps a much-wanted Google-killer, Mr Liddell maintained that the strategy of investment is a broad-based approach across multiple fronts.

He named services, gaming, business intelligence, online services, high-performance computing, security, communications, VoIP, mobile, and IP television as some of the areas that would receive investment.

While the market was arguably reacting to the company’s disappointing short-term earnings prospects, the fact that Microsoft is taking new threats seriously enough to invest so much could indicate that the company does take them as threats to existing, as well as new, businesses.

The Web 2.0 movement, for example, if you can cut through the hype, could wind up eating into some of Microsoft’s traditionally high-margin software businesses, at least at the low end, where consumers could be attracted to cheap or ad-supported web-based office productivity applications.

Microsoft is having a hard time clawing its way out of third place in the portal/search market, where Google and Yahoo continue to dominate.

The company said that it is almost two-thirds of the way through its migration from Yahoo-based search advertising to its home-grown adCenter offering, but despite that, MSN ad revenue was up a paltry 7% to $357 million, compared to 80% and 36% growth at Google and Yahoo.

While online services are a hot topic, and an area where Microsoft has for years failed to leverage its Windows dominance and brand to grab the top spot, there are plenty of other areas where the company is seeking out growth opportunities.

The company has signaled its strategy to focus more directly on business intelligence software, for example, with its recent acquisition of longtime partner ProClarity, which developed visualization and analytics software for Microsoft’s stack.

At the other end of Microsoft’s diverse portfolio, the company is also pushing its Xbox 360 gaming console, which came out a few months ago and is selling more than expected.

Due to some hold-ups with the production of the rival PlayStation 3, it seems likely that Microsoft will have up to a year’s head-start on Sony, plenty of time to aggressively push more of its loss-leading consoles into the hands of gamers, grabbing market share for the more lucrative game disks.

Mr Liddell also named security as a space where Microsoft will invest. The company has been moving slowly in this market. It will be three years after its acquisition of antivirus technology before the company releases OneCare, its all-in-on desktop security suite, this June.

It’s a space where the firm has its work cut out. Its reputation for security is among the worst in the industry, and it will find itself fighting companies with incredibly strong brands and consumer channels, notably Symantec and McAfee. Marketing will be key.

There’s perhaps a broader picture here. Over the last few years, Microsoft has started to look like a more mature company, embracing mature company practices such as paying dividends and expensing stock options.

This, accompanied by the surprise size of its investment strategy, resembling more that of a younger, more aggressive firm, may have contributed to the stock sell-off. Whether the strategy reflects fear, or is simply a prudent move to keep on top of things, remains to be seen.