Goodbye, growth. Hello, dividends! Associated Press Microsoft’s after-market announcement of a 23 percent dividend increase, bringing its quarterly payout to $0.16 per share (a yield of about 2.5 percent), is the next step in a transition I first began to notice this July at the company’s annual meeting for financial analysts.

For most of its history, Microsoft has tried to present itself as a growth company. The market clearly disagrees—the company’s P/E ratio sits at less than 12 this morning, which is more typical of a value company than a booming tech company with huge future growth potential.

Microsoft finally appears to be coming around to this point of view itself.

My first indication of this was the company’s Financial Analyst Meeting (FAM). I’ve been attending this meeting for the last decade, and nearly every year I’ve seen Microsoft executives get up and explain how its latest investment into some big new business area would translate to future growth.

The acquisitions of accounting software companies Great Plains (2001) and Navision (2002) were supposed to contribute $10 billion of incremental revenue by 2010. In 2002, CEO Steve Ballmer noted that 450 million mobile phones would be sold in 2003 and said “you don’t have to envision getting much revenue per device for that to look like a pretty interesting business.” In 2005, Ballmer noted that total online advertising revenue would grow an additional $10 billion over the coming three years, and promised that Microsoft would capture a significantly greater percentage of that growth thanks to its move into search. (Yes, Microsoft has been at search for more than five years. Pause for breath.) The next year, then-President Kevin Johnson said that the “market opportunity” in online advertising would double from $40 billion to $80 billion by 2010, and that the $6 billion acquisition of aQuantive (remember that?) would help Microsoft capture some of this value. Another president, Jeff Raikes, claimed that unified communications--a fancy term for using PC and server software to replace outdated PBX phone systems—would be a $45 billion opportunity by 2009.

Console gaming. Digital media. An interrelated system of online communication and data-sharing services called Hailstorm that Microsoft could never quite explain but had something to do with .NET. (Basically, it was Google’s non-search business plus Facebook, envisioned in 2001, without the ad revenue to support it.) You name it, Microsoft’s pitched it. None of it has helped Microsoft recapture the growth of its early years.

This year’s FAM was starkly different. Microsoft didn’t discuss a single major new business area or throw out a single projected number. Instead, it spent the day talking about existing businesses and how it

would extend them to the cloud.

In one sense, cloud computing is a big shift for Microsoft, which built its empire on the desktop and corporate data center software. It’s a different delivery model, uses a different partner model, and will offer different (probably lower at first) margins.

But the actual pitch has changed very little: Microsoft software—sorry, Microsoft online services—can make your employees more productive, reducing your labor costs. The target audiences are those where Microsoft has had the most success: large enterprises, mid-size businesses, and developers. And it’s facing the same old incumbents: Exchange Online is another way to pick off old installations of Lotus Notes. Windows Azure is another way to peel developers off from newer Web-centric technologies.

Compare that with the company’s previous move into advertising—a business with completely different customers, sales methods, and entrenched competitors than Microsoft had ever faced, requiring new employees with totally different skills.

Mobile? It got barely a mention at FAM. That’s because it’s more about protecting Microsoft’s enterprise software from alien invasions like the iPhone and Android—Microsoft doesn’t sell phones, so can’t make the kind of money Apple and RIM do. The response to the iPad? Simple—Windows PCs with touch screens. Nothing new here. Move along.

The investment community seems to have missed it, but Microsoft’s pitch about the cloud was an admission that it’s no longer trying to recapture the go-go growth of its early years. Ballmer’s no longer playing the crazy billionaire with an open wallet who nearly fatally overbid for Yahoo. He’s playing the competent sober manager, preserving core businesses and expanding them in directions where there’s actually a chance of achieving majority—if not monopoly—market share. According to many people who’ve worked closely with him, this is a lot closer to his true personality anyway. That vision thing was never a very good fit.

So what’s next? The dividend increase was another strong signal that the transition's underway. If the economy and Microsoft's cash flow situation hold up, look for more incremental increases. Next might be a slow and unannounced pullback from non-core businesses. It may already be happening: last year, Microsoft manager Shane Kim (now gone) remarked that the company hopes to keep the Xbox 360 alive for ten years. That doesn’t sound like a company excited about the growth potential in console gaming and ready to pin Nintendo and Sony to the mat with the next generation. That sounds like a long, slow exit from a business that never made much sense for Microsoft in the first place.

Matt's an analyst at Directions On Microsoft. He has been covering the company more more than a decade.