Microsoft Faces Challenging Year In 2003 It Needs New Ways To Grow Software giant aims to tap new Web services market while boosting its older fare.(A)

Byline: PATRICK SEITZ

The federal government's antitrust lawsuit is largely history, so Microsoft Corp. is free of one major distraction in 2003. But the software giant has no shortage of other challenges this year.

Most of those challenges are internal. Microsoft has to find ways to increase sales in its core businesses of computer operating systems and productivity software. It also has to turn around money-losing ventures and gain a competitive edge in next-generation Web services software.

"The biggest challenge for Microsoft remains growth," said David Smith, an analyst with market researcher Gartner Inc.

This year, Microsoft has two big product launches.

First up is Windows .Net Server 2003, its latest operating system for server computers -- the machines that run corporate computer networks. Microsoft hopes to get the many holdouts still using its six-year-old Windows NT 4.0 operating system to upgrade. Windows .Net Server 2003 is set for release in April.

Next up is the newest release of Microsoft's Office productivity software suite. Code-named Office 11, the product is scheduled for a midyear release. The last upgrade to the product, Office XP, did relatively little to boost the company's bottom line.