It is Sunday night and Steve Ballmer is sitting in a room in a Knightsbridge hotel, gesticulating, laughing and talking in a booming voice. He has been up for 29 hours and faces a packed day of meetings on Monday, but it is not holding him back. As he expounds on the software company's opportunities for growth, he starts to make a low, guttural sound, like a steam locomotive getting under way.

"There is still all that mainframe and Unix stuff. Wheeugh! We have not been a big player in management software. Wheeugh! Security. Huge number of things to do. Wheeugh-wheeugh! Devices like this" - he holds up a mobile phone. "I tell people we own 30 per cent of the smart phone business, but it is 2 per cent of the total phone market. So there is huge upside . . ."

If bull-headed enthusiasm and energy determined Microsoft's stock price, the company would be worth more than $307 billion (€293 billion). But despite its operating profits having grown by two-and-a-half times in the past six years, its shares are at half the level they were when Mr Ballmer took over as chief executive from Bill Gates in January 2000. That is an evident source of frustration.

"You could say that expectations of us in the financial markets have never been lower than they are today," he says. "At our meetings, people keep saying, 'Are you guys going to grow double-digit every year?' It is perfectly possible, but I am not going to commit to it . . . I think it is important to tell people what you are doing to drive growth, and then the market can believe you or not."

So far, he has had little luck convincing the market that Microsoft's best days are still ahead. Instead, investors are sceptical that it can find new sources of growth to match its Windows operating system and Office suite of applications.

Both have matured into enormous cash-generating franchises, with Office alone producing operating profits of between $6.5 billion and $7.5 billion a year.

Even if it had a free rein to muscle its way into new markets, that would be an extraordinarily tough task. Mr Ballmer says he commissioned an internal study to see what other single products generated as much profit as Office, and not even Camel cigarettes or blockbuster drugs matched it. "I would not tell people we will do it with one product. We are going to have to find a portfolio," he says.

Microsoft does not have a free rein, of course. For the past few years it has been under pressure from regulators and competitors to alter the way it works. Last week, it went to court in Luxembourg to try to gain the suspension of antitrust sanctions imposed on it by the European Commission. Microsoft wants to avoid having to produce a version of Windows with the media software removed.

One of the reasons for the appointment of Mr Ballmer, a long-time friend and colleague of Mr Gates, was to introduce a cultural change at the company - to create what has been called a "kinder, gentler" Microsoft. The ultra-competitive Mr Gates, who remains chairman, had come to personify Microsoft's brash, aggressive side - its tradition of elbowing its way into new markets.

Mr Ballmer, who is notably less likely to get riled when discussing criticisms of Microsoft than Mr Gates, says that he has made progress. "I know internally we have made massive cultural improvements. Not that we were poor, but whenever you focus in on something, you can get really good at it."

He admits that not everyone believes this, but he argues that perceptions will eventually "come into line".

The European case could be a turning point. Microsoft has settled in the US, but its tussle with the European Commission risks prolonging its reputation for being argumentative and unable to back down. Mr Ballmer says that it has tried to change this: "I think we have proven a willingness to work really hard to settle . . . There is enough data that people can see this is not an overly religious company."

But turning Microsoft into a more friendly giant is not enough, as Mr Ballmer says. "I tell our guys we are built on two pillars. We have got to be responsive and we have got to be innovative. I don't want to be the CEO of whom they say, 'Yup, his times were all responsiveness and no innovation,'" he says, breaking into loud laughter. "I want to be known as the guy who had both the pillars."

That is a harder task, for it requires Microsoft not only to find new products that can add substantially to its profits, but to produce them before its rivals do. As things stand, it still has a reputation as a company that executes well, but often follows others. This was true of its internet browser, and recent examples include the search engine (Google) and music (Apple's iPod device and iTunes software).

The mention of Apple's iPod makes Mr Ballmer even more animated. "Go out three years and I don't believe there is much money in the iPod . . . but even if it is not going to be super-profitable, people want to see us early [he snaps his fingers], first \, early \, first \. We have to push ourselves every day, and I think there are areas where we are doing super-well."

One of these is mobile telephony. Microsoft has been trying to push a version of its Windows software for use on smart phones, despite efforts by mobile phone operators and equipment manufacturers to prevent the company becoming too powerful. Mr Ballmer thinks that its software could be sold on 100 million phones a year within five years.

"I think we are doing a pretty darned good job in a market that is relatively nascent," he says.

A second area of potential growth is in services relating to Microsoft software. Mr Ballmer says it could provide support for small businesses and consumers whose personal computers go wrong. "I don't know who is the IT department at your home, but at mine, I am. I think there is room for a computer-based service that . . . simplifies and improves life quite dramatically."

A third area is software that allows cable and phone companies to distribute television programmes over cable or digital subscriber lines. "There are enough people watching television [to create\] a big opportunity. We just charge [cable and phone operators] a tiny little bit of money, not even 'annoy-them' money," says Mr Ballmer.

Despite this, investors are sceptical. Few believe Microsoft will be as dominant in such areas as it is in personal computers. Telecommunications, cable and media companies will not concede such strength to a software company and they have considerable bargaining power to prevent it happening.

One example is in software for decoding and playing music and films. Mr Ballmer believes that no single company from the three main competitors - Real Networks, Apple and Microsoft - will be able to corner the market. "If we could do that, we should. Our shareholders would want us to. But the truth is, that is not the reality of what will be permitted by the market," he says.

"The movie companies are quite powerful, and they want to see their movies play on a variety of different kinds of devices... I do not think the Apple approach [songs encoded in Real and Microsoft media software cannot be played on Apple iPods] is sustainable, even for what it is doing today . . . Nobody is going to be able to take a toll for the format."

Does all this add up to a kinder but weaker Microsoft? That is what the market suspects, but Mr Ballmer is having none of it. "Kinder and gentler doesn't mean not competitive. We always had, and will have, competition. We will come in every day and ask, 'Do we offer better value than that guy?' and when we don't, we'll say: 'Let's go out and fix it.' " - (Financial Times Service)