Microsoft Corp shares fell more than 4 percent to a six-week low on Friday, dragging down much of the tech sector, as investors fretted about the strength of the company's core Windows franchise and the broader threat to personal computers from tablets.

Shares in PC-focused companies such as Intel Corp, IBM, Hewlett-Packard Co and Dell Inc also fell in a lower market, in the face of decelerating PC sales.

There's so many other more appealing growth opportunities out there, said Channing Smith, a co-manager at Capital Advisors Growth Fund, which sold its Microsoft holdings last summer. Our focus is growth in mobile Internet. Frankly, Microsoft is not a major player there.

Although Windows 7 sales are still strong -- it has now sold more than 300 million licenses for its new operating system since launch in October 2009 -- a shortfall in sales against analysts' expectations in the last quarter has prompted fears that consumers' limited buying strength will be directed to smartphones and tablets.

Those markets, led by Apple Inc's iPad and devices running Google Inc's Android system, are growing at a faster pace than PC sales and look set to eat away at Microsoft's key market.

Tablet demand is likely to weigh on consumer Windows sales, as we expect the iPad version 2 and new Android devices in the coming months, said Wells Fargo Securities analyst Jason Maynard in a research note on Friday.

Microsoft has tended to downplay the importance of tablets, but Chief Financial Officer acknowledged that their popularity has started to affect PC sales, especially as a replacement for netbooks -- small PCs mostly running Windows. Netbook sales peaked last year.

What we've seen is, over the course of this year in the consumer space, some of that (netbook) volume being replaced with newer devices like ultra-portables and tablets, Klein said in a conference call with analysts on Thursday. Largely, these are second devices, not primary devices. And that's caused a little bit of a drag on the consumer side.

WINDOWS SHORTFALL

Even though Microsoft beat earnings and sales forecasts, investors were cool on its quarterly numbers because of a shortfall in Windows sales and signs that spending by both business and consumers is not as strong as some had hoped.

Deferred revenue is where you go to look for the business demand and it wasn't there, said Jane Snorek, technology analyst at First American Funds. That's very strange considering a lot of companies like IBM, SAP and Oracle had very nice budget flushes. I think that was a shock.

Microsoft's deferral of unearned revenue in the quarter -- a measure of the strength of the business in its pipeline -- fell 1.3 percent to $6.8 billion. Overall, Microsoft's unearned revenue fell 9.5 percent to $13.4 billion.

J.P. Morgan said concerns regarding tablets will hang over Microsoft like a dark cloud and wondered if the slew of new Android tablets expected to flood the market in the June quarter will make recently reduced PC unit shipments too optimistic.

FBR was skeptical about a strong enterprise PC refresh cycle and expected tablets to impact Microsoft's core desktop franchise.

BofA Merrill differed, saying that while the threat from Apple and concerns on Microsoft's long-term growth are valid, the company's enterprise business can drive growth through upgrade and refresh cycles.

Despite the recent bounce in (Microsoft) stock, the market discounts almost zero terminal growth, which is unwarranted, it added.

Microsoft executives remained upbeat and dismissed concerns about tablets.

Jean-Philippe Courtois, president of Microsoft International, told Reuters that devices are going to go and come and that the company was making progress in developing products in the tablet arena.

Despite rising about 13 percent over the past six weeks up to Thursday's close, Microsoft shares are still down 7 percent over the past year, compared with a 21 percent rise in the Nasdaq. The shares are now trading at about 11 times expected earnings for the next 12 months, a 40 percent discount to the 10-year median of 18.5, according to Thomson Reuters StarMine data.

Shares in Microsoft were down $1.17, or 4.1 percent, at $27.70 in late afternoon trade on Nasdaq. The stock hit a session low of $27.45, its lowest since mid-December.

(Reporting by Liana B. Baker in New York, Bill Rigby in Seattle and Jennifer Robin Raj in Bangalore; Editing by John Wallace, Phil Berlowitz, Gary Hill)

Microsoft Fall