Microsoft stock has crept higher since it sank three months ago on word of its Yahoo bid.

Can Microsoft do it again?

Late last year, investors and analysts were wringing their hands over a tech stock collapse. With the economy starting to slow, investors punished a slew of big techs including Microsoft (MSFT), IBM (IBM) and Hewlett-Packard (HPQ). Not even hot-growth companies like Apple (AAPL) and Research in Motion (RIMM) were spared.

Then Microsoft reported earnings in January, and the sun came out: $6.5 billion in profit for the holiday quarter on sales of $16.4 billion. And best of all, the forecast was bright. “We actually feel very optimistic,” said Microsoft Chief Financial Officer Chris Liddell. “The next six months we feel very good about.”

In six weeks, Yahoo will get one more chance to prove it can turn things around without Microsoft. Courtesy of Yahoo.

Yahoo stock spiked after Microsoft’s bid, reclaiming levels it last saw in November when investors were more optimistic.

Six weeks ago, Microsoft CEO Steve Ballmer sent shockwaves through the tech world when he offered more than $40 billion to buy Yahoo. And about six weeks from now, Yahoo’s unwilling executives may have their last, best chance to wiggle free of Ballmer’s grip.

That’s because late next month, Yahoo will present its latest earnings numbers to Wall Street. Investors will pick through the sales and profit numbers, ask incisive questions, and potentially bid its stock price up or down, effectively tipping the scales in favor of either Yahoo (YHOO) or Microsoft (MSFT).

It could be Yahoo’s final opportunity to prove it can thrive on its own. For nearly a year, investors waited for CEO Jerry Yang to deliver his promised shakeup and begin taking market share from Google (GOOG). But Yang was slow to trim staff or make other changes, and the stock lost nearly a third of its value on his watch. That set the stage for Yahoo’s annual meeting sometime this summer, where Microsoft is expected to try ousting Yahoo’s board and installing directors who will bless its takeover plans.

Analysts don’t expect much from Yahoo. On average, they expect revenue of $1.32 billion, which is at the low end of the range that executives gave in January.

Microsoft Chairman Bill Gates talks about SharePoint updates. Image: Microsoft

Hoping to draw attention away from Google’s (GOOG) online software efforts, Microsoft (MSFT) Chairman Bill Gates is set to announce the expansion of a program that lets business customers collaborate on the web.

On Monday at its SharePoint conference in Seattle, Gates is expected to say that Microsoft Online Services, which has been available since September to businesses with 5,000 or more employees, will be open to smaller companies later this year. The subscription-based service offers e-mail, productivity, and audio/video conferencing, and is available now in beta.

Online software may be the future of computing – but the truth is, it’s far from perfect.

• February 12: Research in Motion’s BlackBerry e-mail service goes on the blink for three hours, and slows again a week later.
• February 15: Problems with Amazon Web Services’ S3 online storage service takes several sites down for two hours.
• February 24: Google’s YouTube video service is knocked offline.
• February 26: Some customers of Microsoft’s Hotmail e-mail have their service unavailable for several hours.
  Continue Reading: “‘Cloud’ computing’s reliability gap”

Heartwarming though it was, last week’s declaration of software openness from Microsoft (MSFT) won’t end its regulatory troubles. European antitrust watchdogs made that clear Wednesday.

The European Commission fined the software giant a record $1.3 billion, saying the company for three years overcharged competitors for information on how to make products that work with Microsoft’s dominant Windows operating system. Microsoft was quick to portray the fine as an echo of the past, noting that regulators have said Microsoft is now living up to its commitments.

But it’s not so simple. The fine also shows that European regulators still have a bone to pick with Microsoft, and that could make it tough for the company to take bold steps to acquire competitors and compete with Google (GOOG).

Like a lion chasing a weakened gazelle, Microsoft knows it will capture Yahoo eventually. The challenge now is to do it as quickly and painlessly as possible.

To that end, Microsoft (MSFT) is moving in for the kill. The software giant is poised to take its takeover bid of more than $40 billion directly to Yahoo (YHOO) shareholders, overthrowing a Yahoo board of directors that dismissed the offer as too low. Microsoft executives hope that by forcing a shareholder vote, they can get speedier regulatory approval and avoid having to fork over billions more for Yahoo.

Why the bid for Yahoo? Microsoft CEO Steve Ballmer is prepared to take drastic measures to make sure Google doesn’t shove the software giant out of the ring. Photo: Microsoft

The depth of Microsoft’s online problem became clear 18 months ago, when Google trumped its bid to handle search advertising for MySpace, the popular social networking site.

MySpace owner News Corp. (NWS) liked Microsoft (MSFT) well enough. But it had to go with the money. Because Google (GOOG), the top search engine, could guarantee a larger audience and thus more revenue in a search deal, it won the MySpace account. “They said to Microsoft, ‘Look, if you can get there in revenue we’d prefer to go with you,’ ” said a source familiar with Microsoft’s side of the negotiations. “It came down to a pure economic decision.”

Technology battles often unfold like sumo matches, where the biggest companies win by pushing opponents around – and Microsoft, the world’s largest technology company by market value, has dominated the wrestling ring for years. But in the online world, Microsoft finds itself in the unusual position of small fry, getting shoved aside by Google.

News Corp. is in talks with Yahoo about a possible combination. But is the deal real, or just a game?

Does News Corp. really want a piece of Yahoo?

Word leaked out Wednesday that Rupert Murdoch’s News Corp. (NWS) is looking at taking a stake of 20 percent or more in Yahoo in exchange for MySpace, some cash and other online properties. An infusion from News Corp., the reasoning goes, could boost Yahoo’s stock price high enough to outstrip Microsoft’s (MSFT) hostile takeover attempt.

This is probably as close as Yahoo (YHOO) will get to a white knight scenario where someone saves the company from the clutches of Microsoft. But a News Corp. deal probably won’t happen.

Why?

Yahoo’s board of directors has spurned Microsoft’s takeover bid, calling it too low. Courtesy of Yahoo.

Yahoo stock spiked after Microsoft’s bid, reclaiming levels it last saw in November when investors were more optimistic.

Yahoo’s (YHOO) board of directors unanimously rejected Microsoft’s (MSFT) marriage proposal as too cheap, a bold move that could force Microsoft to instigate a shareholder revolt in order to get its prize.

In a press release Monday morning, Yahoo said Microsoft’s offer of more than $40 billion “substantially undervalues” Yahoo’s brand, audience, investments and potential. On Wall Street, Yahoo’s stock started the week up about 2 percent and Microsoft down nearly 2 percent, suggesting that investors believe Microsoft will have to sweeten its offer.

Microsoft responded on Monday afternoon with a statement calling it “unfortunate” that Yahoo turned down its proposal, and saying that Microsoft “reserves the right to pursue all necessary steps” to ensure that shareholders get the opportunity to have their say.

Though Yahoo is playing hard to get, Microsoft has positioned the takeover as the only way either company can compete with a rapidly ascendant Google (GOOG). Google has such a dominant share of search engine customers that other companies can’t create a strong alternative, and advertisers have no choice but to spend most of their money with Google. Microsoft believes that by purchasing Yahoo, the number-two search provider and one of the most popular online destinations, it can quickly turn itself into a serious contender.

Microsoft’s $40 billion bid would be hard to refuse, but there are escape routes.

Yahoo co-founder and CEO Jerry Yang spurned Microsoft’s advances more than a year ago, and insiders say he’s now exploring ways to evade the hostile bid. Courtesy of Yahoo.

Yahoo stock spiked after Microsoft’s bid, reclaiming levels it last saw in November when investors were more optimistic.

Microsoft stock has slipped to September levels as investors express concern about its hostile bid of more than $40 billion for Yahoo.

Since Microsoft bid more than $40 billion for Yahoo last week, the Internet pioneer’s future has been very much up in the air. Many observers seem to think Microsoft will win its prize, given the truckload of cash it’s offering — but others aren’t so sure. In fact, there are ways that Yahoo might get away.

If Yahoo (YHOO) co-founder and CEO Jerry Yang is to wiggle his company free of Microsoft’s (MSFT) clutches, he’ll have to:

a) Find a white knight willing to top Microsoft’s bid.

b) Outsource search to Google; or

c) Break off bits of the company to boost the stock price.

None of these options looks like a strong possibility. Here’s why.

For those who like the idea of Yahoo controlling its destiny, there’s a certain appeal to the white knight scenario — at least Yahoo gets to pick its suitor rather than submit to a shotgun wedding. But the problem here is that Yahoo’s carries an expensive dowry, and the companies that can afford it probably won’t pay.

Traditional media companies like Time Warner (TWX) or Disney (DIS) would be a natural fit, but they can’t afford Yahoo. Many of them already have plenty of debt, a paucity of cash, and the legacy of the AOL/Time Warner deal to remind them (and investors) how badly these old media-new media deals can go. The one company that might have had the credibility to make such a bid is News Corp. (NWS), but CEO Rupert Murdoch has already ruled that out.

Then there are the tech companies like Hewlett-Packard (HPQ), Cisco (CSCO) and Apple (AAPL), which, like Microsoft, could possibly afford to acquire Yahoo with a combination of cash, debt and stock. But why would they? Buying Yahoo means taking on Google, and that’s something most big Silicon Valley companies would just as soon avoid. Just look at Apple — Google’s maps are among the most popular pieces of software on the iPhone, and Steve Jobs has said his engineers love working with Google. Why mess with a good thing?

And what about the idea that a sovereign wealth fund could get into the mix? Overseas investors have been on a spending spree lately, taking advantage of the plummeting dollar. Last May, China’s fund put $3 billion into Blackstone Group (BX); in November Abu Dhabi put $622 million into Advanced Micro Devices (AMD) and $7.5 billion into Citigroup (C). But those numbers are still far short of Microsoft’s $40 billion offer.