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.”

Devices like the Razr2 V8 haven’t done enough to raise Motorola’s profile and its revenues. Image: Motorola

CEO Greg Brown says splitting the company will improve Motorola’s focus. Image: Motorola

The year is 2010, and the Motorola brand is hot again. By aggressively retooling its design and manufacturing processes, the independent cell phone business has returned to profitability, grabbed back market share from Samsung and Sony Ericsson, and gained on Nokia (NOK) with low-cost handsets in developing markets like India and China.

Meanwhile, in its separate wireless equipment business, Motorola has outmaneuvered tech titan Cisco (CSCO) in the corporate market, and out-innovated both Cisco and Apple (AAPL) by reinventing set-top boxes that bring the Internet to the TV. Investors are thrilled, and they trace it all back to Motorola’s (MOT) breakup announcement in March 2008.

Sound like a fantasy?

Odds are, that’s all it is – and that’s the downside to the Schamburg, Ill., company’s announcement Wednesday that it will split itself in half in 2009. Though the news is probably music to the ears of activist investor Carl Icahn, who has been agitating for a breakup to boost Motorola’s flagging stock price, it’s difficult to see how two mini-Motos will be better positioned to compete with some of the best-managed competitors in the technology world.

Motorola CEO Greg Brown sees the spin-off differently. “I think it provides a clear sense of our intentions and direction,” Brown tells Fortune. “The independence, improved focus and alignment of individual organizations will facilitate and enable stronger performances.”

We’ve been here before, however. In previous slumps, Moto management hocked heirlooms like the automotive and semiconductor divisions in the name of raising money and gaining focus. Did it work? Well, if trimming divisions were the recipe for its success, Motorola would be thriving by now. Instead the firm has swung from a $3.6 billion profit in 2006 to a $49 million loss in 2007, and the stock is flirting with five-year lows. Motorola’s problem isn’t size – it’s discipline. “Every time they go back to the drawing board, they start talking about selling off businesses, splitting up the company,” says Shawn Campbell, of Campbell Asset Management, who has followed Motorola for years. “They’re running out of things to sell.”

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.

A moody market braces for a big earnings week. How ugly will it get?

It’s time to face the music.

When leading tech companies offer their earnings numbers this week, Wall Street’s focus won’t be on how healthy their overseas businesses are, or how strong sales were during the holiday season. Instead, with global financial markets in turmoil, analysts will be sensitive to hints that executives are losing their sunny optimism.

The market was all set to throw itself a big pity party, and along comes IBM to ruin it all. But it’s too soon to say Big Blue’s sunny report will be enough to breathe life back into tech stocks.

Inside HP’s plan to get more bang for its research buck

Prith Banerjee, former dean of the engineering school at the University of Illinois at Chicago, brings new ideas to his role as director of HP Labs. Image: HP

It’s a tale nearly as old as Silicon Valley itself. Nearly 30 years ago, a young Steve Jobs visited the scientists at Xerox’s Palo Alto Research Center and spied the first computer that had a mouse and desktop icons. Jobs soon commercialized similar ideas at Apple’s (AAPL), but Xerox couldn’t seem to take the brilliant concepts from its own labs and turn them into marketable products.

Today Hewlett-Packard (HPQ), the valley’s largest tech company, wrestles with a similar problem. Though HP’s advanced research group once invented wonders such as the scientific calculator, the thermal inkjet printer and commercial LED lighting, these days executives feel HP Labs and its $150 million annual budget could do more to boost the company’s bottom line.

Cisco Systems CEO John Chambers gives a presentation in July. Image: Cisco

To understand why Cisco CEO John Chambers is still bullish on the company’s growth prospects in an uncertain economy, consider the change underway at the BBC.

The European public service broadcaster is in the throes of a major digital transformation. Its online operation, bbc.co.uk, moves a staggering 1.3 petabytes of data every month to its audience – the equivalent of transmitting all the print holdings of the Library of Congress twice, every day.

But an even bigger wave is coming on Christmas day. That’s when the BBC plans to widely launch iPlayer, video software that allows people to download programs to their computers. By the broadcaster’s internal estimates, traffic will quadruple in a year – so the BBC is now in the market for lots of the gear Cisco sells.

As credit fears worsen, technology stocks are among the hardest hit

The tech-heavy Nasdaq fell more than 2 percent Monday, despite evidence of strong holiday sales online.

After an upbeat first weekend of holiday sales, there was reason to hope that the rest of the shopping season will be strong, too — perhaps strong enough to give the economy a boost and lift tech stocks in the process.

But after the markets closed Monday those hopes didn’t seem so high.

Tech stocks tanked to start the week after Thanksgiving, despite a heavy Black Friday retail turnout and high expectations for its online equivalent, Cyber Monday. Rather than focus on the ringing cash registers, investors worried that the good times won’t last because faltering credit markets will pave the way toward a recession.

HP CEO Mark Hurd. Photo: HP

There you have it, tech investors. Hewlett-Packard’s earnings might be the best news you’ll hear for a while.

And the numbers were quite good. The world’s largest PC maker reported fiscal fourth quarter revenue and profit that once again surpassed analyst expectations, thanks to strong sales of laptops and printer ink. HP’s (HPQ) sales to businesses were strong during the quarter, flying in the face of investor fears that CFOs are starting to clamp down on spending as high oil prices and subprime lending woes threaten the broader economy.

Despite the uncertainty, this much is clear: We won’t soon see a run in tech stocks like the one that just petered out.

Break out the orange juice and aspirin: Wall Street’s tech party is officially in hangover mode.

Investors don’t have to look far to see the signs. Apple (AAPL) shares are down 14 percent from their high of $192 earlier this month. Google (GOOG) shares are down 15 percent, and Research in Motion (RIMM) 22 percent.

Of course, it’s hard to feel too much pity for long-term holders of these feel-good stocks, since their recent tumbles have merely put them back at their September and October levels. But now is a good time to face a sobering truth: It will be many months before the markets throw another another tech party like the one that just ended — and holiday sales could be the best gauge of how bad things will get.