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.”

The HP Mini laptop is aimed at the education market, but it could appeal to road warriors as well. Image: HP

Pick up HP’s new $500 mini-laptop, and the first thing you notice is the aluminum casing. Though the thing weighs only about 2.5 pounds, what’s striking is how its sleek skin makes it feel solid and professional – not at all what you’d expect from a budget PC.

I’m in a suite at the Palace Hotel in San Francisco getting a first look at Hewlett-Packard’s (HPQ) latest machine, which the company hopes will help it steal share from Dell (DELL) and Apple (AAPL) in the education market. (Each of the three companies has just under 20 percent of the worldwide market.) HP’s development team, I’m told, consulted educators as they designed the 2133 Mini-Note, and as I turn the laptop over in my hands that comes through in little details.

Microsoft has a profitable business building software for the Mac; now it has an eye on the iPhone, too. Image: Apple

Tom Gibbons, head of Microsoft’s Specialized Devices and Applications Group, said the focus would be on extending Office functions onto the iPhone and iPod touch. Image: Microsoft

Don’t think for a minute that Microsoft is ignoring the iPhone. In fact, the software giant is probing the gadget for profit opportunities.

For a little more than a week, a team of the company’s Silicon Valley software engineers has been examining the iPhone software development kit (SDK for short), a set of tools Apple (AAPL) released this month that let outsiders build software for the iPhone and the iPod touch. Microsoft (MSFT) executives aren’t sure yet whether they’ll find worthwhile opportunities to sell iPhone software – but they seem eager to find out.

“It’s really important for us to understand what we can bring to the iPhone,” Tom Gibbons, corporate vice president of Microsoft’s Specialized Devices and Applications Group, told Fortune on Monday. “To the extent that Mac Office customers have functionality that they need in that environment, we’re actually in the process of trying to understand that now.”

Though it’s typical to think of Apple and Microsoft as pure software rivals, their relationship is actually more complicated. For more than a decade, Microsoft has maintained a group of engineers whose sole job is to develop software for Apple’s Macintosh operating systems. Most of the engineers in Microsoft’s Mac Business Unit are based in Mountain View, Calif., a few miles from Apple’s headquarters. (They also happen to be quite close to the headquarters of archrival Google (GOOG).)

The Mac unit’s work certainly isn’t charity – it delivers millions of dollars in profit for the company with its Mac version of the Office productivity suite. Microsoft doesn’t break out exact numbers, but we can extrapolate: Gibbons said the Mac Business Unit provides about a third of the revenue for the Specialized Devices and Applications Group, which also includes Windows Embedded, Microsoft Hardware, the Automotive Business Unit and Microsoft Surface Computing; the whole group did more than $1 billion in sales last year. So it’s reasonable to guess that the Mac unit provided about $350 million – and since Gibbons said the Mac group was one of the group’s more profitable units, it’s possible that Microsoft made somewhere in the neighborhood of $200 million in profit from Mac software.

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.

HP Chief Strategy and Technology Officer Shane Robison says the reorganization of HP Labs should speed innovation and eventually boost profit margins. Image: HP

Now that it’s an undisputed turnaround story, Hewlett-Packard (HPQ) is looking for ways to fuel long-term growth. An important piece of its plan is HP Labs, a group of 600 top-flight researchers who work to develop breakthrough technologies. To better position HP Labs as a growth engine, the company announced Thursday that it will refocus its efforts on five areas: Information explosion, dynamic cloud services, content transformation, intelligent infrastructure and sustainability. (Earlier: Turning an idea farm into a hit factory)

I sat down with HP strategy and technology chief Shane Robison to talk about the research shift, and what it means for the company. Below is an edited transcript of our chat.

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.