Things are as tight as a tick over at Yahoo and Microsoft about the deal the pair have been discussing over the last months–as execs shuttle back and forth and forth and back and their boards deliberate on what will surely be one of the most important decisions for either company for the near-term future in the digital space.

As various reports debate the terms of the deal, it is critically important to remember that, done badly or with too much haste, this massive and extremely complex deal is one with even greater potential to tank.

“It could be game-changing or it could be one the biggest bombs ever,” said one exec close to the situation. “So, obviously, everyone is treating this very delicately.”

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How low can Microsoft go?

Very low, it seems, in announcing really bad fourth-quarter earnings, missing Wall Street revenue estimates by an astonishing $1 billion.

Talk about a game of extreme limbo.

No surprise–Microsoft shares have been taking a beating in after-hours trading.

BoomTown liveblogged the earnings call.

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And there it was in Yahoo’s second-quarter earnings call yesterday, when–as the first question–an analyst asked Yahoo CEO Carol Bartz what she thought about Bing, the new and innovative search offering from Microsoft.

“I think actually Bing is a good product,” said Bartz. “I think they’ve done a good job. I think Microsoft should be given kudos for Bing.”

It was a politic thing to say, to be sure, especially with Microsoft and Yahoo still zeroing in on a search and online advertising partnership deal, as has been previously reported by BoomTown.

Sources I have spoken to over the past two days say the deal is still on good footing and could be struck very soon, even as early as tomorrow, although it is still not a certainty–especially given the bumpy history between Yahoo and Microsoft.

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If there’s an earnings call at Yahoo, you know BoomTown is going to liveblog it!

Will Yahoo CEO Carol Bartz say something naughty? (Nope!) What is new CFO Tim Morse like? (Nice!) Will they say anything about the talks with Microsoft about a search and online advertising partnership? (No!)

Oh, it might be a corker!

The earnings results for the second quarter certainly were not.

Here’s the conference call, updated as it happened.

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Yahoo reported so-so second-quarter earnings results today, with a decline in revenue, but with a slightly stronger-than-expected improvement in net income.

For the three months ended June 30, the Internet giant said it had revenue of $1.14 billion, excluding traffic-acquisition costs, down from $1.35 billion in the same period a year ago.

Profit was up eight percent, due to cost-cutting. Yahoo said it earned $141.4 million, or 10 cents a share, in the quarter, compared to $131.2 million, or nine cents.

But that’s not really saying much since Wall Street analysts had such low expectations, estimating Yahoo would earn eight cents. But, with a weak advertising market, it is also not that bad.

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Yahoo and Microsoft are still seriously talking about a search and partnership deal, never-ending discussions that might or might not come to fruition. But most investors will be focused on real results this week, as both tech giants report quarterly earnings.

Yahoo reports tomorrow, while Microsoft clocks in Thursday.

But, after a ho-hum performance last week from Google, Wall Street is not expecting much from either, as the econalypse continues to take its toll on financial performance.

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Oh, they’re still talking. Except when they’re not. And, then, they are.

Such has been the course of discussions Yahoo and Microsoft continue to be engaged in about a possible partnership deal around search and online advertising.

“It runs hot, then cold, then hot, then who knows,” said one person close to the situation.

It’s kind of like a digital version of the romantic travails of Lindsay Lohan and Samantha Ronson, minus the paparazzi and screaming matches in trendy clubs.

Here’s an update of the talks.

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Well, despite the news being as bad at Microsoft as it was at Yahoo earlier this week, the conference call after the software giant released its third-quarter earnings was 100 percent less naughty and 200 percent more glum.

In other words, while there were no F-bombs dropped, there were lots of E-bombs–as in econalypse.

Here’s BoomTown’s liveblogging of the call–featuring the software giant’s semi-apocalyptic CFO, Chris Liddell.

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Microsoft’s earnings and revenue took a hit in its third quarter, as expected, with profits down 32 percent from a year ago on a six percent sales decline.

Before one-time charges, the software giant earned $2.98 billion, or 33 cents a share after one-time charges, on revenue of $13.65 billion.

The weak results were relatively in line with analysts’ estimates of 39 cents a share on $14.1 billion in revenue.

The culprit for the bad news was the decline in consumer and business spending on computers since half Microsoft’s operating income comes from sales of its Windows operating system.

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For those who cannot get enough of either a report on Yahoo’s first-quarter earnings or a liveblog of its conference call on the subject, here are the slides the company released about the results.

Yes, BoomTown is dropping the F-Bomb–that would be for financial slides for Yahoo–so get your mind out of the gutter!

Enjoy the charts!

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A major Yahoo investor yesterday told me that he liked what he saw so far from new Yahoo CEO Carol Bartz, but he was wary.

“I like the sizzle,” he said, referring to Bartz’s decisive take-no-prisoners style. “But I am still waiting to see if steak is there too.”

Well, Bartz sizzled at its first-quarter earnings conference call today, tossing off some ribald words as she also handed over some tough news to chew on, announcing Yahoo’s much-expected weak first-quarter results. The company also said it would cut five percent of its staff of 13,600, which is close to 700 employees.

BoomTown liveblogged the call with Bartz, who noted about Yahoo: “The most important takeaway was the importance of having a ‘Wow!’ experience.”

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Yahoo announced its first-quarter earnings today and results were in line with weak expectations and said it would cut five more percent out of its workforce.

The company reported an eight cent per share profit, down from 37 cents a year ago. It is a 78 percent drop, though last year Yahoo had unusual investment gains in the previous quarter.

Revenues in the current quarter was $1.6 billion, a 13 percent decline from last year’s $1.8 billion. Excluding sales Yahoo shares with its partners, the revenue was $1.16 billion, below the $1.2 billion estimates.

The company also announced it would lay off five percent more of its workforce, or almost 700 employees.

Yahoo later held a conference call, where it discussed the results and more.

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BoomTown is assembling all the popcorn and treats at All Things Digital HQ for Yahoo’s first-quarter earnings call later today, looking forward to hearing what CEO Carol Bartz will say about how she is turning around the Internet giant.

It is actually the 99-day mark since Bartz took over in January, which means I might also invite the sacred cows of Yahoo over for festive cupcakes too.

For the more serious-minded, there should be news about more cost-cutting, including the possibility of additional layoffs, as well as questions on Yahoo’s talks with Microsoft about a search and advertising partnership.

The earnings press release drops at 1:20 p.m. PDT, the call is at 2 p.m.

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Microsoft and Yahoo have been busily ferreting away on talks about search and advertising partnership possibilities in what one person close to the situation described as “hot and heavy.”

Exactly how hot and how heavy depends on which side you are talking to, with Yahoo seeking to play it a bit cooler and Microsoft, according to many sources, aggressively interested in striking a deal.

Nonetheless, sources within Yahoo said that the company is also eager to make what could be a lucrative arrangement with Microsoft, which could come sooner than some expect.

In fact, execs from both companies have been meeting in Silicon Valley recently again.

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Here come more tech earnings this week, as investors hope the industry can help goose a still shaky economy.

But while the tech industry is healthy, relatively speaking, they probably should not hope too hard to be soaring anytime soon on Silicon Valley’s digital flying carpet.

In other words, down is still the new up.

In any case, on deck this week: IBM, Yahoo, Apple and Microsoft.

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