BoomTown is spending the day at Microsoft (MSFT) HQ in Redmond, Wash., interviewing a passel of execs about the Yahoo online advertising and search partnership (videos to come soon!).

But, while here, I have not been able to resist trotting out this very funny puppet video by 1938 Media of sweat-stained Microsoft CEO Steve Ballmer gone wild, screaming about how he smoked Yahoo (YHOO) in the deal, to every Softie I see.

Because I am that sensitive.

Enjoy:

Isn’t it ironic that Yahoo once employed–and for a very long time–top search techie Qi Lu and here he was on stage today at the Financial Analyst Meeting at Microsoft HQ in Redmond, Wash., after having just scooped up that business for the software giant.

Lu, who is now president of the Online Services division at Microsoft (MSFT), was a key player in the deal that was announced yesterday between it and Yahoo (YHOO), under which Microsoft licensed Yahoo’s search technology for a decade.

Lu was not generous with the details, although he did say making the partnership work was his No. 2 priority after Microsoft’s own search business. No. 3 was being financially responsible.

Said Lu, in part: “First, search is our number–one priority…second, a big priority for us is implement the Yahoo partnership. It is a 10-year partnership. We’re absolutely committed in spirit, in everything we did to deliver the true economic values, consumer benefits, customer benefits for advertisers, publishers all around.”

Because of the scale it brings, Lu said that the deal has the potential to be lucrative, despite the fact that Wall Street thinks Yahoo sold out of its search technology too cheaply.

But he also tried to manage expectations. “And I keep telling my teams, we want to be brutally honest about where we are…and understand the hurdles we have to overcome,” said Lu.

Microsoft Business President Stephen Elop, who was on next, talked a lot about how Microsoft was dealing with the tough economy and its impact on the company’s software business.

He also gave updates about a range of its various products, including the upcoming Office 2010.

“Now, despite the difficult economic challenges, despite the end of a product cycle, what we believe, as evidenced by the strength of our annuity business, is that there’s incredible excitement out there in the market because of Office 2010,” said Elop. “So, at a time when we expect business productivity or business spending climate to improve, we are launching the most innovative wave of technology we have ever launched.”

Elop used the term “attach rate” to talk about the how users relate to Microsoft software, although I have often thought about how much I wanted to get a divorce from Microsoft Outlook.

After Elop, another business-type exec, Servers and Tools President Bob Muglia, who also had to deliver not-such-great news.

Said Muglia: “What we saw was that as the economy got soft, so did the customer buying, the business buying for servers, and starting around the middle of October into the end of our fiscal second quarter, and certainly through the entire part of our second fiscal half, this calendar year, we’ve seen a pretty dramatic decline in the server marketplace.”

And, after that, when he started talking annuity sales, virtualization and modular data centers–I’ll admit it–this is precisely the moment when I went out for an emergency cookie run.

After Q&A with Elop and Muglia, next up: CFO Chris Liddell (and his delightful New Zealand accent) to talk about–hopefully–Microsoft’s billion-dollar revenue miss in its most recent quarter.

While Microsoft COO Kevin Turner did a kind of modified cheerleading act at Microsoft’s annual Financial Analyst Meeting, Entertainment and Devices President Robbie Bach played the teenage boy and Chief Research and Strategy Officer Craig Mundie the voice from the future.

During his presentation at the event at the Microsoft (MSFT) HQ in Redmond, Wash.–a series of presentations for Wall Street analysts and the media–Bach showed off the Xbox’s new Project Natal motion-sensing technology, which lets you play games and more without a controller.

Bach spazzed out nicely playing a game called Ricochet, with a storm of virtual red balls coming at him, although I was slightly worried the exertion might cause him to collapse on stage.

Turner was on before Bach, pretty much doing cleanup after CEO Steve Ballmer’s presentation, talking up all of Microsoft’s various businesses, while talking down its competitors’.

Said Turner, whose mantra was building market share for Microsoft: “Strong innovation, strong innovation investment, as well as strong operational excellence that we’re driving to compete and grow our market share.”

Strong, got it? (Frankly, I know companies always put their best foot forward at events like this–but after Ballmer’s own He-Man speech, BoomTown is a little worried that Scary Microsoft could be making a comeback, after a few post-antitrust years of Kinder-Gentler Microsoft.)

Bach, given his job, was a lot more entertaining and had more to show off, although he could not be as positive about the software giant’s mobile experience, given the juggernaut of the iPhone from Apple (AAPL).

“First of all, in Windows Mobile, as Steve pointed out, we had a challenging year from a share perspective,” said Bach. “Much tougher competition in the U.S. and certainly there is plenty of competition in this space.”

No kidding!

Natal is, of course, the pretty one for Bach’s division.

“It is about technology innovation and experience innovation. I think it will lead to a bigger and better business as well,” said Bach. “It is certainly an opportunity for us to build something new.”

Mundie also showed a lot of new futuristic stuff, which borrowed from the Natal technology, including a demo of a gesture-rich “office of the future” experience.

Said Mundie: “But as far as Microsoft, one of the greatest opportunities going forward is to realize there will be a successor to the desktop. It is the room. It is the fixed computing environment. The question is what can you do with computing when you have a much more robust man-machine interaction model and you don’t have to fold it in half and move it and run it on a battery.”

In the midst of it, though, he chit-chatted with a very scary “digital assistant” named DAG (I think it must stand for Digital Assistant Golem) on the screen, whose voice freaked me out in the exact way HAL from “2001: A Space Odyssey” always does.

After helping Mundie with a bunch of stuff, I am guessing DAG went off into the computer to work on a secret plan to kill off the human race.

Well, it was nice being here for this long on our little blue planet, Earth!

So, while we wait for DAG to destroy us, here’s the video demoing Natal that Bach showed to the audience, which is not new, but still pretty cool:

BoomTown is here at Microsoft HQ in Redmond, Wash., where a panoply of top execs from the company is giving a full day of presentations to a roomful of Wall Street analysts and media folks at its annual Financial Analyst Meeting.

First up, as you might imagine, is CEO Steve Ballmer, who is as bouncy and braggy as I have ever seen him, probably because he is fresh from getting his mitts on a long-sought-after prize–the search business of Yahoo (YHOO).

But, while the media and investors think Microsoft (MSFT) made out well in the online search and advertising deal, the opinion about Yahoo’s side of the deal has been not so positive.

Actually, tragic, with Yahoo shares down another five percent today already, after plummeting 12 percent yesterday. Look out below!

Thus, Ballmer to the rescue!

“This is the one that stuns me, that people haven’t figured it out,” said Ballmer, pointing out that Yahoo cut costs and gets to keep revenue. “It’s sort of, like, unbelievable.”

Believe it, Steve, especially since everyone thinks Microsoft pulled a fast one on Yahoo.

Otherwise, Ballmer gave a relatively upbeat speech about the software giant, even after a tough year for Microsoft, due to the weak economy and the fall-off of sales of personal computers.

Ballmer had computers on the brain, especially those of competitors, like Apple (AAPL), which was popular with the audience.

“We have low share, by the way, in the investor audience. I can see the Apple logos versus the PC logos,” he joked. “Our share is lower in this audience than the average audience. Don’t hide it. I’ve already counted them. I have been doing that since we started talking.”

I wonder if Big Brother, oops, Ballmer, also took note of my iPhone and browser open to Google (GOOG) search.

As is part of the reliable Ballmer act, along with Apple-bashing, there was Google-bashing, Linux-bashing and general Anybody-But-Microsoft-Bashing.

But, bullies, be warned! There will be no more Yahoo-bashing from you or Microsoft–well, on the record, at least!–or you’ll apparently have to answer to He-Man Ballmer.

The fun never stops at Microsoft, it seems.

Well, not fun–more like a long march of khaki-clad Softies.

They will be on display bright and early this morning at the company’s annual Financial Analyst Meeting, a cavalcade of top execs at the tech giant blabbing away.

BoomTown will be there covering it in person, natch!

The Microsoft management smorgasbord includes:

CEO Steve Ballmer, COO Kevin Turner, Entertainment and Devices President Robbie Bach, Online Services President Qi Lu, Microsoft Business President Stephen Elop, Servers and Tools President Bob Muglia, Chief Research and Strategy Officer Craig Mundie, Chief Software Architect Ray Ozzie and CFO Chris Liddell.

I am betting that most of the focus at the gathering, which is being held at the worldwide HQ of Microsoft (MSFT) in Redmond, Wash., will likely be on two major events over the last week–its billion-dollar revenue miss in its fourth quarter and its just-born search and online advertising deal with Yahoo (YHOO).

The former, of course, was bad news for Microsoft, as it continues to signal weakness in its core operating system software and server businesses, due to lower demand for personal computers in the midst of the econalypse.

The latter was good news, of course, since Microsoft seemed to score a coup in nabbing the search technology business from Yahoo with no big upfront payments.

I have a lot of questions about both these issues, as will the crowd of reporters and Wall Street sharpies at the FAM, which is what they call the meeting here.

There could even be be plenty of answers, especially given that the entire leadership of Microsoft will be there.

Here is a link to a live Webcast of the FAM event, if you want to join the party too.

Multiple sources close to the situation said that the online search and advertising deal between Microsoft and Yahoo has been struck and will be announced within the next 24 hours.

While it is not clear if the actual papers have been inked or approved by the boards of the two companies, sources said it was a formality and that negotiations are complete on a deal that is less sweeping than originally conceived.

In any case, making any partnership is likely to be the cause of much relief at both companies, since they have been trying–without success–to join together to mount a better offense in the sector against the dominant Google (GOOG).

According to sources, as had been previously reported by Advertising Age, there will be no upfront payment to Yahoo, with the focus on a revenue share between the two companies.

Sources said Microsoft search technology will be used on Yahoo sites, although it is not clear if it will be branded as “powered by Bing”–Microsoft’s handsome and innovative new search offering–or not.

In addition, sources said Yahoo would still sell search ads on its sites and on Bing too, although Microsoft’s AdCenter advertising sales technology will be underneath it.

(Panama, we hardly knew ye!)

This makes the deal much smaller than ones previously envisioned, which included Microsoft taking over both Yahoo’s search and its text-based search advertising businesses in exchange for large payments and guaranteed revenue.

Previous discussions also considered Yahoo selling display advertising for Microsoft’s MSN consumer sites.

Doing its own search ads means the cost savings to Yahoo will be less than previously estimated, but it also solves its longstanding issues about control of relationships with advertisers and also of consumer data.

Still, once in place, it is a significant deal in the Internet arena, bringing together two of its most powerful players in an unusual alliance that has been long in coming.

“After three years of trying, it looks like it finally stuck,” joked one person familiar with the situation about the Silicon Valley icon and the Redmond, Wash., software behemoth finally joining together.

And, in fact, Yahoo (YHOO) and Microsoft (MSFT) have been engaged in talks about a variety of partnerships over the years, as well as in a hostile takeover struggle that soured their relationship badly.

But, under new Yahoo CEO Carol Bartz, the companies have re-engaged in recent months, discussing a deal to share search and online advertising technology.

A spokesman for Microsoft declined to comment, as did a spokeswoman for Yahoo (even though BoomTown asked: “Pretty please?”)

The Wall Street Journal just posted a similar story on the deal coming to fruition, as did Advertising Age.

Both posts noted that Yahoo and Microsoft were concerned about regulatory approval, although with Google’s share at close to 70 percent in the search market, it would be hard to argue that their union hinders competition.

Together, Yahoo and Microsoft’s share is about 30 percent.

A search and advertising partnership between Yahoo and Google failed to gain regulatory approval last year–and thank goodness for that!

Yahoo and Microsoft will likely try to paint this one as a counter to Google’s power and hope such an argument will be supported by advertisers, who have long wanted a stronger second-place competitor to Google.

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.

After the market close Thursday, the Redmond, Wash.-based tech giant reported that fiscal fourth-quarter net income fell to $3.05 billion, or 34 cents a share, from $4.3 billion, or 46 cents a share, in the same period a year earlier.

Revenue for the period ended in June fell 17 percent to $13.1 billion. Wall Street had been looking for earnings of 36 cents a share on $14.37 billion in revenue, according to data compiled by Thomson Reuters.

Online advertising revenue took a big hit, decreasing $86 million or 14 percent, to $529 million, as the display advertising business got hard hit.

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

BoomTown liveblogged the earnings call.

2:32 pm PDT: The conference was kicked off and Microsoft CFO Chris Liddell–whose jaunty New Zealand accent I never tire of–came on right away, pointing out the very obvious bad news in several different ways, although also trying to find some kind of silver lining.

The quarter, he said, “marks the end of one of the most difficult [periods], but also most encouraging.”

The darkness has a dawn, he noted: “In my mind, we are a stronger company than we were a year ago…but we need to lift our game to a new level in 2010.”

You can say that again!

So Liddell did, saying that “there are some signs that we have at least seen the worst” of the econalypse, and “looking forward, we do not expect trading conditions to get worse.”

Well, how could they?

2:35 pm PDT: Microsoft’s investor relations guy went over the numbers. Crappy results, but meaningful cost savings.

Read the official press release here.

2:48 pm PDT: Liddell came back on and he said this would be one of the most “interesting” years, especially due to a spate of new product rollouts coming, such as Windows 7.

He did some forward-looking, talking about a variety of arenas at Microsoft, from the games business to its product launches to tax rates.

Microsoft has, despite the economic turmoil, a great balance sheet in terms of cash–with over $30 billion.

I think I found a gold lining.

2:56 pm PDT: Question-and-answer time.

The first was about spending on personal computers, which hit Microsoft badly on the downside, said Liddell.

But, as a refresh cycle kicks in, he noted that average selling prices will go up.

It would eventually get “better,” which Liddell pronounced, bitter.

Irony alert!

The next question was about margins. Microsoft has tried to cut costs, said Liddell, although it would never completely offset the bad economic conditions. And he was not making promises.

A follow-up on buying back more Microsoft stock. Nope, because “we’re still not sure we’re out of the woods.”

The next question was about what customers are saying about the Windows 7 upgrade and about server shipments.

No surprise, but server shipments are weak. “We don’t see a lot of pent-up demand in that area,” said Liddell.

As to PCs and Windows 7, he said he has more hopes of people being more likely to start to move over. Or, at least, prepare to do so.

“Then, you start to get into a much more virtuous cycle,” said Liddell.

A question on whether expenses can be slowed more.

Sorry, analysts! Nope.

Another question on looking at PC-refreshing. We’ll see, said Liddell.

Another expense question. Hey, analysts, you might want to stop asking since Liddell is not going to suddenly say Microsoft is lopping off more employees–at least, not right now!

Plus, there are those pricey upcoming product launches, said Liddell, which is going to take some dollars.

“There are a series of relatively small items, which add up,” he said.

3:09 pm PDT: An annuity question. Zzzzzzzzz.

Analysts continued to try to get Liddell to predict when things were going to take off again and return to the golden times when Microsoft was a regular financial powerhouse.

It was admirable that he refused to take the bait and maintained his tone of semi-doom and lessening-gloom.

“I would not promise that it is going to be significantly better,” said Liddell.

3:18 pm PDT: A question about the latest launch of Office in 2010 and its impact on financials.

Liddell said he did not see a significant impact until 2011.

The next question was also one on revenue: “Is revenue going to grow?” asked one analyst in a kind of desperate-sounding way.

Liddell said Microsoft would be watching costs, which would help. As to revenue, which is less controllable, he could not say.

3:22 pm PDT: Although there have been no queries about Microsoft’s discussions with Yahoo (YHOO) about a search and online advertising partnership–which will cost the company a pretty penny, if struck–there was a question about Google (GOOG) and its Chrome operating system.

“We still believe that people will want a client and an Internet-based experience,” said Liddell.

Translation: Google is a mouse that roared!

The final question was about how various geographies are doing. Asia and emerging markets are a place for growth, said Liddell, followed by North America, especially relative to Europe and Japan.

But, the tone of the earnings call? Economically speaking, it’s still a small world after all.

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 (MSFT) and Yahoo (YHOO) still zeroing in on a search and online advertising 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.

Thus, it behooves Bartz not to let loose with one of her patented zingers–and you just know she has several at the ready, in case the deal goes south–right now when the pair of companies that I have described as the Internet’s version of the Lindsay Lohan-Samantha Ronson drama might finally agree to join together in a partnership.

That’s why Bartz did not say, “I personally think we would be better off if we never heard the word ‘Microsoft,’” as she did at an investor conference in June, when asked about a possible search and online advertising deal.

And why she did not say, as she did on Fox Business Network around the same time, about the early kudos for Bing: “One day is one day…it does not a trend make.”

And why Bartz did not say, as she scribbled on a jokey-but-pokey Post-It note to Microsoft CEO Steve Ballmer (see photo) that she left in the Green Room of the seventh D: All Things Digital conference:

“Steve,
forget it
won’t help
ha
Carol”

Nope, now is the time for some judicious happy talk from Bartz, who appears to have a lot more self-control than I have ever given her credit for.

She’ll need it, for sure, if she does actually pull off a deal with Microsoft–because that is when the real fireworks will begin between the Silicon Valley Internet giant and the Redmond, Wash., tech behemoth.

Well, I can dream, can’t I?

Or, as the perfect song, “Happy Talk,” from the classic musical, “South Pacific,” goes: “You got to have a dream/If you don’t have a dream/How you gonna have a dream come true?”

And, for those who have missed it (you cretins!), here it is in all its glory, in a video from the lovely movie version:

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.

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

Yahoo (YHOO) will report its second-quarter earnings at 2 pm PDT tomorrow, while Microsoft (MSFT) will report on Thursday at 2:30 pm PDT.

The last quarter was weak for Yahoo, due to the depressed online advertising market, which is its biggest business.

And Wall Street is expecting more of the same, although perhaps with some signs of recovery and improvement after major cost cuts at the Silicon Valley icon by CEO Carol Bartz.

According to a round-up averaged by Thomson Reuters (TRIN), analysts think Yahoo will have revenue of $1.14 billion and earnings of eight cents a share, not including special charges due to recent layoffs and taking out commissions paid to advertising partners.

A search deal, if struck, could have a dulcet impact on Yahoo’s stock, which has been up strongly in the quarter.

And the industry is also hoping for some bump from the introduction of Yahoo’s redesign of its front page, code-named Metro, which it has been testing for a dog’s age now and will debut soon.

Shares of Microsoft have also been doing well recently, although it is not expected that any search deal will have much impact on its stock or, really, its actual business.

Search is a very small part of Microsoft’s portfolio, despite all the focus on its innovative new Bing search service. Instead, as always, the Redmond, Wash.-based company is squarely dependent on the performance of its dominant software products, Windows and Office.

Last quarter, Microsoft CFO Chris Liddell was very grumpy about the economic outlook and it is likely to be a repeat performance on Thursday, albeit with some encouraging signs of the lessening of the decline.

Still, analysts expect Microsoft to get hit from the continued weak sales of personal computers, which are chock full of its software.

On average, according to Thomson Reuters, analysts think Microsoft will have revenue of $14.38 billion in its fourth quarter, earning 36 cents a share. That’s off just over 10 cents in earnings from last year’s 48 cents per share.