Merger and acquisition news this week from Hewlett-Packard, EDS, Comcast, Plaxo, CBS and CNET -- along with Carl Icahn's battle to get a Yahoo-Microsoft deal back on track -- stoked IT investor excitement and vendor share values.

Now that first-quarter earnings season is over, investors -- especially in IT -- may be tempted to breathe a sigh of relief, but dark clouds still hang over the horizon. At various points over the past few weeks, market observers have talked about a "trendless" market, as trader uncertainty continues to spark share-price volatility.

The Internet market has been especially tumultuous. U.S. online ad spending is increasing and stirring many companies to M&A as a way to pick up market share and new technology. The Interactive Advertising Bureau reported on Thursday that online ad spending increased 26 percent in 2007 over 2006, as Google's dominance continues.

Billionaire investor Icahn thinks a Microsoft-Google combination would be well-placed to take on Google. On Thursday he made public a letter he sent to Yahoo's board, announcing he is nominating a slate of candidates to replace all board directors in the wake of the breakdown in negotiations over Microsoft's takeover bid two weeks ago.

"It is quite obvious that Microsoft’s bid of [US]$33 per share is a superior alternative to Yahoo's prospects on a stand-alone basis," Icahn wrote.

Though Microsoft has said it is no longer interested in Yahoo, clearly Icahn thinks otherwise, or possibly believes that another suitor -- perhaps his friend Barry Diller, CEO of IAC/Interactive -- may want to do a deal. Yahoo shares closed at $27.75, up by $0.61, on the news.

Just before news of Icahn's letter broke, CBS announced it will pay $1.8 billion for online media company CNET Networks in order to broaden its Web offerings. Since CNET is losing money, the price tag is a testament to confidence in the overall Internet market. Though CBS called CNET "profitable," the online company lost $6.1 million on revenue of $91.4 million in the first quarter, and made a profit in its last fiscal year thanks mainly to a tax benefit. CNET shares rose by $3.46 Thursday to close at $11.44, close to CBS' offer price of $11.50.

Also Thursday, Comcast announced it will acquire social-networking company Plaxo in a bid to enhance its community services. Comcast shares closed at $22.54, up by $0.17.

Outside the Internet sector, the big financial news of the week was HP's Tuesday announcement that it will acquire IT outsourcer EDS for $13.9 billion, or $25 per share, in an attempt to close in on IBM's global dominance in services. Even with EDS, HP will be number two: IBM has led the market with about $54 billion in revenue, according to Gartner. EDS has about $22 billion, and up to now, HP was in fifth place with $17 billion.

Nevertheless, the deal gives HP better access to large-enterprise customers. Though large mergers are always difficult, the merging of HP and EDS will probably be smoother than the HP-Compaq merger. Compaq and HP's overlapping product lines caused user -- and internal -- confusion. HP plans to put outsourcing services under EDS, making this merger potentially tidier than the one with Compaq.

HP's share prices slumped by $2.56 to close at $44.27 Tuesday, but then rose throughout the week. Its preliminary earnings report helped: The company said it made revenue of $28.3 billion for the quarter, compared with $25.5 billion a year earlier. HP also estimated earnings per share, excluding acquisition-related costs, of $0.87. Revenue and EPS beat analysts' estimates, and HP will report its final figures for the quarter on May 20.

Major IT vendors including Intel, Apple, Google, AT&T and IBM posted better-than-expected first-quarter earnings, while the slowing U.S. economy managed to avoid an all-out recession. But fluctuating energy prices and cautious spending on some IT goods and services have put a damper on good cheer.

For example, 25 percent of respondents to a ChangeWave Research survey, whose results were published this week, said their company will spend less on software in coming months. That 25 percent figure is 3 points higher than ChangeWave's January report, and 11 points higher than its October report -- not an encouraging trend.

IT investors are likely to remain cautious for the next few quarters, when economists and IT market observers say business and consumer spending should start to pick up again. Nevertheless, despite all the talk about a trendless market, M&A news in the wake of good earnings has helped a general rise in IT share prices over the past month.

REFERENCES:
Icahn takes on Yahoo board, May 15, 2008
U.S. online ad revenue hit $21.2B in 2007, May 15, 2008
HP to buy EDS for $13.9 billion, May 13, 2008
CBS to buy CNET Networks for $1.8 billion, May 15, 2008
Study: US corporate software spending slowing, May 13, 2008