Wall Street Beat: Apple, Yahoo, M&A roil market

Tech-market watchers have had a lot to get excited about this week — the first full week of trading in the new year. Though the Nasdaq Composite Index (symbol: COMPX) dipped Thursday, it had risen every trading day in the new year up to that point. Apple Computer, Net stocks and mergers and acquisition news sparked trading and second-guessing about how the year will shape up.

Fueling company fortunes Tuesday at Macworld in San Francisco, company Chief Executive Officer Steve Jobs unveiled, six months ahead of time, the first Macs based on new chips from Intel. Jobs also announced that Apple’s fourth-quarter revenue will be $5.7 billion, ahead of analyst expectations of $5.04 billion, and said the company shipped 14 million iPods in the fourth quarter last year.

The announcements boosted Apple (AAPL) shares, which marched up steadily from Monday’s closing price of $76.05 to Thursday’s close of $84.29. Wednesday various investment brokers raised share price forecasts for Apple, with UBS moving its price target to $100 from $86.

Yahoo, meanwhile, has been hit by news that it is losing search share to Google. On Jan. 6, ComScore Networks reported that Google increased its lead over Yahoo in search engine usage during November. Google had almost 40 percent of all U.S. searches, more than 10 percentage points over Yahoo.

Partly in response, Merrill Lynch Wednesday downgraded its recommendation on Yahoo from Buy to Neutral. Even though Merrill, along with other brokerages, has applauded Yahoo strategic moves and acquisitions this year, especially in the area of “social Web” interactive services such as the Flickr photo-sharing service, Google’s search lead is putting a ceiling on Yahoo share price forecasts. Yahoo (YHOO) closed Thursday at $40.89, down by $0.98.

The week started out with a slew of M&A announcements. On Tuesday, America Online (AOL) announced that it had acquired Truveo, a provider of video search. Monday announcements included:

–IT and business management software maker Mercury Interactive, recently delisted from the Nasdaq in the wake of accounting problems, buying Systinet, for $105 million in cash;

–EMC acquiring Internosis, a provider of support and services for Microsoft applications;

–Adobe Systems buying the DRM (digital rights management) division of Navisware;

–Sage Group buying credit-card processor Verus Financial for £184 million ($325.8 million).

M&A activity is bound to continue, particularly in mature industry segments like packaged software applications for the enterprise, according to Charles S. Jones, chief executive officer of performance-management software vendor Geac Computer, who recently negotiated the sale of his company to a private equity firm for $1 billion — a 27 percent premium over the then-current stock price (Geac traded Thursday at $10.94)

In a mature market vendors look for expansion through acquisition, as Geac’s track record shows, Jones pointed out. And though corporate spending on IT has rebounded a bit, especially in areas like security, volume buyers are still in an IT consolidation mindset where they “don’t want 800 vendors.”

Though the high-end enterprise-resource planning (ERP) market has consolidated, especially with Oracle’s M&A track record over the past year, there is still plenty of consolidation possible among the players in the under-$400 million revenue arena, he said. Survival for smaller software players depends on successfully focusing on vertical industry-sector slices, he advises.