Tonight I received an email from Palm (NASDAQ:PALM) regarding what was starting to look like the inevitable: that little web gadget, its Foleo, is not just delayed futher; it has been scrubbed.

This was an open source notebook with an ‘instant-on’ feature that was not really a full notebook.  But the company was hoping on a device that might replace your notebook if you are just going on a short vacation or quick business trip and didn’t need full access outside of basic web use and emails.  The answer is, wish in one hand and…. you know the rest.  Palm has been falling further behind as Research-in-Motion (NASDAQ:RIMM) has been winning more PDA-phone market share and as the Apple (NASDAQ:AAPL) iPhone has garnered so much press.

Frankly, there is still a gadget market out there.  The problem is that the gadget market is seeming as though it is BECOMING your phone or PDA.  The demand just appears to not be there as much for devices that work through your PDA phone like this now dead Foleo device.  The company is going to focus exclusively on the next generation software platform for delivering its next generation platform and the first smartphones that will bring this platform to market. 

Interestingly enough, this may indirectly affect Microsoft (NASDAQ:MSFT) down the road; but that depends on how you interpret what the company says and if you think this goes farther than it is leading on.  Palm’s release said it will continue to deliver products in partnership with Microsoft on the Windows Mobile platform, but from an internal platform development perspective, it will focus on only one.  So there is room for interpretation based on that, depending on if you believe the company (read the full release below).

There are some other strange things going on inside Palm, which we will be posting Wednesday.

Jon C. Ogg
September 4, 2007

Jon Ogg can be reached at [email protected]; he produces the Special Situation Investing Newsletter and he does not own securities in the companies he covers.

BELOW IS THE FULL EMAIL ON PAGE 2…..

As many of you are aware, we are in the process of building our next generation software platform. We are very excited about how this is coming together. It has a modern, flexible UI, instant performance, and an incredibly simple and elegant development environment. We are working hard on this platform and on the first smartphones that will take advantage of it.

In the course of the past several months, it has become clear that the right path for Palm is to offer a single, consistent user experience around this new platform design and a single focus for our platform development efforts. To that end, and after careful deliberation, I have decided to cancel the Foleo mobile companion product in its current configuration and focus all our energies on delivering our next generation platform and the first smartphones that will bring this platform to market. We will, of course, continue to deliver products in partnership with Microsoft on the Windows Mobile platform, but from our internal platform development perspective, we will focus on only one.

Because we were nearly at the point of shipping Foleo, this was a very tough decision. Yet I am convinced this is the right thing to do. Foleo is based on a second platform and a separate development environment, and we need to focus our efforts on one platform. Our own evaluation and early market feedback were telling us that we still have a number of improvements to make Foleo a world-class product, and we can not afford to make those improvements on a platform that is not central to our core focus. That would not be right for our customers or for our developer community.

Jeff Hawkins and I still believe that the market category defined by Foleo has enormous potential. When we do Foleo II it will be based on our new platform, and we think it will deliver on the promise of this new category. We’re not going to speculate now on timing for a next Foleo, we just know we need to get our core platform and smartphones done first.

I would like to thank our customers for their interest in Foleo. I know there will be disappointed folks who were looking forward to carrying a Foleo for all their mobile computing needs. I am certainly one of them. I would also like to thank the developers who have supported our Foleo efforts. They have been loyal to Palm and have worked hard to deliver some compelling solutions on the Foleo platform. I know that they will understand that the right thing to do for the long run is to focus on one platform that will live for years, rather than invest energy in a one-off solution. We will make every effort to make sure we bring our developers forward to our next generation platform.

This decision will require us to take a limited charge of less than $10 million dollars to our earnings. This is a lot of money, but it is a small price relative to the costs that would be required to support two platforms going forward. This decision is in the best interest of our customers, our team, our products and our shareholders. I hope this renewed focus at Palm will allow us to deliver more compelling solutions to our core smartphone market, and it will allow us to position ourselves for the long run around one Palm experience.

Ed Colligan

President & CEO
Palm, Inc.

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