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Palm has decided to close its retail stores as it faces the effects of a class-action lawsuit filed by Treo owners.

Palm announced on Wednesday that Treo 600 and 650 owners who have had their units replaced or repaired at least twice are eligible for cash rebates on new Palm smartphones, as part of a settlement of a class-action suit filed in 2005. The company will also repair any Treo 600 or 650 that hasn't failed twice, but is outside of the original warranty.

Thursday brought news that the company's 34 stores--eight Palm-branded locations and 26 stores that were inside Airport Wireless outposts--will have to go by the end of the current quarter. "We continue to focus our company around core business initiatives and are consolidating more resources behind fewer programs in order to compete most effectively and build world-class, category-defining mobile solutions. We have therefore made the decision to close our retail stores," the company said in a statement regarding the retail move.

The two announcements were made separately, but it's not hard to see one affecting the other. The rebates are only for users who purchased, or plan to purchase, a new Palm smartphone after sending their old one in for repairs at least twice, which is kind of expecting a lot of those folks, I think.

I haven't had any problems with my older Treo 650 or the Treo 700 I currently use, but if I had sent it in twice for a repair, I'd probably be looking at a different manufacturer when it came time to buy a new one. The company denied the plaintiff's claims that Treos failed at unacceptable rates, but felt it would have cost more to fight the lawsuit than it would to settle it now.

Palm is going to have to come up with $75 for any such Treo 600 owner who bought a new Palm smartphone between September 30, 2005, and six months after the settlement becomes final. Treo 650 owners can get $50 back on the purchase of any new Palm smartphone during the six-month period after the settlement becomes final. A final hearing is scheduled for May 2. If you think you might be eligible, check out this site for more information.

Palm has plenty of work ahead of itself getting to work on its next-generation operating system for its smartphones, as well as continuing to expand on the early success of the Centro. A new hardware design that doesn't cause as many problems as the Treo would also probably be a good idea.

Suddenly, it seems even more fitting that a company called Elevation Partners recently took a stake in Palm.

This might be rock bottom for the storied mobile-computing company. The decision to cancel the Foleo even before letting people get their hands on it is an embarrassing admission that Palm's vision of the computing world is way off base from the rest of the world, and it's a black mark on the otherwise stellar career of Palm founder Jeff Hawkins.

It's hard to dump too much on Hawkins. The man invented the Palm Pilot and the Treo. I once invented a novel method of stacking beer cans in a fridge (the key is not to buy any food). But after Hawkins unveiled the Foleo at the D: All Things Digital conference--arguably the most prestigious gathering of the computing elite--with proclamations like "it's the best idea I've ever had" and "the most exciting product I have ever worked on"--Palm's decision to cancel it without even a product launch must be mortifying for Hawkins.

Now, Hawkins has his own company, Numenta, which is trying to develop a computer that works like the human brain. If he pulls that off, we'll forget all about the Foleo.

But what is Palm going to do? Speaking of mortifying, Ed Colligan must be wondering why he gave Hawkins $10 million to go down into the basement and come up with Palm's Next Big Thing, only to emerge with the Foleo. Almost universally panned by analysts and bloggers, the Foleo was a lightweight Linux "mobile companion" that was designed to read e-mail, but didn't work with corporate e-mail software from RIM or Motorola, among a multitude of other sins.

Palm founder Jeff Hawkins (right) shows The Wall Street Journal's Walt Mossberg the Foleo, canceled Tuesday by Palm.

(Credit: CNET Networks)

Palm has squandered its position in the mobile-computing world by failing to improve its operating system since 2004, come up with a noticeably different Treo since the Treo 600, or clearly articulate any vision of where the company thinks smart phone development is headed. The company wisely hooked up with Microsoft to ship Windows Mobile Treos, otherwise this post might have been written a year ago. But it has watched companies like Motorola, RIM, LG, Nokia and even Apple pass it by while it tried to make its biggest splash of the year with a product canceled just three months later. Imagine the reaction if Apple had canceled the iPhone in April.

Jack Gold of market research firm J. Gold Associates thinks Elevation Partners is starting to throw its weight around a little. "Hopefully they are coming in and cracking the whip and making them do the right thing," he wrote in a research note distributed Tuesday. After all, Palm clearly still hasn't found what it's looking for.

Palm also announced Tuesday that Bruce Dunlevie of Benchmark Partners is resigning from Palm's board, while Scott Mercer will stay. Mercer was going to resign from the board to make way for Fred Anderson and Roger McNamee of Elevation Partners, but now Dunlevie (who's also on the board at Numenta) is out. Anderson and McNamee haven't formally assumed their positions yet as the deal hasn't formally closed, but perhaps their impact is already starting to be felt.

While it's embarrassing, Colligan made the right decision. You've got to know when to fold them, and the Foleo wasn't going to beat anything better than a pair of sixes.

You're supposed to have an intervention after the downtrodden hits rock bottom, but Colligan's moment of clarity could still allow Palm to recapture some of its past glory.

However, Palm better think long and hard before the next time it tells people it's about to change the world of mobile computing. The company is in danger of watching a category it helped create leave it in the dust.

Faced with biting criticism of the Foleo, a Linux-based psuedo-laptop gadget, Palm has decided to cancel the first generation of the device.

Palm CEO Ed Colligan broke the news on Palm's official blog Tuesday after the close of the stock market. Just last week, a financial analyst predicted that Palm would have to delay the Foleo's launch until September or October because of serious software-related bugs, but Colligan decided to kill the entire project instead.

Palm says it's canceling the launch of the Foleo, but it will release a second version some day.

(Credit: Palm)

"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 of our energies on delivering out next generation platform and the first smartphones that will bring this platform to market," Colligan wrote on Palm's blog. Calls to Palm representatives were not immediately returned.

Palm unveiled the Foleo at the D: All Things Digital conference in May to widespread skepticism, despite the fact that Palm founder Jeff Hawkins considered it "the best idea I've ever had." The Foleo is basically an underpowered laptop that's designed to give Treo users a break from typing e-mails on a small phone keyboard. However, few could figure out why smart phone users--who ostensibly own a laptop already--would want to buy a separate $499 device that could do little more than send e-mails.

Colligan said that Palm is still working on Foleo II in conjunction with Hawkins. But Palm has to focus on updating the Treo and getting the newest version of Palm OS--now based on Linux--to market before tackling a new category like the Foleo. Palm will take a $10 million charge associated with the cancellation of the product, he wrote.

If you were planning to camp out this week for the launch of the Palm Foleo, pick up the tent and go home.

Barron's Tech Trader Daily blog spotted a research note from Deutsche Bank's Jonathan Goldberg saying that Palm has delayed the launch of the Foleo, a Linux-based "mobile companion" that looks like a laptop but doesn't deliver anything close to a laptop experience. The device is now expected to ship in late September or early October, according to Goldberg. When Palm founder Jeff Hawkins unveiled the device in May at the D: All Things Digital conference, the company said it expected to launch it this summer.

The Foleo isn't ready for its debut, although some might argue it never will be.

(Credit: Palm)

The Foleo is meant to be a way to ease the pained thumbs of Treo addicts. Theoretically, a business traveler could use the Foleo to read, compose and reply to e-mails that would be too difficult to tap out on the Treo keypad. But it doesn't work with corporate e-mail software from Research in Motion or Motorola and isn't designed to work apart from a smart phone. For the most part, analysts and Palm enthusiasts were not impressed, although Hawkins called it "the best idea I've ever had."

But if it doesn't work, it doesn't matter whether it was the best or worst idea ever to spring from Hawkins' agile mind (after all, he is the guy responsible for the Palm Pilot and the original Treo). Deutsche Bank's Goldberg said software bugs are holding back the Foleo release, including "an inability to synchronize the Foleo with most models of the Treo, in particular the nominally high-volume Treo 680." Yikes. That's only the entire premise behind the Foleo.

You've got to wonder what's going on at Palm. For a detailed look at the problems faced by one of the pioneers of mobile computing, and some possible remedies, check out Engadget's "intervention" plea.

Palm's got a new smart phone in the works that could be its answer to the iPhone, the BlackBerry Curve and the Helio Ocean.

On Thursday, the company showed off a design called "Centro" at an event for media and analysts hosted by Sprint in Reston, Va., according to a Palm representative. At this point details are sketchy, and official photos are nonexistent, but Centro will be the smallest smart phone that Palm has released running Palm OS, the company said.

It will be targeted at the young'uns, which is probably appropriate, according to Gearlog. Gearlog's Sascha Segan, who was in attendance, said the Centro's QWERTY keyboard is "infinitesimal: it's actually impossible to type on this thing with two thumbs." Palm said the design also incorporates a touch screen, but it's not clear how large or what you can do with that screen.

Gearlog called the Centro "Treo 800" and "Gandolf," both names that have come up before among the Palm enthusiasts. It's also not clear if Centro will run Garnet, the decaying version of Palm OS, or a newer Linux-based version from Access or Palm. No further details were forthcoming from Palm, but the devices shown at the Sprint event were slated for this fall.