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During the conference call to announce Palm's (disappointing) financial results for its most recent quarter yesterday, CEO Ed Colligan made a surprising announcement: The first smartphones to run Palm's upcoming Linux-based operating system, Palm OS II, should arrive before the close of 2008.

"Our Palm systems team...is now totally focused on delivering our next generation platform, which we expect to be available before the end of the next calendar year," Colligan said.

A couple of weeks ago it appeared these devices could be delayed until well into 2009, as a Palm representative told the Gaurdian it would be could be another 12 to 18 months before we saw the company's first Linux smartphone. That's a much longer window than what Colligan implied in yesterday's call.

When Palm first disclosed its plan to create its own Linux smartphone platform, it said the first of these devices would be released before the end of this year. This obviously won't be the case. It is one reason for people's confidence in Palm is so low right now. That includes investors and analysts.

The $10 million loss the company took for its ill-fated Foleo Mobile Companion, cancelled last month on the eve of its supposed roll out, didn’t help matters either.

With its market share shrinking and competitors coming out with innovative new products, it's hard to see how Palm can continue to compete effectively without the migration of a significant portion of its products to a new and more modern - non Microsoft - mobile platform. The more Palm comes to rely on Windows Mobile, which today accounts for 50 percent of its smartphones, the less it'll be able to differentiate itself from the pack.

Not much is known about Palm OS II at this time. Palm has said it'll be able to run today's Palm OS applications, just as ACCESS (formally PalmSource) promises for its Palm OS follow up, the ACCESS Linux Platform, and, according to Colligan, be easy to use and offer a seamless transition for users of Treos running Palm OS Garnet.

Palm's Financial Outlook 
Not too long ago Palm warned Wall Street its financial results for its most recent quarter, June to August, wouldn't be up to snuff. It delivered on this promise yesterday.

The company posted a net loss of $800,000, which is about a cent per share. That's down from a net gain of $16.5 million (16 cents a share) for the same quarter a year ago. It is also Palm's first quarterly loss in four years.

$302.2 million of last quarter's $360.8 million revenue, not surprisingly, came from Palm's Treo line, even through it shipped 21 percent more smartphones this year, 689,000, than during the same period in 2006; a time where it earned $355.8 million in revenue.

Analysts expected Palm would earn $360.3 million or 8 cents a share last quarter.

Palm is forecasting another financially weak quarter for the one its in now. It expects to lose 1 to 3 centers per share with revenue between $370 million and $380 million.

Later this month, Palm will release Centro, its most compact Palm OS smartphone ever. Targeted at consumers, the $99 Centro is an attempt by Palm to expand its user base beyond mobile professionals and the enterprise. It introduced a similar Windows Mobile product, the Treo 500v, for Europe shortly before the Centro announcement.

The point of Centro is to try and capture some of the 95 percent of the cell phone market that isn't interested or doesn't need a smartphone.

In a bid to strengthen its financial outlook Palm recently agreed to sell a 25 percent stake in the company to the Elevation Partners private equity firm. Palm is hoping the influx of cash and new blood, especially in the form of Apple's former iPod head Jonathan Rubinstein as executive chairman, will improve its chances and result in the development of new and innovative products people will want.

It is already putting some cash where its mouth is. For example, Palm invested around $12 million more into research and development last quarter than it did during the same period a year ago.

In addition to mostly digging its own hole the market for smartphones has grown much more intense in the past year. For example, the introduction of the iPhone, the top-selling smartphone last summer, coincided directly with Palm's last financial quarter.

There's little doubt Apples move into the smartphone arena had a profound effect on Palm's bottom line. Many of those who otherwise would have considered a Treo turned to the iPhone instead.