All Things Digital

Remarkable. Downtrodden handset maker Palm (PALM) has somehow managed to poach another Apple (AAPL) veteran: Lynn Fox, the company’s now former director of Mac PR.

First Jon Rubinstein, former head of hardware engineering at Apple. Then Mike Bell the company’s VP of CPU software, in the Macintosh hardware division. And now Fox.

What does Palm have up its sleeve that could possibly inspire Rubinstein, Bell and Fox to leave Apple at a time like this?

In the grand tradition of Gateway and Palm, Dell is shuttering its 140 kiosks in the U.S. as part of a new retail strategy that will expand sales of its products in outlets like Wal-Mart, Best Buy and Staples.

“We recognized early on that customers really wanted to touch and see the products before they purchased them,” said Dell spokesman Bob Kaufman. “That led us to the kiosk model. Now, customers can touch and feel our products before buying them at one of our retail partners.”

And better still, they can walk out of one of those partner stores with more than a receipt. You see, Dell’s kiosks (shown above just buzzing with activity) carried no inventory. An odd choice, since consumers typically like to take their purchases home after they’ve made them. Just ask Apple, which has carved out a nice little brick-and-mortar retail business for itself by stocking the products it sells.

As George Whalin, president of Retail Management Consultants, noted back in 2006 when Dell first debuted its kiosks, stores that carry no inventory risk frustrating shoppers. Said Whalin: “I don’t think that works as well, particularly for consumers. Walk into a major consumer electronics store, and they have a selection of TVs you can choose from, compare, load up in the back of your pickup and take home.”

Palm shareholders gave the company a kick in the Grape Nuts this morning in answer to news that it will shutter all but one of its retail stores by the end of the first quarter. The closure affects some 33 Palm locations nationwide, including airport kiosks. The only store Palm plans to keep open is the one in its Silicon Valley headquarters (which to the company’s credit is one more than Gateway kept open when it pioneered this particular brick-and-mortar exit strategy).

For Palm, which could likely use all the cash it can scrape together, the move seems wise. “It makes sense,” Global Crown Capital analyst Pablo Perez-Fernandez told the San Jose Mercury News. “They need to take every resource they have and focus them on their core product that will take them on a growth path.”

Assuming there’s a growth path to be found. And for Palm, which recently sacked a reported 10% of its workforce and just settled a class-action suit over defects in some of its Treo handhelds, that’s not exactly a certainty at this time. “They’re toast,” said Shareholder Value Management analyst Jeff Embersits.

Palm’s employee head count is declining as quickly as its share of the world-wide smart-phone market. The company, which earlier this month warned it would miss quarterly estimates, has begun sacking employees–just in time for the holidays.

“Palm is working to sharpen its focus and better align resources behind core initiatives that will make the greatest impact to our business,” the handset manufacturer said in a statement. “To this end, and to ensure that our expenses are in line with projected revenues, we have made some reassignments and reductions in staff. This will better enable us to compete most effectively and ensure our long-term success.”

Palm hasn’t said how many employees are affected by this latest round of layoffs, but word on the street is that they could number in the hundreds–a significant reduction for a company that employs just 1,200 people or so.

I think it’s probably the most disappointing product I’ve seen in several years. To think that anyone would carry something with a 10-inch display at 2.5 pounds as an adjunct to a phone just doesn’t make any sense to me.”

–Gartner analyst Todd Kort

Maybe the Foleo wasn’t Palm founder Jeff Hawkins’s “best idea ever.” This afternoon Palm said it is scrapping the Clio-esque “mobile companion” that it launched with great fanfare in late May. “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,” Palm CEO Ed Colligan wrote in a post to Palm’s blog. “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 our next-generation platform and the first smart phones that will bring this platform to market.”

An astonishing turn of events, really. The $499 device was scheduled to ship in summer 2007. And Palm was insisting it was on track to do so as recently as Aug. 24. Apparently, the company decided it was better off taking a $10 million charge to earnings for canceling the Foleo than launching it in a market that has questioned its viability since the day it was announced. “I think Palm was wise enough to pull back when all the signs were indicating negative,” analyst Kort told IDG. “If they would have poured a lot of resources into this and failed, it could have dragged the company down pretty quickly.”

So much for Microsoft CEO Steve Ballmer’s claim that “there’s no chance the iPhone is going to get any significant market share.” According to market-research outfit iSuppli, Apple’s iPhone outsold all smart phones in the United States during July, outpacing sales of Palm’s Treo and Research in Motion’s BlackBerry, not to mention handsets from Nokia, Motorola and Samsung.

In its research note published this morning, iSuppli said that the iPhone accounted for 1.8% of all mobile handset units sold during the month. Although this could reflect first-month demand for a product people had been waiting to buy since January, it’s nevertheless not bad for a new entrant in a very competitive market. And a remarkable achievement for one partnered up with AT&T. “While iSuppli has not collected historical information on this topic, it’s likely that the speed of the iPhone’s rise to competitive dominance in its segment is unprecedented in the history of the mobile-handset market,” iSuppli wrote. “While the speed of the iPhone’s ascent to the top of the smart-phone and feature-phone charts is remarkable, it’s equally amazing that Apple achieved this in the face of numerous, well-entrenched competitors.”

Seems Apple is well on its way to exceeding its goal of 10 million iPhones shipped during calendar year 2008–roughly 1% of global cellphone shipments.

Note: John Paczkowski is on vacation and won’t be writing or posting videos until he returns Monday.

To keep you abreast of tech news while he’s away, we’re compiling a daily digest of 10 must-read tech stories. We’re calling it the Tech 10 and it appears below.

1. Getting to know you: Facebook is developing targeted ads based on the information that users of the social-networking site reveal about themselves. Quoting anonymous sources at the company, The Wall Street Journal says the advertising system is at an early, changeable stage, but Facebook hopes to launch a basic version late this fall.
2. It looks like Apple will turbocharge its iPods with the Mac OS. According to AppleInsider, the upgraded digital music players will debut at a media event next month and are part of the computer maker’s master plan to create devices around its legendary operating-system software.
3. Dude, where’s my YouTube? Initial response to ads overlaid on downloaded videos from the popular online site is overwhelmingly negative, Computerworld reports, noting that the comments on a YouTube feedback blog could be summarized by the one-word review of a user from Oro Valley, Ariz.: “Yuck.”
4. Hoping to shore up anemic sales of its PlayStation consoles in the face of competition from Microsoft and Nintendo, Sony said it will market a recording-transfer device (pictured here) in Europe enabling users to record TV programs on their PlayStation 3 video-game consoles for transfer to the PlayStation Portable. According to the Associated Press, the new gadget, dubbed PlayTV, will give game consumers an additional function for their PlayStations beyond playing video games.
5. Too hot to handle? Microsoft announced that it’s offering a free retrofit to the Xbox 360 Wireless Racing Wheel after reports from a number of users that smoke issued from the device when used on AC/DC power, according to PC World. The retrofit comes six weeks after it extended the Xbox warranty for “flashing lights of death” failures–and took an earnings hit of $1.15 billion for the anticipated repair bill.
6. Paper trail, indeed. Many iPhone customers are irked over the book-sized bills they are getting from wireless provider AT&T, reports the New York Times. The bills itemize all phone calls, as well as every text message and online data transfer. In response, AT&T announced that beginning Sept. 28, customers would get summarized bills removing the wireless detail.
7. Microsoft and Nokia won’t sit back and watch while the iPhone marches through Europe, apparently. The companies are joining forces to put Windows Live services on selected Nokia S60 handhelds, reports IDG News Service. Customers in 9 countries in Europe and two in the Middle East will be first to get the services, including Hotmail and Live Messenger. A Microsoft spokesman couldn’t say when the functions would be available for cellphones in the United States, however.
8. Speaking of teaming up, MTV and MySpace are collaborating on a series of one-on-one dialogues with the major Democratic and Republican presidential candidates. CNNMoney.com reports that the hourlong events will be streamed live on MTV.com and MySpaceTV throughout the fall on college campuses.
9. Palm’s Foleo computer, first exhibited at this year’s D Conference, is having trouble leaving the gate, writes Tech Trader Daily, quoting a Deutsche Bank analyst who disclosed that the debut in stores of the stripped-down laptop scheduled for this week “was delayed after software bugs were detected. … Palm now expects the device will ship in late September/early October.”
10. Playboy Enterprises is, uh, unveiling Playboy U, a social-networking site targeted exclusively at college students. The move online by the granddaddy of the skin rags, says the Associated Press, is an attempt to capitalize on the Playboy brand as the 54-year-old magazine continues to lose money and readers. The site is modeled after Facebook and MySpace, with users allowed to “friend” other college students. Although there will be no nudie shots, users will be able to discourse on such topics as how many sex partners they’ve had or what they think of penis enlargement.

–posted by Associate Editor John Sullivan

Apparently, my daughter’s third question in today’s video didn’t come through as clearly as I’d thought, which is too bad. Anyway, for those of you who’ve inquired, she said:

“Daddy, can we camp out in front of the Apple store, like Scoble?”

Anyway, I’ve updated the headline to clarify things a bit.

Color Research in Motion Co-Chief Executive Officer Jim Balsillie unimpressed by Apple’s new iPhone. Reflecting on the advent of the so-called JesusPhone during a conference call to discuss RIM’s soaring first quarter earnings (profit up 73%), Balsillie dismissed Apple’s new device as a threat. “iPhone is launching in one carrier in one country,” he said. “We’re in about 100 countries and 300 carriers. … The momentum we are seeing in terms of product launches, carrier support in terms of product launches of BlackBerries, and subscriber additions is exceptional, and we believe it will continue on into the second half of the year.”

Apparently, Balsillie doesn’t foresee the sort of iPhone-induced “stall” in handset sales that Palm warned of yesterday while reporting its own much uglier earnings. Nor should he. RIM signed up 1.2 million new BlackBerry subscribers in the quarter ending June 2, pushing its total to more than nine million accounts. And it expects to add 1.325 million to 1.375 million new subscribers in the next quarter, with the potential for sales to reach almost $1.4 million. “I think [Apple] did us a great favor because they drove attention to the converged appliance base,” Balsillie explained. “We think the attention given to [the iPhone] and its impact on the dynamic has been overwhelmingly positive for us.”