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Palm's Centro smartphone has sold over 2 million units.
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Palm said it would be cutting jobs due to multiple consecutive quarterly losses and increased competition from Apple and Research In Motion.
The company employs about 1,050 employees but didn't disclose how many workers it would let go.
"Our goal is to consolidate resources behind fewer programs to focus our efforts more effectively," said spokeswoman Lynn Fox.
Palm was once the United States leader in the smartphone market with a dedicated following, but it has failed to keep up with its competitors. Research In Motion is now the dominant smartphone maker in the United States, and much of that comes from taking the enterprise market away from Palm.
In only two years, Apple's iPhone has surpassed Palm in market share. The iPhone has been a hit with casual consumers and enterprise users, and Apple sold 6.9 million units last quarter.
Palm has had a hit with the Palm Centro though, which has sold over 2 million units. The entry-level smartphone has drawn many first-time smartphone customers, but the $99 price means the handset doesn't have that high of a margin for Palm.
The company has branched out beyond its own operating system and released a pair of Windows Mobile smartphones this year. The Palm Treo 800w and Palm Treo Pro were met with mixed reviews, and neither elicited the consumer reaction the iPhone 3G or BlackBerry Storm did.
The company said it's continuing to work on the next-generation version of its operating system, and it's on track to be in handsets in the first half of 2009. Analyst Jeff Kagan said Palm's woes stem from the company's inability to adapt to an ever-changing market. He said Palm is making a mistake by trying to be a mass-market seller, and should instead focus on being the leader in a niche segment of Palm OS users.
"I think Palm could be a player like Apple, but instead of focusing on what they do best and serving their customers and the marketplace, they are trying to squeeze back into the changing wireless industry, which is seeing many more smartphone makers stealing their thunder," Kagan said.
The looming global economic recession played a role in the job cuts as well, Palm said. The company joins a long line of mobile phone companies that are reducing staff, including Sony Ericsson, Motorola, and Nokia.