The company said in a statement: PalmSource will receive minimum royalty payments of $148.5 million, which includes $65 million for calendar years 2007 to 2009 subject to meeting certain development milestones.

In fact, this takes the struggling PalmSource little further forward. The existing deal between the two companies expires in December 2006 and according to PalmOne latest quarterly SEC filings: The agreement includes a minimum annual royalty and license commitment of $41.0 million and $42.5 million for the contract years ending December 3, 2005 and December 3, 2006, respectively.

So PalmOne is already committed to pay PalmSource a total of $83.5 million in minimum payments over the next two years. Take, this figure away from the $148.5 million in the latest statement, and it leaves the $65 million.

For three years, this is an annual minimum commitment at half the current rate. And even then, it depends on PalmSource meeting development milestones.

PalmOne CEO Ed Colligan was bullish about the deal. Extending our license of Palm OS is an essential component of our success and ensures we can continue to build great Palm OS based products for years to come.

The fact that his counterpart at PalmSource David Nagel quit the company in unexplained circumstances earlier this week suggests that enthusiasm for the deal was not entirely shared by the two companies.

PalmOne has been flirting with the Windows CE operating system and there is nothing to stop it switching in 2007, when its deal with PalmSource reaches the conditional stage.

The Palm empire was divided into the two entities in October 2003 and the name Palm was held by a joint company until today’s news that PalmOne is to buy out PalmSource’s 55% share. Even then, the $30 million it will pay is to be spread over three and a half years.

For the next four years, PalmSource will retain rights to use the PalmSource name and certain related Palm trademarks. But during this period, PalmSource will also adopt a new brand identity.

PalmOne has clearly hankered after sole use of the Palm name that Mr Colligan said it aimed to turn into a household word synonymous with leadership in mobile computing.

As PalmOne provided 64.4% of PalmSource revenue in the first nine months of the current year, giving up the Palm name to its biggest customer was an offer PalmSource could not refuse.

When PalmOne and PalmSource became separate companies the logic was that the device company would thus be free to work with other operating systems, and the OS developer could attract other handset manufacturers to its software.

Neither strategy has been a raging success. PalmOne still produces all its devices on the Palm OS. Still only one PalmOne device, the Treo 650, is also a phone, while the market for unconnected PDAs has dwindled in the last couple of years.

The company saw its revenue grow in its first nine months of its fiscal year, due to the acquisition of the company behind the Treo Handspring. More importantly, perhaps, PalmOne moved back into profitability during the period.

PalmSource can claim greater success in its endeavors, in that there are now some half a dozen manufacturers building phones based on its platform, including several ODM players in Asia.

However, Sony’s 2004 decision to drop out of the PDA market, in which it participated with Palm OS devices, sent PalmSource’s bottom line tumbling: the first nine months of its current fiscal year showed revenue dwindling, while the bottom line was in the red for the third quarter.