EINDHOVEN, Netherlands (Reuters) - A Dutch company has squeezed a display the size of two business cards into a gadget no bigger than other mobile phones -- by making a screen that folds up when not in use.

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The 5-inch (13-cm) display of Polymer Vision’s “Readius” is the world’s first that folds out when the user wants to read news, blogs or email and folds back together so that the device can fit into a pocket.

Polymer Vision, spun out of Philips PHG.AS, whetted the appetite of gadget fans more than two years ago when it showed off a prototype. Now the gadget is in production and will go head-to-head with Apple's AAPL.O iPhone and Amazon's AMZN.O ebook reader Kindle when it hits stores mid-2008.

“You get the large display of e-reading, the super battery life of e-reading, and the high-end connectivity ... and the form factor and weight of a mobile phone,” said Karl McGoldrick, chief executive of the venture capital-funded firm, in which Philips still has a 25 percent stake.

“We are taking e-reading and bringing it to the mobile phone.”

He would not say how much the Readius would cost, but said it would be comparable to a high-end mobile phone.

McGoldrick said his “dream device”, which the company planned to build within 5 years, was a mobile phone with an 8-inch color display that could show video.

Like Amazon’s Kindle, the Readius has a so-called electronic paper screen, which displays black-and-white text and images that look almost like they have been printed on paper.

The device -- which will also just make phone calls -- connects to the Internet using the third-generation mobile phone networks with high data speeds.

The company said it was talking to retailers as well as mobile operators to sell the device. Like Apple’s iPhone, the gadget offers the chance for operators to boost data usage, which is more profitable than voice revenues.

Users will be able to set up their email accounts, news sources, podcasts, audio books and blog feeds at home on their computer, and the data is then pushed to the device whenever it is updated.

McGoldrick said the company opted to use this approach -- which rules out quickly browsing the Web on the go -- because it was simpler in a mobile environment.

“I see these devices with 50 buttons on them. We have eight,” he said, adding that the company plans to add a keypad to future models.