Word is that Palm Inc has hired bankers to explore the possibility of selling the company, whose smartphone sales have struggled in the face of stiff competition from Apple Corp's iPhone and Research In Motion's BlackBerry.

The internet is rife with rumours that Palm is working with Goldman Sachs Group Inc and investment banker Frank Quattrone's Qatalyst Partners. As a result, shares jumped 20% as investors speculated that a bidding war could ensue. Such optimism, however, may be premature.

Time is not on Palm’s side. The company is losing money, and over the past six months its stock has fallen 69%, with its market capitalization down from about $2.4 billion.

There are alternatives to a sale. Palm could look additional capital investment, or it could license its WebOS phone operating system software.

Elevation Partners, the private equity firm that includes U2 lead singer Bono among its partners, controls roughly 30% of Palm. Allowing for a market capitalization of over $900 million, the company would likely fetch over $1 billion.

Palm shipped a total of 960,000 smartphones in the February quarter, but only 408,000 of those were sold to consumers.

A likely suitor is HTC Corp, the world's No. 5 smartphone maker. Other candidates are Lenovo Group and Microsoft Corp, handset manufacturer Nokia, and Motorola Inc. Taiwanese firm HTC currently builds phones on Google's Android platform, while Chinese company Lenovo is primarily a computer maker.

In February, Palm released an earnings warning, telling investors its fiscal third-quarter revenues would fall well short of expectations, and that sales of Pre were falling short.

"Driving broad consumer adoption of Palm products is taking longer than we anticipated," Palm CEO Jon Rubinstein said at the time.