Taiwanese smartphone manufacturer HTC has apparently withdrawn from the race to snap up Palm, leaving the way open for rival bidders.
In the last two weeks it has seemed increasingly likely that HTC would be one of the chief contenders to take over the struggling US firm.
However, according to a source cited by Reuters, the company has now pulled out on the grounds that the deal was not viable.
The source told the news agency: "There just weren't enough synergies to take the deal forward."
A slump in sales of Palm's two key smartphones, the Pre and the Palm Pixi, in recent months has reportedly prompted the firm to actively begin seeking buyers.
However, in an interview with the Financial Times Palm's Chief Executive Officer Jon Rubinstein remained bullish over his company's prospects.
He said: "I believe Palm can survive as an independent company. We have a plan that gets us to profitability.
"If someone comes to the board with a reasonable offer of course it's something we have to consider."
Palm is soldiering on with new products and projects even as many firms move in to take a closer look with a view to making a bid, according to Mr Rubinstein.