Palm pioneered mobile computing and established the smart phone market, but as it struggles to survive in an arena now crowded with giants, the Sunnyvale company's story is a reminder of how innovation takes you only so far.

Last June, the company tried to regain its footing by launching its new mobile operating system on the Palm Pre smart phone. The software and hardware garnered favorable reviews, even in the midst of the iPhone's popularity. Still, it failed to catch on, which fueled speculation that Palm must find a buyer to stay alive.

Now Palm faces a potential future similar to Silicon Graphics and Sun Microsystems, two Valley computing innovators that were ultimately overtaken by the market. "Even if you pioneer a space, you have to fundamentally keep reinventing yourself or you run the risk of being taken over by competitive forces especially if the big guys come into your territory," said Tim Bajarin, president of consultancy at Creative Strategies.

Bloomberg reported recently that Palm has put itself up for sale and has hired Goldman Sachs and Qatalyst Partners to solicit bids. With its stockpile of $590 million in cash dwindling, Palm has perhaps 12 to 18 months to revive its fortunes, said Peter Misek, an analyst with Canaccord Adams.

"There's always a chance to turn things around but it will be incredibly difficult because you're facing enormous competitors with a lot of money," said Misek. "What is the company going to do to create a situation of sustainability? They haven't communicated that to the market yet."

Palm officials declined to comment for this story. But the latest earnings report shows a company that has struggled to win broad adoption for its operating system and its phones, the Palm Pre and Pixi.

MBA BY THE BAY: See how an MBA could change your life with SFGATE's interactive directory of Bay Area programs.

Firm's missteps

Palm's predicament illustrates how big the market has become and highlights some of the missteps the company took in losing its lead.

In 1996, Palm, then a division of U.S. Robotics, introduced the Palm Pilot, which would dominate the newly formed personal digital assistant market. Palm's lead in that market didn't wane until 2005, after the company started shifting its focus to the Treo smart phone, which came over with its acquisition of Handspring.

The Treo came to the market in 2002 and for several years was the leader in the category, which combined a PDA with a phone. Cassidy Lackey, a developer whose software company Handmark built its business on the Palm operating system, recalls that from 2003 to 2005, Treos were ubiquitous among first-class airplane passengers.

Switch to BlackBerrys

But the improvements to the hardware and software slowed, allowing Research in Motion's BlackBerry and later the iPhone to overtake it.

"By 2006, 2007, people started carrying BlackBerrys more than Treos," said Lackey, vice president of Handmark Mobile App Studios. "I think Palm kind of rested on its laurels and didn't innovate fast enough."

Donna Dubinsky, former CEO of Palm, said in a recent interview that the company lost valuable time enduring years of corporate restructuring, which diverted critical resources and attention from product development. The decision to spin off its operating system into a separate company, only to buy it back later, was also a critical mistake, she said.

More recently, the company tried in 2007 to launch a netbook-like smart phone companion called Foleo, which it canceled three months after its unveiling. Meanwhile, Palm's long-awaited new operating system took longer to finish, further hobbling the company.

Bigger companies may have been able to absorb the distractions without too much fallout. But for Palm, which never posted revenues of more than $1.6 billion, the loss of focus took a big toll.

"I think Palm had so much turmoil, it acted as a deterrent from all the stability they needed," said J. Gerry Purdy, an analyst with MobileTrax.

Tech giants battle

Meanwhile, the smart phone market has become the next battleground for tech giants Google, Microsoft, Apple, Nokia and Research in Motion. PC makers such as Dell, Lenovo and Acer are also entering the market, which is forecast to grow to 390 million units sold in 2013.

Under Jon Rubinstein, the former Apple executive who came on as chairman three years ago and became CEO last year, Palm returned to its innovative ways with the user-friendly webOS operating system.

But Palm was not only hurt by the slow rollout of webOS to other carriers, but also dinged for everything from weak battery life on the early Pres to an unpopular advertising campaign.

In the battle for apps, Palm has tallied 2,400 programs, far fewer than the 185,000 apps for the iPhone or the 38,000 apps for Google's Android. Palm now has 5.7 percent of the smart phone market, trailing RIM with 41.3 percent and Apple with 25.1 percent, according to ComScore.

'Hit product' needed

"Palm had to come out with a hit product and get it out quickly," said Edward Snyder, an analyst with Charter Equity Research. "They solved the first issue but they couldn't get it out quickly enough and their rivals have cut them off at the pass."

In the quarter ending Feb. 26, Palm sold 408,000 units. While Palm launched the Pre exclusively on third-place carrier Sprint and followed up with the smaller Pixi, also on Sprint, expectations of a boost from the Pre Plus and Pixi Plus launch on Verizon on Jan. 25 hasn't materialized.

AT&T is also on tap to sell the Palm Pre Plus and Pixi Plus soon, while international distribution is ramping up. But investors have started losing faith in Palm's stock, which hit a two-year high of $18.09 in October but is now trading around $5 a share.

Elevation Partners, the private equity firm that has injected $425 million into Palm for a 30 percent stake, continues to believe in Rubinstein, who was picked by Elevation to lead Palm.

"Elevation continues to have a great deal of confidence in the Palm team and continues to believe there is a huge opportunity that lies ahead," said Paul Kranhold, a spokesman for Elevation. "They are dealing with shorter term execution issues but they know what the problems are and they're dealing with them."

Purdy, the analyst, hopes Palm is ultimately successful, but said that "they can't keep going like this; they have to do something."