China's Huawei Technologies has been tapped by money-losing smartphone maker Palm Inc
for preliminary acquisition talks, a source familiar with the matter said.

Huawei was approached through its investment bank sometime in mid-February for preliminary discussions, the source told Reuters on Tuesday, speaking on condition of anonymity because the process has not been made public.

The source said discussions had not since moved forward.

As a matter of policy, Huawei does not comment on speculation about possible mergers or acquisitions. Huawei is always open to consider opportunities that will further enhance its business development, the company said in a statement.

A source had earlier told Reuters that Palm had hired bankers to explore several options, including a sale of the company, whose smartphone sales have suffered badly against those of rivals such as Apple's iPhone and Research in Motion's BlackBerry.

Palm has been considered a target for larger companies hoping to enter or expand in the mobile market for years.

Suitors would likely pay more than $1 billion for Palm. As of Friday's close, it had a stock market value of $870 million, and deals for technology companies are carrying a premium of about 30 percent these days, according to bankers.

In the past six months, the company's stock has dropped 69 percent and its market capitalization has tumbled from about $2.4 billion.

Huawei and ZTE are potential buyers. It makes sense: they don't have an operating system or a brand, but they have cheap manufacturing costs and money to invest and develop the brand, said IDC analyst Francisco Jeronimo in London. Consumers don't associate Chinese brands with quality products and don't pay a premium for such a mobile phone ... Palm would be perfect for them.

ZTE Corp <0763.HK> <000063.SZ>, China's No.2 telecoms equipment maker, could not be reached for comment.

Huawei and ZTE are two of China's biggest success stories, banking on demand from a strong domestic market and growing success overseas, where they compete with the likes of Ericsson and Nokia Siemens Networks .

Other potential suitors include HTC Corp <2498.TW> and Lenovo Group <0992.HK>. Dell Inc , Microsoft , Nokia and Motorola Inc have been named in the past as potential suitors. (Additional reporting by Tarmo Virki in HELSINKI)