A holy war is brewing between Intel and ARM over smartphones and mobile internet devices. Currently ARM processors dominate smartphones while Intel’s Atom dominates Netbooks.

Nokia’s $299 3G Netboook, is bundled with a two-year AT&T Data Connect plan which runs $60-a-month. Otherwise it’s $599. Nokia’s Atom-based netbook comes with an HDMI port, integrated Bluetooth, a 10.1 inchdisplay, integrated A-GPS with Ovi Maps, and the latest version of Ovi Suite for synching with a Nokia mobile device. Nokia says their Windows 7 Netbook will run for up to 12 hours.

But the battlefront may shortly move to ARM-powered “smartbooks”, running Android software — and priced around $99. But neither Windows 7 nor XP run on ARM processors. Yet.

Market research firm The Information Network said late last month that ARM processors, not Intel’s Atom chip, will gain the largest chunk of the Netbook market in 2012 — about a 55 percent market share.

They believe small ARM-based laptops — “smartbooks” — will thrive under subsidized services from telephone carriers. Tegra-based smartbooks have already been picked up by telecom providers in Europe and North America, and may arrive in stores before the end of the year, say reports.

EE Times cites analyst Didier Scemama, who said there is a “shift towards computing based on ARM-Linux and away from Intel-Microsoft over the next technology cycle,” which he said would begin in the second half of 2010, because ARM processors would match Intel chips in performance and beat them on power consumption and possibly cost. The dual-core Arm processor runs at 2GHz while consuming 1.9 watts of power, with better performance than Intel’s Atom N270 operating at 1.6GHz, according to benchmarks provided by Arm.

ARM’s new dual-core Cortex A9 processor is aiming at the wireless market with licensees including Texas Instruments, STMicroelectronics, Samsung, NEC, Toshiba and NXP. Of course Intel could scale down Atom to 32-nm thereby allowing it to drop the price under the 40-nm Osprey.

If Microsoft could enable Windows 7 to run under ARM’s processors, all bets are off.

The LG Electronics MID device, due in 2010, is predicted to be “one of the first Moorestown designs to market,” according to the companies. The Mobile Internet Device will run Linux-based, Moblin V2 that will add cellular voice capability, says Intel. The new Moblin v2 beta, which came out earlier this month, is focused on NetBooks and MIDs. It’s been qualified on devices from Acer, Asus, Dell and MSI.

Ultra-Mobile PCs, by definition, run Windows. But running Microsoft Windows on a Smartphone or UMPC is not the compelling prospect it may have appeared 5 years ago.

Atom’s chief advantage is that it can run PC applications, unlike ARM-based devices. But current Atom processors require far more juice than ARM, making it impractical for most handheld devices. The Moorestown shrink may change all that. On the other hand open source platforms like Android, are changing the Smartphone game.