The use of Google’s Linux-based operating system Android in netbooks has the potential to muscle computing incumbents Microsoft and Intel out of the mini-PC computing space as more mobile phone components make their way into PCs.

The end result would likely be even less expensive netbooks based on technologies originally designed for phones, such as Google’s Android, and processors from ARM, which are commonly used in mobile phones. Intel has said it plans to target the smartphone market with its Atom processor, which so far has been widely used in netbooks.

ARM offers its processors as intellectual property that is licensed and then manufactured by another company, based on the needs of the end device.

While Gartner has forecast the steepest decline in PC unit sales in history for 2009 at just under 12 percent, the analyst firm has said that netbooks would be a bright spot and their sales would continue to rise.

That trend might even be accelerated if the price of netbooks could be cut even further from its sub-$500 level. Many netbooks now are commonly available for about $300.

The even less expensive netbooks using the Android OS and an ARM processor could potentially be subsidized by wireless telecommunications carriers for the consumer market. AT&T and Verizon have both staked a claim in this space, with AT&T already releasing such a netbook for $100 for customers who sign a two-year data contract – much the way wireless carriers subsidize the sale of mobile phones.

However, a netbook based on Android as its OS and an ARM processor would not likely behave like the PCs that most users have become accustomed to because it would not run familiar office applications. Some early netbooks that were based on other Linux operating systems were not as popular as those based on Microsoft Windows XP because most PC applications are written for Windows and don’t work on Linux.

The story was first reported in the Wall Street Journal when an HP executive told reporters there that the company was studying Android for use in netbooks. Asus, the top seller of netbooks by unit volume, has also said that it is looking at using Android in netbooks. Experts believe the market could see such netbooks by the end of 2009.