Castellano, who heads the market research and consulting firm, predicts that ARM-based processors will take market share from Intel’s Atom processors by 2012, with a 55% share.

He said that Atom will hole an 80% market share of the 21.5 million netbooks expected to be sold this year, but believes that changes in technology — including trends in cloud computing and Linux — will cause Atom’s grip on the market to slip in these times of recession, paving the way for ARM’s rise.

The full press release has more quotes from Castellano about his intriguing prediction.

The Sparrow is a Cortex A9 processor aimed at netbook makers and is a multi-core update to the Cortex A8. Speculation has it that the Sparrow could be the processor of choice for the next generation iPhones but on the netbook front, Toshiba, Pegatron and Wistron are all planning netbooks powered by the processor and will show them off at MWC ‘09.

Local Chinese media reports say that a 7-inch device is expected to sell for less than 1000 RMB (US$146), which if it is any good, sounds like a great price. The netbooks are likely to hit the market in January or February next year and will compete with Intel and VIA-based netbooks.

A 10-inch model is set to follow the 7-inch one, and this one will be priced a little higher, and will adopt the Windows CE operating system, which will allow the user to do all the usual basic stuff – internet surfing and emailing for example – but won’t allow for 3D games or any other programs designed for Windows XP or Vista.

ARM-based netbooks do offer lower prices than others, but are known for lack of stability and may struggle to compete with the bigger name models already out there.

Ian Drew, Vice President of Marketing at ARM, said that the “The release of a full Ubuntu desktop distribution supporting latest ARM technology will enable rapid growth, with internet everywhere, connected ultra portable devices“, then added, “The always-on experience available with mobile devices is rapidly expanding to new device categories such as netbooks, laptops and other internet connected products“.

On the other side, Jane Silber of Canonical called this a “natural development” for Ubuntu, spurred on by the demand from manufacturers for an ARM technology-based version. She went on to say that the addition of this optimised Ubuntu distribution will give consumers greater choice and variety in looking for the best OS on their netbooks.

The first devices running this version of Ubuntu should be running in time for the Computex show next June.

ARM is teaming up with Canonical to optimize the Ubuntu Desktop OS for its ARMv7 architecture, including ARM Cortex-A8 and Cortex-A9 processor-based systems. ARM considers this move “natural evolution” given its position in the mobile device market, and considering how effective its work has been, and soon netbook users are going to benefit from their manufacturing expertise it looks like.

Director of strategic software alliances for ARM, Kerry McGuire, told the magazine that, “Our platform can provide not only high performance but all-day battery life and advanced video functionality” and boasted that ARM can provide maximum power saving. If this isn’t all hype and AMD can match or outdo Intel, we could be looking at some intense competition among netbook processor developers, which could surely only be a good thing for the growing market.