UPDATE 1-Hon Hai using ARM chips in low-cost PC projects

* ARM makes in-roads into low-cost PC mkt dominated by Intel

* Chinese telecom operators have expressed interest

* PC will run on Linux system due to lower cost (Adds detail, background)

TAIPEI, Sept 8 (Reuters) - Taiwan's Hon Hai (2317.TW), the world's top electronics parts maker, said on Tuesday it was working on several projects to build low-cost PCs using UK-listed chip designer ARM Holdings' (ARM.L) chips.

Netbook and smartbook PCs have been one bright spot in a struggling tech sector, appealing to cost conscious consumers wanting low-cost, portable devices to surf the web and perform relatively simple computing tasks.

U.S. chip giant Intel Corp (INTC.O) dominates the sector, providing the bulk of chips to PC makers such as Taiwan's Acer (2353.TW), Hewlett-Packard (HPQ.N) and Dell (DELL.O).

"We have a few smartbook projects and I think there is demand for these sub-$200 devices," Young Liu, special assistant to the CEO at Hon Hai, told reporters on the sidelines of an Intel event in Taipei.

He declined to name the companies interested in the project, but said several telecom operators in China had expressed interest, in a potential business opportunity for the firm in the world's second-largest PC market.

The new low costs PCs were likely to run on the open source Linux operating system due to its lower cost, he added.

"We won't be able to make a PC that costs less than $200 if it's running on Intel chips or Windows," Liu said, referring to Microsoft's (MSFT.O) dominant operating system.

Hon Hai, which recently entered the notebook PC manufacturing segment, also makes gadgets such as Apple's (AAPL.O) iPhone and Nintendo's (7974.T) Wii console as well.

Most major tech brands typically do their own design work but outsource the labour-intensive manufacturing process to firms such as Hon Hai and Singapore-based Flextronics (FLEX.O), which have large production facilities in lower-cost countries such as China and Vietnam. (Reporting by Kelvin Soh, Editing by Jacqueline Wong)