ARM Holdings (NASDAQ:ARMH) often sees a good deal of excitement around its smartphone and tablet opportunities, and many talk up the potential of ARM-based servers. But the biggest opportunity for ARM from a unit-growth perspective is the micro-controller/embedded space. This is ARM's bread and butter, a market that ARM claims has been growing at a 40% compound annual growth rate over the last several years.

At the Intel Developer Forum, Intel (NASDAQ:INTC) announced a new product category that it claims is aimed at the so-called "Internet of things." Cutting through the marketing hype, it is clear that Intel intends to enter the low-cost micro-controller space. While this may seem like a negative for ARM, the underlying end markets are growing so quickly, and ARM so experienced at these types of chips, any long-term threat may be a long way off.

Quark still needs a lot of work
The first iteration of Intel's Quark chip doesn't look all that impressive; it's essentially a port of Intel's 1989, top-of-the-line i486 PC design in a system-on-chip built on Intel's 32-nanometer manufacturing process. It's small, and it is low-power, but reusing an ancient PC chip design is unlikely to yield an optimal solution.

Going forward, Intel will probably do a ground-up redesign in a similar vein to what investors saw the company do with its smartphone/tablet processor cores. While many investors believe that the success or failure of a chip is based solely on the manufacturing technology, a targeted design is necessary in order for a product to be successful on a technical level.

Intel isn't the only competition
Will Quark eventually be competitive with ARM's Cortex-M and R series processors? If Intel takes this space seriously, then there is no reason why it couldn't be. However, while some may think that Intel is the biggest problem for ARM here, a much more pervasive architecture is MIPS. MIPS designs are already used by many players, including Microchip, in the low-power CPU/micro-controller space, so competition for ARM isn't new here.

Foolish bottom line
While Quark may open new avenues of growth for Intel and introduce further competitive pressures against ARM and its partners, this is much more of a longer-term concern than any near-term worry. Quark isn't good enough to compete with ARM's designs in this market today, but with a redesign and a deeper focus on research and development in this space, it could be a longer-term concern if the end market stops growing so quickly.