Intel (INTC -5.42%), which was crushed by ARM Holdings' (ARMH) partners in the mobile market over the past few years, doesn't plan on losing the wearables and Internet of Things (IoT) markets in the same way. That's why it established a new IoT division last year, which houses its smallest SoCs (systems on chips).

One of the IoT division's most fascinating products is Curie, a button-sized, ultra-low power module with a six-axis sensor, accelerometer, and gyroscope. Curie has just 80KB of onboard SRAM and 384KB of flash storage, and lacks an application processor, wireless connectivity, or Wi-Fi. The only way to sync with Curie is via Bluetooth.

Intel's Curie. Source: Intel.

Curie can't power full-featured smartwatches like Google's Android Wear devices, but it could be installed in less demanding devices like fitness bands, medical monitors, and security tokens. Therefore, let's take a closer look at Curie's potential to expand Intel's footprint in the IoT and wearables markets.

Curie's market potential
Curie doesn't directly compete against any of ARM's smartphone or tablet SoCs. Instead, it targets ARM's Cortex-M embedded microcontrollers, which accounted for 24% of its cumulative licenses at the end of 2014.

In the fourth quarter, ARM's new Cortex-M licenses topped all other processor licenses, thanks to rising demand for microcontrollers, smart sensors, and low-power wireless communication chips. Five of those licenses were for ARM's next-generation processors, codenamed Teal and Grebe, which are designed for connected cars and wearable tech.

As Intel taps into the same market, it could profit from the growth of the IoT and wearables markets. The entire IoT market could grow from $1.9 trillion in 2013 to $7.1 trillion in 2020, according to IDC. IDC also expects global shipments of all wearable devices to surge from 19 million units in 2014 to 111.9 million units by 2018.

Curie's possible applications
Qualcomm's ARM-based Snapdragon chips power most Android Wear smartwatches today.

But the problem is that those devices generally only last for about a day on a single charge. Meanwhile, complaints about smartwatches' boxy exteriors prompted companies to launch more aesthetically appealing Android Wear devices like Motorola's Moto 360, Asus' ZenWatch, Huawei's Watch, and LG's Watch Urbane.

Now that luxury watchmakers like LVMH's TAG Heuer are interested in addressing the demand for fashionable wearables, Curie could find a home in high-end devices which don't require displays or apps. For example, Curie could easily power a luxury watch which has fitness tracking capabilities but doesn't have a screen or run apps. Curie could also be installed in smart rings, bracelets, necklaces, and sunglasses for "fashionable" biometric tracking.

Curie will also make it easy to turn any object into a connected one. With the support of innovative companies, Curie-powered devices could help Intel rapidly grow its footprint in the IoT and wearables markets.

A piece of the IoT puzzle
Both Curie and Edison, an SD-card sized computer, are powered by Intel's Quark SoCs, a line specifically created for IoT and wearable devices. Both modules complement Intel's Atom and Xeon-D processors, which are used in larger devices like microservers. Together, these devices form the foundation of Intel's IoT efforts.

Intel's Edison. Source: Intel.

ARM is tightening its grip on the embedded market with mBed, its own open source OS for IoT devices. ARM recently acquired Dutch security firm Offspark to improve mBed's security. Intel uses a portfolio of embedded operating systems it gained through its 2009 acquisition of Wind River. It secures these systems with the security assets it gained from acquiring McAfee in 2010.

Better than mobile
In 2014, revenue at Intel's IoT division rose 19% year-over-year as operating income improved 12%. Although the IoT business only accounted for about 4% of Intel's sales and operating income, it fared much better than the struggling mobile division, which posted an operating loss of $4.2 billion.

That growth will likely accelerate over the next few years, as devices like the Apple Watch boost mainstream interest in the wearables market. To capitalize on that interest, Intel secured wearable partnerships with Fossil, Oakley, Opening Ceremony, and SMS Audio, and launched its first smartwatch, the Basis Peak.

The verdict
Intel certainly has near-term challenges to overcome, including a slowdown in global PC demand and the controversial subsidization of its unprofitable mobile business. However, its promising IoT and wearables efforts shouldn't be ignored, and investors should understand the massive new markets that products like Curie and Edison might unlock.