I think they do. One one hand, for building complex embedded systems it sure is nice to be able to get an Arm processor, Linux a high level language etc. Getting all that setup takes time, but it's worth it since it since the rest of the development goes so much faster.

But, I still use a ton of AVRs and similar small memory micros. For each big micro I use, they have a few small micros in support. It's so much easier to do hard real time without an OS, or pipelines, etc. When you can just count instructions and know the timing.

As the bigger micros continue to move down market, the small ones will get even smaller and lower power and open up new markets.