Circuitry that is smaller than one thousandth the width of a human hair will be at the core of a new generation of chips to be produced by Intel — the most significant overhaul of the company’s microprocessors in more than ten years.

The chips, to arrive over the next 18 months, will have features that are already a mainstay of Advanced Micro Devices (AMD), Intel's rival, and should enable increased performance without the consumption of more power, Intel said.

The new families of chips, codenamed Nehalem and Penryn, will exploit an Intel manufacturing technology that can create wires 45 nanometres — billionths of a metre — in length, meaning that a single chip will contain as many as 820 million transistors.

By next year, Intel said, the Nehalem chips will feature a built-in memory controller — the component that manages the way a microprocessor retrieves data from external memory chips.

At present that function is performed by a separate product, known as a chip set, which adds to the cost and power consumption of the computer.

AMD has been integrating memory controllers into its chips since 2003, and the increased performance that results has been a significant factor in it capturing 25 per cent of the microprocessor market as at the end of last year, forcing Intel to rethink its strategy.

Intel has argued previously that similar results could be achieved by expanding the data repository of each chip, known as cache memory.

Pat Gelsinger, the general manager of Intel’s digital enterprise group, said of the 45nm manufacturing technology: “It will unlock the full capability of that generation.”

The Nehalem chips would also have graphics circuitry, Mr Gelsinger said — a direction that AMD has signalled it may take since acquiring ATI technologies, a chipmaker specialising in graphics, for $5.4 billion last year.

AMD said it did not believe that Intel would be able to catch up to its existing designs until the middle of next year, when it introduces the Nehalem microprocessors.

The Penryn family is expected to arrive in the second half of this year.

The announcement of redesign by Intel — the most significant since it brought out the Pentium Pro family in 1996 — comes soon after the company said that it would build a $2.5 billion chip-manufacturing facility in Shanghai.

The plant, known as Fab 68, is scheduled to open in 2010 and will produce only chip sets — chips that work to support microprocessors.

“China is our fastest-growing market, and we believe it’s critical that we invest in markets that will provide for future growth,” Paul Otellini, the president and chief executive of Intel, said.

At present Intel has seven chipmaking facilities, most of which are located in the western United States.

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