SAN FRANCISCO -- Intel ( INTC) is revamping its microprocessor arsenal with the release of its new Penryn chip.

The company will begin shipping the quad-core and dual-core microprocessors to key customers Monday, marking Intel's latest bid to keep the heat on rival Advanced Micro Devices ( AMD) while rebuilding its own profit margins.

The Penryn processors, which will initially be available for server and desktop PCs, offer a boost in performance and energy efficiency while ushering in a major advancement in transistor design, according to Intel.

After seeming to have lost its competitive edge in recent years, Intel is now showing a formidable ability to improve its product lineup and its financial performance.

Last month, the company grew its revenue 16% to $10.1 billion, surpassing Wall Street expectations by $500 million.

And Intel projected that its gross margin would increase to 57% in the fourth quarter compared to 52.4% in the third quarter.

Part of that margin benefit will come courtesy of the Penryn chip, which is 25% smaller than its existing products and thus allows Intel to reduce manufacturing costs.

The Penryn could also blunt the impact of AMD's latest product, the Barcelona processor.

AMD is hoping that Barcelona will vault it ahead of Intel in the performance and energy efficiency race. But the company has acknowledged that its initial production of the Barcelona chip has lagged expectations due to "design and process tuning." The chip also has been criticized for its low clock speeds, although AMD says faster versions are on the way.

AMD's stock, which closed Friday at $12.37, is down 38% since the start of the year.

Intel's stock is up 23% this year based on its closing price of $25.15 Friday.

Intel's Penryn chip is essentially a "shrink" of Intel's existing processors based on the Core architecture, released in 2006. Instead of 65-nanometer transistor gates in Intel's current crop of chips, Penryn features transistors that measure 45-nanometers, delivering a performance boost, extra features and a reduction in production costs.

Intel has also made a big switch in the design and material of its transistors, replacing the long-used silicon dioxide material with so-called High-k metal gates that use Hafnium material. According to Intel, the new material and gate structure reduces the leakage of electrical current.

Of course, moving to a brand new material and transistor structure adds an extra layer of risk to the manufacturing process.

Intel spokesperson Bill Calder said Intel is confident in its ability to manufacture in volume with the new materials, having spent roughly two years perfecting the process.

"From all signs right now the ramp looks equal to, if not maybe slightly faster than normal," said Calder.

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