(Reuters) - Broadcom Corp raised its outlook for the fourth quarter on Wednesday on stronger demand for its chips, sending its shares up nearly 7 percent.

The chipmaker increased its forecast for net revenue to about $1.8 billion, the high end of its prior range. Analysts on average forecast $1.76 billion, according to Thomson Reuters I/B/E/S.

The company also said its expectations for product gross margin had increased to the high end of the prior range, to roughly flat sequentially with the previous quarter's approximately 50 percent.

Chief Executive Officer Scott McGregor said in a statement that Broadcom's fourth quarter was coming in stronger than expected driven by solid shipments and tight operational management.

The company's updated forecasts came ahead of its 2011 analyst day in New York.

It also forecast lower research and development and other general expenses would drop by around $5 million due to slower-than-anticipated hiring and certain credits in the period.

Broadcom said it expected the cash on its balance sheet to rise sequentially to around $5.1 billion on strong cash flow and a completed debt offering.

On October 25, Broadcom, which makes chips for products ranging from cellphones to television set-top boxes, disappointed investors with a weak fourth-quarter financial outlook. It cited a broad slowdown in orders, particularly in the United States and Europe, where customers were keeping product inventories low.

At the time, it forecast quarterly revenue of $1.7 billion to $1.8 billion, compared with analysts' expectations of $2 billion.

On the same day, it forecast gross profit margin flat with to slightly down from the third quarter's 49.5 percent.

However, only last week, McGregor downplayed the risk to future demand from Europe's debt crisis in an interview with Reuters, saying people had already factored the risks around Europe into their plans.

Shares of Broadcom were up 6.8 percent at $30.11 in trading before the market opened.

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