Updated from Oct. 16



lived up to expectations it set earlier in the year, posting a solid third-quarter increase in revenue, a narrower loss, and a better-than-expected sales outlook, the company reported after the close Thursday.

Shareholders still weren't impressed and offered the shares down $2, or 6.1%, to $30.68 Friday morning. Smith Barney downgraded the shares to sell Friday, citing a high valuation and what it said was ebbing momentum.

The closely watched maker of chips for communications and servers posted a loss of $6.3 million, or 2 cents a share, compared to a loss of $183.3 million, or 68 cents a share, in the same quarter last year, according to generally accepted accounting principles.

Revenue in the September quarter was $425.6 million, an increase of 12.6% sequentially (the company had forecast a 10% gain) and a 46.8% increase over last year's $290 million and better than Wall Street's expectation of $414.3 million.

After excluding charges, pro forma net income for the third quarter was $43.8 million, or 14 cents a share, a penny better than the consensus of analysts polled by Thomson First Call.

The company expects revenue to grow sequentially by 7% to 9% in the fourth quarter. Analysts polled by Thomson First Call were looking for growth of 5.4% in the December quarter. The company did not give a forecast for earnings.

Sales in the third quarter set a record, and were helped by strong interest in emerging products such as personal DVD players and broadcast satellite, the company said. Chips for gigabit ethernet, a fast networking technology, also did well, with revenue up 50% sequentially during the quarter.