UPDATE 2-Marvell shares spike on forecast

* Q2 adj-EPS 18 cents vs Street view 15 cents

* Q2 revenue $640.6 mln vs Street view $619.82 mln

* Sees Q3 revenue $680-$730 mln vs Street view $646.8 mln

* Sees Q3 adj-EPS of 18-26 cents vs view 17 cents

* Shares up 9 pct in after-hours trading (Adds CEO, CFO and analyst comment, updates shares)

By Clare Baldwin

SAN FRANCISCO, Aug 27 (Reuters) - Microchip designer Marvell Technology Group Ltd (MRVL.O) posted stronger-than- expected quarterly profits due to tighter cost controls and forecast earnings ahead of expectations, pushing its shares up 9 percent after hours.

The company, which is incorporated in Bermuda but headquartered in Santa Clara, California forecast current quarter revenue of $680 million to $730 million, ahead of average Street expectations of $646.8 million. It expects adjusted earnings per share of 18 cents to 26 cents, ahead of analyst forecasts of 17 cents, according to Reuters Estimates.

Chief Executive Sehat Sutardja said on a conference call he sees growth in all parts of Marvell's business, but current quarter growth will be boosted most by new products such as chips for cell phones, ebooks and mobile Internet devices.

"Demand is beginning to incrementally improve," said Sutardja. "We are encouraged by the level of order stabilization."

The forecast mirrors optimism about a broader tech hardware recovery. Moody's Investors Service said on Thursday it sees stabilization in global IT spending in the second half of 2009, and a modest recovery in 2010. [nN27322754]

Marvell's chips are used in everything from hard drives to smartphones such as Research in Motion Ltd's (RIM.TO) BlackBerry and communications networks.

"Order patterns have improved substantially," Chief Financial Officer Clyde Hosein said in an interview with Reuters.

"Demand for a lot of consumer devices seems to be picking up from six months ago, both in the U.S. and non-U.S., particularly non-U.S. That has picked up substantially since the April time frame and continues to improve or maybe accelerate."

BETTER MARGINS

Marvell reported net income in the fiscal second quarter ended Aug. 1 of $58.5 million, or 9 cents a share down from $71.4 million, or 11 cents a share, a year earlier.

Excluding items, Marvell reported a profit of $118.7 million, or 18 cents a share, ahead of analyst estimates of $92.4 million or 15 cents a share, according to a Reuters Estimates poll.

Marvell reported a second quarter adjusted gross margin of 55.3 percent compared with 52.3 percent in the year ago period. The company forecast a third quarter gross margin of 55 percent, plus or minus 50 basis points.

"The gross margin and the guidance were both blowouts," said Brigantine Advisors analyst Allan Misha. "In particular, I don't think anybody expected the tick up to the 55 percent level and more importantly for it to be able to hold that level."

Hosein said cost cuts are now "substantially complete" and there are no current plans for additional cuts.

Revenue fell 24 percent from a year ago to $640.6 million, but was above expectations for $619.8 million.

Competitors LSI Corp (LSI.N), STMicroelectronics NV (STM.PA) and Texas Instruments Inc TXN.N all beat Street estimates in the quarter that just ended.

Marvell shares jumped 9 percent in after-hours trading after closing up 1.6 percent at $14.63 on the Nasdaq. (Reporting by Clare Baldwin; editing Bernard Orr, Yinka Adegoke and Andre Grenon)