UPDATE 3-Zebra Tech Q3 beats Street, sees markets stabilizing

* Q3 adj EPS of 23 cents beat estimates by 2 cents

* Q3 revenue down 18 pct

* Sees Q4 sales of $200 mln-212 mln vs est $204.9 mln

* Sees Q4 EPS of 18 cents to 25 cents

* Shares recover from early losses, up 2 pct (Recasts; Adds CEO comments, details, updates share movement)

By Shrutika Verma

BANGALORE, Nov 4 (Reuters) - Zebra Technologies Corp (ZBRA.O), which makes specialty business printers, posted a quarterly profit that beat expectations, helped by increased demand for its products, and said its markets have stabilized.

Zebra shares, which fell 5 percent after the company gave a fourth-quarter outlook range whose lower end fell short of estimates, recovered and rose more than 2 percent to $25.65 after the company's positive comments.

The economy generally is strengthening and that should help improve business trends, Chief Executive Anders Gustafsson told Reuters.

"We expect that we will continue to see broad-based recovery and all regions should have some improvement in the fourth quarter," Gustafsson said.

"Our pipeline has been strengthening as we have gotten into fourth quarter and our backlog is healthy," Gustafsson added.

"IT budgets for 2009 were cut back very dramatically in the beginning of the year. As we move forward, I do not think that companies will revisit and increase their capex budgets for fourth quarter," Gustafsson said. "But there is money left in 2009 budgets that we expect to see the benefit of."

The CEO also expects capital expenditure budgets for 2010 to be "healthier than what they were in 2009."

He, however, expects pricing pressure on the company's high-end products to continue.

For the fourth quarter, Zebra forecast earnings of 18 cents to 25 cents a share, including exit and restructuring costs of 3 cents a share, on revenue of $200 million to $212 million.

Analysts were looking for earnings of 28 cents a share, excluding items, on revenue of $204.9 million.

On a conference call with analysts, the company said markets have stabilized and it will continue to see growth in 2010.

Q3 TOPS MARKET

Third-quarter net income fell to $11.1 million, or 19 cents per share, from $25.8 million, or 40 cents per share, a year earlier.

Excluding items, Zebra posted earnings of 23 cents a share. Total revenue fell 18 percent to $200.8 million.

Analysts expected earnings of 21 cents a share, excluding exceptional items, on revenue of $192.6 million, according to Thomson Reuters I/B/E/S.

The company, which saw sequential as well as year-on-year decline in Europe, expects to see sequential growth in the continent in the fourth quarter.

"Europe as a continent takes usually longer vacations in late July and August, so we have a very slow start of the quarter in Europe. But usually September picks up better and we saw good momentum in our pipeline," CEO Gustafsson said.

Zebra's gross margins rose sequentially in the third quarter and the company said it remains confident that gross margin will continue to improve as it realizes additional benefits from outsourcing, launch of new products and witness further improvement in product mix.

It expects fourth-quarter gross margins in the range of 45.3 percent to 46.6 percent.

"It looks like some IT spending is coming back and the budgets are loosening up a little bit, and there is little bit of positive momentum on the spending side for the IT purchases," Keybanc Capital Markets analyst Anthony Kure said.

Shares of the Vernon Hills, Illinois-based company were up 2 percent at $25.50 in late afternoon trade on Nasdaq. (Reporting by Shrutika Verma in Bangalore; Editing by Jarshad Kakkrakandy, Unnikrishnan Nair)