UPDATE 2-Cavium Networks posts Q3 above market, sees strong Q4

* Q3 adj EPS $0.02 vs est breakeven, rev up 6 pct

* Sees Q4 adj EPS $0.05-$0.06 vs est $0.03

* Shares up 5 pct (Recasts; Adds analyst and conference call comments, updates share movement)

By Manasi Phadke

BANGALORE, Oct 27 (Reuters) - Chipmaker Cavium Networks Inc (CAVM.O) posted third-quarter results that edged past estimates, helped by strong growth in its enterprise and data center business and a sequential rise in gross margins, and forecast a strong fourth quarter.

Shares of the Mountain View, California-based company were up 5 percent at $20.50 in trading after the market. They closed at $19.50 Tuesday on Nasdaq.

The company, whose chips are used in the networking, communications, storage and security industries, forecast fourth-quarter earnings of 5 cents to 6 cents a share, excluding items, on revenue of $29 million to $30 million.

Analysts expect the company to earn 3 cents a share, before items, on revenue of $27.1 million, according to Thomson Reuters I/B/E/S.

The company expects fourth-quarter gross margins, before items, of 57 percent to 58 percent, up from 55.7 percent in the third quarter.

"We expected gross margins to come up because of Cavium's product mix," Auriga USA analyst Anthony Carbone said, adding the company will continue to grow gross margins in the forseeable future.

Carbone said Cavium can grow its gross margins till the low 60 percent range.

Fourth-quarter revenue will be driven by new product ramps and continued strength in the enterprise business, the company said on a conference call with analysts.

The enterprise and data center segment, which accounted for 51 percent of Cavium's revenue, grew 34 percent sequentially in the third quarter.

"The third quarter was indeed an extremely strong quarter on all matrix, top line growth, gross margin expansion, design wins..." Chief Executive Syed Ali said on the call.

The company posted a loss of $4.2 million, or 10 cents a share, compared with a profit of $1.8 million, or 4 cents a share, a year ago. Excluding items, it earned 2 cents a share.

Revenue at Cavium rose 6 percent to $25.9 million.