By Gabriel Madway

The company issued a revenue outlook above Wall Street's expectations and sounded positive notes about demand, but its stock fell 4.5 percent amid a decline in the broader tech sector following Microsoft Corp's weaker-than-expected quarterly report.

Broadcom, which makes chips for everything from cell phones to television set-top boxes, has had a busy quarter, waging a hostile but ultimately fruitless takeover battle for Emulex Corp and reaching a settlement with Qualcomm Inc to end a long-standing legal battle.

The company posted net income of $13.4 million, or 3 cents a share, in the second quarter, down 90 percent from $134.8 million, or 25 cents a share, in the year-ago period.

Total revenue slid 13 percent to $1.04 billion. Product revenue of $966.3 million was at the high end of the company's forecast. Wall Street's revenue estimate was $955.3 million.

But product gross margin was 46.3 percent, below the company's forecast. Roth Capital Partners analyst Arnab Chanda believed that was the primary factor behind the after-hours share decline.

"On face value their revenue went up but they missed their gross margin target. There were some questions around that."

Although the company is forecasting core operating expenses to rise as much as $20 million in the current quarter, Chanda said he has a positive view of the company given the overall gross margin recovery and their multiple new product cycles.

BACK TO NORMAL?

In April, Qualcomm agreed to pay Broadcom $891 million over four years to settle their dispute over technology patents.

Broadcom said it recorded a $65.3 million gain on the settlement and $67.3 million of licensing revenue in the June quarter.

But there was some uncertainty as to whether Broadcom's bottom-line result beat Wall Street forecasts, due to questions over accounting for the settlement.

Brigantine Advisors analyst Allan Mishan said "it looks like a beat to me. There was a wide range of estimates out there."

"Following strong reports from Texas Instruments and Atheros , I think that most people were expecting them to report revenue at the high end of their range."

Chief Executive Scott McGregor said on the conference call the second quarter saw the return of a more normal customer ordering pattern following a dramatic decline in orders. Growth in the quarter was led by the company's mobile and wireless products.

McGregor expects the sales momentum Broadcom saw in the second quarter to continue into the current one.

The company forecast third quarter revenue of $1.12 billion to $1.19 billion.

Analysts are currently expecting revenue of $1.02 billion, according to Reuters Estimates.

The shares of Irvine, California-based Broadcom have risen around 70 percent this year. The company's stock closed at $29.18 on the Nasdaq and fell to $27.87 in extended trading.

(Reporting by Gabriel Madway; editing by Andre Grenon, Bernard Orr)