* Stock jumps as much as 9 pct on TSX
* Lifted by upbeat outlook for revenue, margin (In U.S. dollars unless noted)
OTTAWA, Jan 29 (Reuters) - Zarlink Semiconductor Inc ZL.TO shares gained more than 9 percent on Friday after the Canadian chip maker reported solid financial results and a forecast that bettered analyst expectations.
Zarlink, which sells chips used in communications, optical and medical applications, said it expects demand for its network timing and line circuit products to lift revenue in the upcoming fourth quarter.
RBC Capital Markets analyst Steve Arthur raised his stock rating to "outperform" from "sector perform" and lifted his revenue and profit forecasts to the end of fiscal 2011.
Profitable in five of the last seven quarters, Zarlink has "improved execution, multiple growth drivers and compelling valuation" he said in a note.
The company sees fourth-quarter revenue of $56 million to $58 million and gross margins of 52 percent to 53 percent.
"The outlook for Q4 is significantly better than our forecast of revenue of $53.2 million and gross margin of 51 percent," said BMO Capital Markets analyst Brian Piccioni.
The analyst lifted his revenue and gross margin estimates for the upcoming quarter and year.
"We believe the stock is remarkably inexpensive," Piccioni said in a note that maintained an "outperform" rating.
Zarlink shares peaked at C$1.16 on the Toronto Stock Exchange on Friday before slipping to C$1.13, an increase of 6.6 percent. or 7 Canadian cents.
The Ottawa-based company reported a break-even third quarter after markets on Thursday, but said profit excluding foreign exchange losses and non-operating items fell within its estimate of 1 cent to 3 cents a share. Revenue was $54.4 million and gross margin was 52 percent of revenue.
$1=$1.07 Canadian Reporting by Susan Taylor; editing by Rob Wilson