Intel Corp. (INTC), the world's largest microchip maker, Thursday narrowed the range of its quarterly revenue forecast to the upper end of its outlook, citing better-than-expected demand for flash memory chips used in cellular phones.

Shares of Intel rose in after-hours trade following the Santa Clara, Calif.-based company's scheduled mid-quarter update. The shares are still down 13 percent for the year.

"These people are on track," said Marshall Front, chairman of Front Barnett Associates (search), an investment company that holds 2.1 million Intel shares. "They made some enormously beneficial investments in new plants over the last couple of years that are finally beginning to bear fruit."

Intel said it now expected revenue of $8.0 billion to $8.2 billion, with a gross profit margin of 60 percent to 61 percent for the second quarter ending June 26.

In April, Intel forecast quarterly revenue in the range of $7.6 billion to $8.2 billion, and gross margins of about 60 percent. Analysts on average had forecast second-quarter revenue of about $8.0 billion, according to Reuters Estimates.

Intel said its primary business — making chips for desktop and notebook computers and data-serving business computers — was tracking expectations. Its communications business, which makes chips for mobile phones, portable devices, and networking equipment, has performed above expectations, it said.

The chip maker also said a state income tax audit relating to earlier returns would reduce its income tax expense by about $60 million in the quarter.

All other expectations remain unchanged, Intel said.

Intel's communications business, which had an operating loss of $850 million last year, suffered as a result of a pricing mistake that pushed some flash memory customers over to rivals, including Advanced Micro Devices Inc. (AMD). 

The company's positive comments on flash memory suggest Intel has gotten that house in order and is benefiting from improved demand for cellular handsets, said Nimal Vallipuram, an analyst with Dresdner Kleinwort Wasserstein.

"Last year was pretty bad for them on flash memory," Vallipuram said. "The handset market is the largest driver for flash memory, and it's certainly getting better."

Shares of Intel had fallen 2 percent to $27.41 in regular trade on the Nasdaq (search). The shares rose to $27.95 in after-hours trading on INET, still below the stock's Wednesday closing price of $28.01.