NEW YORK (CNN/Money) - Intel said Thursday that fourth-quarter revenue would be much higher than it previously forecast, a sign that holiday sales of PCs and other consumer electronics products may be stronger than expected.

Intel (Research) stock surged more than 7 percent Friday morning on the news.

The world's largest manufacturer of semiconductors used to power personal computers and servers said revenue would be $9.3 billion to $9.5 billion for the quarter, up from its prior prediction of $8.6 billion to $9.2 billion.

The $9.4 billion mid-point of Intel's new guidance is well ahead of the earlier $8.9 billion mid-point, as well as Wall Street's consensus estimate of $8.97 billion.

During a conference call with analysts, Intel Chief Financial Officer Andy Bryant confirmed that the company was seeing a stronger-than-usual pickup in demand during the holidays.

Bryant said that Intel has typically tended to report a sequential sales increase of about 8 percent from the third quarter during the past few years.

But if Intel hits the mid-point of its new range, that would mark an 11 percent increase in sales from the third quarter.

" I really think that we underestimated the fact that we would have a strong seasonal fourth quarter," Bryant said.

In a written statement, the company specifically cited strong global demand for its architecture products, microprocessors, chipsets and motherboards that are the guts of most desktops, notebooks and servers.

"This is very much a good sign for holiday PC sales," said Apjit Walia, an analyst with RBC Capital Markets. He said that notebooks appear to be selling particularly well and that should help Intel's bottom line since chips for notebook computers tend to have higher margins.

To that end, Intel also said that it expects gross profit margins to be 55 to 57 percent, adding that margins would likely be in the upper half of this range.

That's a slight improvement from October, when Intel said gross margins would be about 56 percent. Gross margins measure how profitable a company is after subtracting the cost of sales.

Shares of Santa Clara, Calif.-based Intel fell 1.7 percent in regular Nasdaq trading Thursday. The Dow component's stock has tumbled about 30 percent this year on concerns about waning demand for PCs, a buildup of chip inventories and several manufacturing problems that caused product delays.

It has been a rough year for Intel...but a strong 4Q outlook could help lift the stock going into 2005.

But Thursday's news led to a nice gain in shares of Intel and other chip companies Friday morning. Shares of Intel's top rival Advanced Micro Devices (Research) were up more than 3 percent. Texas Instruments (Research) and Broadcom (Research) also moved higher Friday.

Shares of semiconductor equipment firms, which sell gear to Intel and its competitors, also soared Friday, with Applied Materials (Research), Novellus Systems (Research), Lam Research (Research) and KLA-Tencor (Research) each gaining about 4 percent.

And Walia said he expects tech stocks in general to rally through the end of the year, thanks in part to Intel's healthy forecast. "This is very bullish for the tech sector in the near term," he said.

In addition to Intel's strong sales outlook, the company also reassured Wall Street by saying in its statement that it "continues to make progress on inventory reduction and expects a net inventory decrease of several hundred million dollars by the end of the quarter."

Intel had reported double-digit percentage sequential inventory increases in both the first and second quarters of this year, sparking fears of a possible glut of chips that the company would have to write-down or sell at a steep discount. But Intel posted a slight decline in inventories in the third quarter.

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Patrick Ho, an analyst with Moors & Cabot, said the fact that Intel has done a good job of lowering its inventories in the latter half of this year is crucial since demand for PCs in the first quarter of the year is typically much slower than the fourth.

"You are entering a seasonally softer period, so you don't want to have inventory at a worse level in December than where you were exiting the September quarter," Ho said.

With all that in mind, it is highly likely that analysts will have to raise their earnings targets for the fourth quarter, said Tai Nguyen, an analyst with Susquehanna Financial Group. The current consensus estimate is for Intel to post earnings of 28 cents a share.

"This is material," said Nguyen. "From what we're seeing, earnings estimates should probably go up for the fourth quarter, and 2005 numbers might come up as well."

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Nguyen said that in addition to Intel's rosy fundamental outlook, the company could benefit from a lower tax rate on profits from non-U.S.-based subsidiaries in the quarter.

That's because the company said in its written statement that approximately $6 billion in earnings from foreign subsidiaries may be eligible for repatriation at a temporary tax rate of 5.25 percent, due to the American Jobs Creation Act, which was signed into law this October.

Intel added, however, that it does not yet have formal plans about when, or how much of these earnings would be repatriated at the lower rate.

Analysts quoted in this story do not own shares of Intel and their companies do not have investment banking relationships with the company.