Novellus Systems Inc. (NVLS) narrowed the range of its expected third-quarter per-share loss to 9 cents to break-even, from 15 cents to break-even, as conditions in the semiconductor sector continue to improve.

The company, which makes the tools that make chips, also raised estimates for revenue for the remainder of the year, and now expects it will swing to a fourth-quarter per-share profit.

Novellus shares were recently up 3.7% to $19.79 in after-hours trading.

"We see significant improvement in our business for the second half of the year," said Novellus Chief Executive Richard Hill.

Chip tool makers are beginning to see signs of recovery after years of falling sales and mounting losses. Novellus and others have been hit hard by a supply glut in the market for memory chips that forced its customers to slow production and halt purchases of new equipment.

But rising prices of memory chips suggest supply is beginning to match demand, meaning some chip makers will have more money to spend on equipment. And the broader chip sector is showing signs of recovery as well, with bellwether Intel Corp. (INTC) last week raising its outlook for the third quarter.

For the third quarter, Novellus now expects revenue of $160 million to $180 million, with order bookings for its equipment up 40% to 55%.

Analysts, on average, expected a third-quarter loss of 6 cents a share on revenue of $168 million, according to Thomson Reuters.

Hill also offered estimates for the fourth quarter due to what he called a "material difference" between internal forecasts and Wall Street's outlook. The company expects fourth-quarter earnings of 10 cents to 20 cents a share on revenue of $200 million to $230 million. Analysts expected, on average, fourth-quarter per-share earnings of 1 cent and revenue of $181 million.

-By Jerry A. DiColo, Dow Jones Newswires; 212-416-2155; jerry.dicolo@dowjones.com