May 8 (Reuters) - Chipmaker Microchip Technology forecast first-quarter revenue and profit above estimates following an upbeat fourth-quarter revenue on Thursday, signaling a recovery in demand for its chips.

Shares of the company rose about 8% in extended trading.

The positive forecast indicates a turnaround after a prolonged industry slump, as chip inventories, stockpiled during the pandemic to offset supply chain disruptions, are now gradually being cleared.

"We expect even more substantial inventory reduction in the June quarter as our manufacturing optimization actions are near completion," said Chief Executive Officer Steve Sanghi.

Microchip said it is expanding its atomic clock technology, enhancing its microprocessors, and broadening its ethernet solutions used in automotive and industrial applications.

The company is well positioned to tap into opportunities across the automotive, industrial and e-mobility markets, while helping customers accelerate their development cycles.

Microchip expects its first-quarter net sales to be in the range of $1.02 million to $1.07 million, compared with analysts' average estimate of $987.6 million.

The Chandler, Arizona-based company projects adjusted per-share profit between 18 cents and 26 cents for the first quarter, compared to analysts' estimates of 16 cents.

For the fourth quarter ended March 31, the company reported net sales of $970.5 million, beating analysts' estimates of $962.8 million, according to data compiled by LSEG.