Updated from Jan. 20

Xilinx ( XLNX) reported fiscal third-quarter net income of $64 million, or 18 cents a share, on sales of $355 million, matching the programmable chipmaker's reduced targets.

The stock added 48 cents, or 1.8%, to $27.19 Friday morning.

Analysts had expected earnings of 18 cents a share on sales of $357 million, on average, according to Thomson First Call. Xilinx issued a warning on Jan. 5.

During the same quarter last year, Xilinx earned $69.4 million, or 19 cents a share, on sales of $365.6 million.

Inventory in the third quarter rose to 174 days from 156 days in the second quarter. Xilinx specifically blamed the telecom sector as a source of weakness. Sales from communications customers dropped 22% sequentially and represented 47% of overall revenue.

Gross margins tallied 62% compared with 61.8% in the second quarter and 64% in the same quarter last year. Gross margins for the year are targeted between 61% and 63%.

The San Jose, Calif.-based company predicted fourth-quarter sales up 1% to 5% sequentially for a target range between $358.5 million and $372.8 million. Analysts had expected sales of $369 million and earnings of 19 cents a share.

"Customers in general are guardedly optimistic for the future and they have been for the last couple of months," said Xilinx Chief Executive Wim Roelandts. He said budgetary constraints at the end of the calendar year didn't help, nor did a slowdown in China.

"We believe some of the inventory correction is behind us, but not everything," Roelandts said.

Chief Financial Officer Kris Chellam said on a conference call that inventory should decline to 150 days in the fourth quarter and that it "should trend toward the corporate goal of 120 days after that."

Xilinx's results now set the stage for its primary competitor, Altera ( ALTR), which is scheduled to report fourth-quarter results Monday. Analysts expect Altera to earn 13 cents a share on sales of $237 million.