Updated from 1:11 p.m. EDT

National Semiconductor

(NSM)

sidestepped the chip sector rout Thursday.

The Santa Clara, Calif., company matched lowered estimates for its second quarter and guided toward in-line third-quarter sales, suggesting there may be an end in sight to a painful inventory correction.

Shares in the company held up well even as investors continued to flee a sector hit hard by Wednesday's warnings from peers

Altera

(ALTR) - Get Report

and

Xilinx

(XLNX) - Get Report

.

National Semi's report came after Altera and Xilinx cut sales targets for the December quarter, citing ongoing inventory issues.

National Semi shares were recently up 64 cents, or 4%, to $16.64, while Altera sank $1.98, or 8.9%, to $20.22 and Xilinx dropped $1.08, or 3.5%, to $29.65. The benchmark Philadelphia Stock Exchange Semiconductor Index shed 1.6% in recent trading.

For its second quarter ended Nov. 28, National Semi earned $80 million, or 21 cents a share, up from the year-ago $65.8 million, or 17 cents a share. Excluding items, second-quarter earnings were 18 cents a share, flat with a year ago. Sales fell 5% from a year ago and 18% sequentially to $449 million.

Those figures are roughly in line with what National Semi projected last month, when it

warned investors that revenue would decline about twice as much as previously expected.

"Obviously, revenues fell significantly in Q2 as we dealt with ongoing inventory reductions in the distribution channel," CEO Brian Halla said Thursday. But he added, "Most of the inventory reductions in the distribution channel are behind us."

"Almost all of the geographies and distributors are now telling us they're much closer to their desired inventory levels," Halla added in a conference call. "We believe the inventory corrections are mostly behind us."

Halla noted turns orders -- orders placed and delivered within the quarter -- in November were the best in six months, though not high enough to offset weak activity earlier in the quarter. But he said he was holding off calling the situation a snapback and instead preferred the description a "slow, steady climb-out."

National Semi said third-quarter revenue will be flat to slightly down sequentially, with gross margins similar to the second quarter's 50.6%. That's better than a typical third quarter, when sales usually fall 4% sequentially, in part because it comes off of an unusually weak second quarter. The company didn't provide earnings guidance.

Analysts polled by Thomson First Call were expecting earnings of 14 cents a share on sales of $448.2 million in the third quarter.

National Semi said bookings in the second quarter declined 16% sequentially and 31% from a year earlier as distributors and hardware manufacturers continued reducing inventory and adjusting backlog heading into the postholiday period. National Semi executives also said weaker demand for wireless handsets, particularly in Asia, and flat-panel displays are resulting in lower orders and sales.

On the positive side, orders for portable power management products showed more than 25% growth from a year ago, driven by portable power management applications such as mobile phone handsets, MP3 players and game systems. Orders for portable power management products were flat from the previous quarter.

Halla reiterated he is still targeting gross margins of 60%, although the second-quarter gross margin represents a drop of about four percentage points from the previous quarter.

In response to weaker sales, National Semi continues to reduce inventories, has asked worldwide employees to take mandatory shutdown days and has slashed capital expenditures to about $20 million in the current quarter from previous levels of $55 million. The company's average fab utilization was in the 60% range in the second quarter, down significantly from around 90% in the previous quarter and last year.