UPDATE 3-Xilinx shares rise on upbeat Q4 outlook

* Q3 sales $511.1 mln vs est $499.3 mln

* Q3 EPS $0.47 vs est $0.37

* Sees Q4 sales up 2-6 pct

* Shares up 7 percent

By Himank Sharma

Jan 18 (Reuters) - Chipmaker Xilinx Inc expects to post fourth-quarter results at the mid-point of analysts' estimates, allaying fears of a continued slowdown in the semiconductor industry.

Xilinx' shares rose 7 percent in extended trading after the announcement. Rival Altera Corp was also up 5 percent after the bell.

The maker of programmable chips expects revenue to grow 2 percent to 6 percent sequentially in the fourth quarter to $521.2 million to $541.8 million. Analysts were expecting revenue of $533.3 million for the period.

Xilinx' announcement follows better-than-expected outlook by rival chipmakers this week. Linear Technology forecast strong third-quarter sales on improving bookings, while Dutch chipmaker ASML said it expects strong demand to continue into the second half of the year.

The semiconductor industry saw business stall in the middle of 2011 as demand for consumer gadgets slowed in the wake of broader economic uncertainties. Manufacturers worried about a gloomy economy began to cut orders of new chips and use up existing inventories.

Xilinx, which derives a majority of its revenue from communications end-markets, said it expects the segment to rise slightly in the fourth quarter.

"People were expecting the worst for the March quarter given they were expecting the cautious data points, particularly around the communications market," ThinkEquity analyst Sujeeva De Silva said.

For the fourth quarter, the company expects its inventory days -- the amount of time it takes the company to produce and ship products -- to "decline significantly" -- signaling stronger demand.

"The inventory corrections appear to have subsided for the industry and for the company," Raymond James analyst Hans Mosesmann told Reuters.