Shares of programmable logic chip designer Altera (ALTR) are up $3.85, or 12%, at $36.88 despite the fact the company last night reported Q3 revenue and earnings per share below its own pre-announcement in September, and below consensus estimates, and forecast the current quarter’s revenue to fall short of expectations as well.

During a conference call with analysts following the report, CEO John Daane described cuts in orders from customers as they prepared for a worsening of their businesses based on global economic unease:

We had expected broad-based end market growth for the third quarter, but instead saw customers aggressively reduce inventory due to concerns over the global economy along with a downturn in some end businesses [...] Late quarter softening in communications in Asia resulted in a close slightly below the updated guidance range. In the third quarter, Telecom Wireless revenue decreased 13% sequentially with broad geographic declines in both markets. Industrial/military/automotive decreased 7% with automotive up strongly, but industrial and military down. [...] For the third quarter, we are forecasting what we believe is a conservative range of a 7% to 11% sequential decline.We expect a decrease in communications driven by wireless, an increase in automotive/industrial/military driven by military and automotive, a significant decline in computer networking with the end of the temporary ASIC replacement business as previously forecasted, and for the “other” vertical to be down. Overall, we believe that a majority of this decline is due to customers sharply reducing inventory below normal levels in anticipation of a slowdown in their business.

Analysts, however, seem to feel the worst may be washed out of the company’s results at this point, and today CLSA Asia-Pacific Markets’s Srini Pajjuri raised his rating on the stock to Buy from Outperform while reiterating a $40 price target. Mizuho Securities’s Ruben Roy also upgraded, raising his rating to Buy from Neutral.

Pajjuri writes that “cyclical pressures” will abate going forward, and that Altera will be able to grow faster than the semiconductor industry, especially thanks to exposure to end markets such as 4G cellular networking of the “LTE” variety.

Pajjuri cut his 2012 EPS estimate to $2.01 per share form $2.54. Despite weakness in communications products in China and other parts of Asia, Pajjuri writes that next year’s results may see a benefit from LTE developments in the U.S., Japan and elsewhere.

Conversely, JP Morgan’s Christopher Danely today reiterates a Neutral rating on the shares, arguing you should bet instead on share gains by Xilinx (XLNX).

“Altera’s 4Q11 guidance is lower than that of Xilinx’s, which makes it three out of four quarters in 2011 that Xilinx will have outgrown Altera,” writes Danely. “Our thesis on ALTR is based on Xilinx gaining back share and outgrowing ALTR and we expect Xilinx to continue to outgrow Altera next year.”

(Xilinx reported fiscal Q2 results on Wednesday evening, and cited the same broad-based macroeconomic concerns in forecasting the current quarter’s revenue below expectations.)

Danely cut his price target on Altera shares to $29 from $31. He cut his 2011 estimate to $2.08 billion in revenue and $2.37 per share from a prior $2.12 billion and $2.47. He also cut his 2012 estimate to $2.01 billion and $2.08 from a prior $2.11 billion and $2.30 per share.