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Cree Shares Plummet After Profit Warning

Cree is blaming lower profits on a less favorable sales mix within its LED product line and higher manufacturing costs associated with new products.

US-based chipmaker Cree has announced that its profit for its fourth fiscal quarter will be lower than anticipated and that revenue will be at the low end of its guidance.

Profit will be below the company's target of $17 million to $19 million, while revenue is expected to be $106.7 million.

"Although we knew this was going to be a transition quarter, it proved to be more challenging than we expected," admitted Cree CEO Chuck Swoboda.

The financial update sent the company's shares tumbling by 25% in after hours trading to $17, well below this summer's high point of $35.30.

The company blames its low revenue on a shortfall in LED sales resulting primarily from production challenges that limited the company's ability to meet customer orders.

Profit was also impacted by a gross margin of 42 percent, 5 percent below target. The company said that gross margin was down due to a fall in the proportion of revenue generated from LED sales, a less favorable sales mix within the LED product line, and incrementally higher manufacturing costs associated with new products.

Cree expects LED chip sales for the first fiscal quarter of 2007 to be slightly down on the fourth quarter 2006 due to a recent slowdown in demand for mobile products. However, it believes that this decline will be offset by increased sales of XLamp LED and Schottky diode products.

The company will provide final financial results for its fourth fiscal on August 10.

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