DURHAM, N.C. – Shares in Cree (Nasdaq: CREE) plunged 21.5 percent on Wall Street in trading Thursday following a warning about earnings that the light-emitting diode and semiconductor manufacturer issued after the markets closed on Wednesday.

Cree shares closed at $17.73, down $4.86. But that figure was actually higher than the $16.95 price the stock dropped to in pre-market trading.

The rally continued on Friday as Cree buyers drove the price up 66 cents, or 3.2 percent, to close at $18.29.

Following the warning, Mike Burton, an analyst at ThinkEquity Partners, downgraded Cree to “accumulate” from “buy”. He also slashed his target price for the stock to $18 from $30.

“We believe that this slowdown is industry wide due to an inventory build in the June quarter,” Burton said, according to The Associated Press.

The message boards about Cree lit up with panicked talk, and after-hours trading reflected the trend Wednesday, dropping the stock to prices not seen in two years.

Cree had issued a press release saying that earnings for the quarter than ended June 25 are expected to be “below the company’s previously announced target range” of 22-24 cents a share.

Within minutes, Cree stock went into free-fall. Cree had closed down 53 cents, or 2.29 percent, to $22.59 in day trading Wednesday. That’s already far below the $35 price Cree was worth in April.

By 8 p.m., however, Cree fell a further $5.58, or 24.7 percent, to $17.01. By 8 AM Thursday, the price was down to $16.95.

That’s the stock’s lowest price in two years and half its 52-week high of $35.30.
For the day, the stock plunged 26 percent.

One person posting to a Yahoo! chat room wrote: “Cree-mated”.

The mean target price for the stock is $24.67, according to Thomson First Call.
In its announcement, Cree said it expected revenues of $106.7 million for its fiscal fourth quarter. Its most recent guidance had been for revenues between $106 million and $110 million.

Thomson Financial was predicting $107.3 million in revenue and 23 cents a share.

Cree cited “lower LED sales” for the revenue dip, but said demand wasn’t the problem.

“The shortfall in LED sales stemmed primarily from production challenges, which limited the company’s ability to meet customer orders for the quarter,” Cree said,
Cree also cut its gross margin forecast to 42 percent from a forecast range of 46-47 percent.

“Although we knew this was going to be a transition quarter, it proved to be more challenging than we expected,” Chuck Swoboda, Cree’s chief executive officer and chairman, said in a statement. “Despite these near-term challenges, we are making progress in growing our new lighting and power product lines, which are key to driving our future growth.”

Looking ahead to the first quarter of fiscal 2007, Cree warned that LED chip sales “may decline slightly” due to a slowdown in demand. However, the company said it expected to increase sales of other products.

Cree will release its official fourth-quarter results on Aug. 10.

Cree: www.cree.com