The company now expects fourth-quarter earnings below its previous forecast of 22 cents a share to 24 cents a share. Analysts polled by Thomson First Call were expecting earnings of 23 cents a share.

Fourth-quarter revenue is expected to be about $106.7 million, which is at the low end of its earlier guidance of $106 million to $110 million. Analysts were expecting revenue of $107.32 million.

Gross margin for the quarter is expected to be about 42%, compared with its previous forecast of 46% to 47%.

The Durham, N.C.- based company also said that owing to a recent slowdown in demand for mobile products it expects LED chip sales for the first quarter of fiscal 2007 to decline slightly from the fourth quarter of fiscal 2006. However, the company holds a view that this decline should be mostly offset by increased sales of XLamp LED and Schottky diode products.

The company will release final financial results for the fourth quarter on Aug. 10.

"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," the company said.

Cree's stock was down $3.63, or 16.1%, at $18.96 in after-market activity Wednesday.