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Green Energy Losers: LED Bellwether Cree

Stocks in this article: CREE AIXG VECO LEDS RBCN

NEW YORK ( TheStreet) -- Cree (CREE) is leading the LED lighting sector down on Wednesday after revealing that an inventory backlog is taking longer to work through than the company expected while at the same time pricing has deteriorated.

The trends forced Cree to revise its previous quarterly top line and gross margin guidance lower.

Cree now expects third-quarter fiscal 2011 revenue of $215 million to $220 million, versus a previous guidance range of $245 million to $265 million. Gross margin guidance was lowered to 43% from 46%.

Cree shares hit a new 52-week low on Wednesday, down 10% and below the $44 mark. Cree's trading volume already had surpassed its average daily volume of 3.4 million shares within an hour of the market open.

The weak market outlook from Cree has been a risk for investors since its last earnings report. Cree first reported the inventory glut during its last quarterly earnings, and at that time analysts covering Cree said timing an inventory work-through isn't a perfect science. There was always the chance that the inventory glut would last longer than Cree predicted. In addition, an inventory glut can put pressure on pricing in the market, as companies move to unload inventory at ever-lower prices.

Cree reported on Wednesday that its LED component business and LED chip business were both facing pricing declines and weaker demand.

Cree remained optimistic in its commentary about the Chinese street lamp market, a key growth driver upon which short-term bullish Cree models have been predicated.

"The LED components business appears to be turning the corner," Chuck Swoboda, Cree CEO, stated in a press release. "Despite the challenges we faced in Q3, distributor sell-through has improved and we target solid growth next quarter."

Investors in the LED space, though, aren't always patient. Cree bears have long maintained that the LED market will rapidly commoditize, and Cree doesn't deserve a premium valuation as an onslaught of low-cost Asian LED supply comes online and as China seeks to keep more of its domestic business, including street lamps, for the rapidly growing ranks of domestic LED players.

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