There was at least one bright spot in tech yesterday.

With bad news out of Intel (NASDAQ:INTC) and Sun Microsystems (NASDAQ:SUNW) weighing on investors, former TMF Select (now Motley Fool Hidden Gems) pick Cree (NASDAQ:CREE) reported third-quarter net income up 42% year over year to $15.1 million, or $0.20 per share, besting the analysts' estimate by a couple of pennies. Revenues jumped 28% to a record $77.1 million.

As has been the story for some time, LED sales -- particularly for cell phone applications -- continue to drive results. Following a similarly impressive second quarter, Cree's LED sales volume grew 7% sequentially with a 3% increase in average selling prices (ASPs), even as unit costs continued to fall.

The pricing strength reflects strong high-brightness LED sales, which accounted for 51% of Cree's LED sales during the quarter. As a result, gross margins jumped another three percentage points to 50%. That said, on a conference call (transcript provided by CCBN), the company noted that gross margins are expected to ease back into the high 40s as sales ramp for a new high-volume, low-end product targeting the "price-sensitive" keypad market.

Elsewhere, Cree Microwave continued to grow, though it disappointed some with just $2.2 million in revenues. However, the company still expects the unit to bring in more than $3 million and reach gross-profit breakeven in the fourth quarter.

From there, the story gets better. In the coming quarter, Cree expects to earn $0.20 to $0.22 per share on $83 million to $85 million in revenues. Both figures are also ahead of current analyst estimates, and 80% of those revenues are already booked.

Yesterday's release spurred some quick gains, all of which were relinquished in today's trading. But consider this: Cree has generated $51.5 million, or $0.70 per share, in free cash flow over the past 12 months, which matches its new fiscal 2004 earnings target. The company also suggested yesterday that it might resume buying under its share-buyback plan, which was extended in February.

That sounds like a good idea. Cree is a growth story trading at 31 times trailing free cash flow, and may indeed be a compelling buy.

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Fool contributor Jeff Hwang owns shares of Cree.