The bright light shining on Cree (Nasdaq: CREE) got a little dimmer last night after the company released earnings. We hit a major bump in the road to more efficient lighting as competition and an inventory glut hit the LED market.

The numbers
In the second quarter, Cree's revenue was up 29% to $257.0 million and net income increased 47% to $49.8 million or $0.45 per share. For most companies, these results would be outstanding and would leave investors cheering in the streets, but expectations were even higher internally. Cree had forecast revenue from $270 million to $280 million for the quarter and earnings per share from $0.46 to $0.50.

It's one thing to miss Wall Street's expectations, but it's never a good thing when a company overpromises and under-delivers on its own expectations. To make matters worse, Cree gave an outlook well below Wall Street's expectations. Cree sees revenue of $245 million to $265 million and non-GAAP earnings of $0.38 to $0.45, well below expectations of $287.9 million and $0.58 per share.

As a result of Cree's announcements, equipment makers are also suffering. Aixtron (Nasdaq: AIXG) and Veeco (Nasdaq: VECO) are both trading lower as investors anticipate demand for LED manufacturing equipment will be weaker than expected.

What's going on?
New streetlight standards were being developed in China during the quarter, causing a slowdown in end-market demand. The new standards have been published, but it will take time for inventory at distributors to sell through, causing a weak second quarter to spill over into the third quarter. The light at the end of the tunnel looks to be coming in the fourth quarter when sales in China are expected to pick up.

Outside of China, retail and commercial channels are starting to gain some traction. Home Depot and Zumtobel helped drive LED lighting product sales double digits higher, giving a glimmer of hope to this big long-term opportunity.

Time to panic?
Cree's results have caused investors to run for the exits, and even though I don't see today as a buying opportunity, long term the company is in a strong position. Cree still has $1.11 billion in cash, an emerging technology, and end markets that are just now starting to open up. If shares continue their decline in coming weeks, this could go from a disappointing growth stock to a value stock pretty quickly.

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Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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