Good afternoon. My name isHeather, and I will be your conference facilitator today. At this time, I wouldlike to welcome everyone to the Cree Incorporated third quarter 2008 fiscalyear financial results conference call. All lines have been placed on mute toprevent any background noise. After the speakers’ remarks, there will be aquestion-and-answer period. (Operator Instructions) As a reminder, ladies andgentlemen, this conference is being recorded today, April 22, 2008. Thank you. I would now like to introduceRaiford Garrabrant, Director of Investor Relations of Cree Incorporated. Mr.Garrabrant, you may begin your conference.

Thank you, Heather, and goodafternoon. Welcome to Cree’s third quarter fiscal 2008 Earnings Call. By now,you should have all received a copy of the press release. If you didn’t receivea copy, please call our office at 919-287-7895, and we will be pleased toassist you. Today, Chuck Swoboda, our Chairman and CEO, and JohnKurtzweil, Cree's CFO, will report on our results for the third quarter offiscal year 2008. Please note that we will be presenting both GAAP andnon-GAAP financial results in our remarks during today's call, which arereconciled in our press release which is posted in the Investor Relationssection of our website at www.cree.com under financial metrics, quarter endingMarch 30, 2008. Today's presentation includes forward-looking statementsabout our business outlook, and we may make other forward-looking statementsduring the call. These may include comments concerning trends in revenue, grossmargin and earnings, plans for new products, and other forward-lookingstatements indicated by words like anticipate, expect, target, and estimate. Such forward-looking statements are subject to numerousrisks and uncertainties. Our press release today and the SEC filings noted inthe release mention important factors that could cause actual results to differmaterially. Also, we would like to note that we will be limiting our commentsregarding Cree’s third quarter of fiscal year 2008 to a discussion of theinformation included in our earnings release and the metrics posted on ourwebsite. We will not be able to answer any questions that would involveproviding additional financial information about the quarter beyond thecomments made in the prepared remarks. This call is being recorded on behalf of the Company. Thepresentations and the recording of this call are copyrighted property of theCompany, and no other recording or reproduction is permitted unless authorizedby the Company in writing. Consistent with our previousconference calls, we are requesting that only sell-side analysts ask questionsduring the Q&A session. Also, since we plan to complete the call in theallotted time of one hour, we recognize that other investors may haveadditional questions, and we welcome you to contact us after the call by e-mailor phone at 919-287-7895. We are also webcasting our conference call to allowmore flexibility for our conference call attendees. A replay of the webcastwill be available on our website through May 06, 2008. Now I would like to turnthe call over to Chuck.

Thank you Raiford. We deliveredanother good quarter in Q3, as revenue increased to a record $125 million withGAAP earning of $5.7 million or $0.06 per diluted share, and non-GAAP earningsof $12 million, or $0.14 per diluted share. During the quarter, we took a boldstep in leading the LED lighting revolution with our acquisition of LEDlighting fixtures, which added approximately $700, 000 in revenue, and reducedearnings per share by approximately $0.01 for the third quarter. Excluding this acquisitionrevenue, gross margin, and earnings were all within our target range for thequarter. Revenue growth was led by another double digit sequential increase inXLamp LED sales, which enabled total LED component revenue to exceed LED chiprevenue for the first time in Q3. LED chip and high brightness component saleswere inline with both our target and the previous quarter, and [will power] andRF products grew sequentially, which partially offset lower sales for oursilicon carbide materials product, and lower government contract revenue. Overall, we continue tosuccessfully execute our strategy to drive the growth of our business to higherLED component sales. As we look ahead into Q4, we target growth from XLampLEDs, high brightness LED component, and our new LED lighting solution. Allthese product lines are being driven by LED lighting applications, where theglobal momentum continues to build for sustainable energy efficient lightingproducts. We recently participated in thebiannual light and building trade show in Frankfurt, Germany, whereLED lightening was featured prominently throughout the trade event, and ourXLamp LEDs were widely recognized as the gold standard for power LEDs andlighting. Despite the high profile of LEDs at this lightening event, it wasinteresting to note that the large traditional suppliers still seemed to betrying the downplay of the timing of LED lightening adoption, which we see as agreat opportunity for Cree. I'll now turn the call over toJohn Kurtzweil, to review our third quarter financial results and our targetsfor Q4.

Thank you, Chuck. In January, wetargeted the following financial results for the third fiscal quarter. The revenuewas targeted to be in the range of $120 million to $125 million. Gross marginwas targeted between 34% and 36% with GAAP R&D and SG&A expensestargeted to increase by $1 million. Non-GAAP R&D and SG&A expensesexcluding stock option expense were targeted to remain flat. Interest incomewas targeted to be at $4.5 million, and diluted average share count wastargeted to be 87.3 million shares. EPS for the quarter on a GAAP basis wastargeted to be in a range of $0.07 to $0.09. On a non-GAAP basis excludingamortization of acquired intangibles and stock based compensation, EPS for thequarter was targeted at $0.14 to $0.16. And, finally, in connections with theannouncement of our acquisition of LED Lighting Fixtures, we announced that weexpected to add approximately 1 million to our revenue and reduced EPS byapproximately $0.01 for the quarter. Our financial results for thethird fiscal quarter are: revenue of $125 million, which includes approximately700,000 from our acquisition of LED Lighting Fixtures or LLF. LED revenueincreased 7% to $105.5 million in Q3, as compared to $98.9 million in Q2. TheXLamp product line sales again increased by double-digits during the quarter,as we made significant progress increasing capacity to meet our customers’ needs.LED chip sales and High Brightness component revenue were similar to Q2 andwithin our targeted range. This is the first quarter that the LED componentproduct sales were more than half of overall LED revenue. Q3 materials revenue, whichincludes wafers and gemstone products, was $6.3 million, or 5% of sales. Highpowered products revenue, which includes our Schottky diodes and wide-band gapmicrowave sales, increased to $6.2 million, or 5% of revenue and contractrevenue was $6.8 million or 5% of revenue for Q3. GAAP gross margins of 35%included stock based compensation of…

Thanks John. We remain focused onfive key areas that continue to drive our transformation into a global leaderof energy efficient LED components and solutions. Our first priority is tocontinue to grow our XLamp product sales and enable the LED lightingrevolution. We continue to make great progress in Q3 as orders and shipmentsfor XLamp products grew nicely, and we target double-digits order and shipmentgrowth for XLamp LEDs again in Q4. On a broader objective ofenabling the LED lighting revolution, we announced today that five leadinguniversities in the US and China have joined a new LED University initiative,and are deploying LED lighting to save energy, reduce cost, and help protectthe environment. The LED City initiative also gain support in Q3 with theaddition of the Tianjin Economic Development Area, as the first LED City in China, and we increased U.S participation withthe addition of Austin, Texas. In addition to these marketingactivities, we recently increased our ability to directly enable LED lightingwith our acquisition of LED Lighting Fixtures, which gives Cree direct accessto the lighting market, expands our total market opportunity, and gives us a nocompromise [retrofit] LED Downlight that can enable LED lighting today. Our second priority is theintegration of our recent acquisitions COTCO and LED Lighting Fixtures. Theintegration of COTCO is essentially compete as the high brightness LED productsare now part of our overall LED component product line, and the COTCO team hasbecome the Cree Hong Kong and Chinateam. High Brightness product sales were on plan in Q3, and are targeted toincrease in Q4 due to higher sales in China for both lighting and displayapplications. We are also starting to develop new high brightness growthopportunities in North America and Europe thatwe target to start to come online in the first half of fiscal 2009. The integration of LED LightningFixtures is well underway.…

(Operator Instructions). Ourfirst question comes from the line of Andrew Huang with American TechnologyResearch.

Good afternoon guys. Can you hearme okay?

We can hear you fine, Andrew.

Okay. First question, XLamp hasbeen growing a double-digit sequential for sometime now. Can you give us somecolor as to what's driving that growth?

Well Andrew, the easiest way toanswer that question is to say lighting generally is actually a combination ofapplication. If you look at XLamp out there today, our top five applicationsare probably portable lighting, outdoor commercial lighting, indoor commerciallighting, architectural lighting and then also some transportation. Those willbe the big five and those are really what's making up the current revenuegrowth over the last year. Looking forward what you'll probably see is that theindoor and outdoor commercial lighting segments are what I would expect toreally be the bigger growth drivers going forward.

Okay and then since you mentionedindoor and outdoor, when do you think that's really going to start to see somereal sequential growth?

I think it's already been a partof it. I think people may underestimate that both the indoor and outdoorsegments have over the last year gone from really an idea, to something that'sstarting to gain traction. Now, they are not the largest segment yet, but theyare definitely the fastest growing and I would expect it in FY'09. They willstart to really drive the new application especially based on our currentcoating activity, which is really the majority of them were in those twosegments.

Okay and then kind of a detailedquestion. I was wondering can you give a sense of what the gross margin wouldhave been if LLF was not part of Cree?

I am not sure I can break thatout. I think given that it is was only $700,000 this last quarter and althoughit did cost us a little bit on the earnings side about a penny. I don't thinkit would have affected it a lot but I don't have that breakout for you righthere Andrew.

Okay and then just one lastfollow-up and then I'll get back in the queue. I think there was some mentionabout additional patent litigation expense. Can you comment on that?

Sure. So well two things, one wesaw higher expense in Q3 than we had originally expected, so John mentionedthat in Q3 one of the reasons are our SG&A was a little higher than we hadoriginally thought was that and what we are forecasting is that it will go upfairly significantly again Q4 and what that is, is that’s really just thetiming of the patent litigation that's going on. So we don’t control exactlywhen the Courts decide to schedule different parts of the process, but it lookslike in Q4 and maybe even in Q1 we’re going to be in a little harder spendingtime just because it's the nature of where those cases are in the court system.

And can you comment just to namewhich cases those are?

It's a combination of all ofthem, but the main one's driving it are the BridgeLux cases which there is twoof those and that's probably the biggest driver in the near term, but thenthere is also at some point will be the Newmark suite.

Got it. Thanks very much.

Our next question comes from theline of [Yale Reino], with Oppenheimer and company.

Thanks for taking my question.Couple of quick questions on the balance sheet, total cash was up 35 million inthe quarter. What was the source of the cash?

Okay. The source of the cashprimarily came from the exercise of options during the quarter. And then we hadgeneral cash from operations.

Okay, but the cash fromoperations was 5.5 million?

Yes.

And

So the majority of it came fromthe exercise of options.

So, there is about 60 million inexercise of options, is that about right.

No. There are 2.2 million sharesthat were exercised during the quarter, and we received cash of about, 30 somemillion.

Okay.

But the market value, I think youdrive the market value is closer to that, yes.

That's not the cash value.

But not the cash value to thecompany.

Okay, and I guess you haven'tpaid out the money to LLF, is that what happened?

No, we paid that’s all net of theLLF transaction.

Okay, maybe I will followoff-line I am not understanding the math. In terms of AR can you explainwhether -- what caused the account receivables to kind of a move up a littlebit during the quarter?

Yeah, I think if you look at thenature of our business we are shifting pretty quickly to a more componentsdriven business. So we are really changing customer mix and expanding thenumber of customers pretty quickly. So in that situation we are changing thedynamic from a fairly limited number of big customers so we can drive paymentterms pretty easily to one where or the terms haven't changed. It's a largercollection exercise for us. I'd tell you that while it was up, I think it'ssomething we would expect to make some fairly significant progress on in the quartersahead. I think John alluded to that in his comments. I think it’s really justthe nature of us managing a more diverse customer base going forward.

Fair enough. One final questionin terms of the BIU market. Are you seeing any progress there? What are some ofthe things that you feel that Cree can maybe do to increase its exposure tobacklighting unit goes in laptop and in the television?

Yeah obliviously that's anexciting market that, is on the horizon I think it's still relatively smalltoday in terms of the actual number of product and production, but there is alot of design activity going on. Our approach to that market is really one ofas a primarily LED chip supplier working with several partners that try toprovide them with chips and help them go and win that application. We have anumber of projects underway none of them we can comment on at this time, but Iwould expect that, as we did in the fiscal 2009 it will be one of the growth driversthe overall chip business, really it will become a larger percentage of ourchip business next year.

Thank you very much.

Sure.

Our next question comes from theline of Amit Kapur with Piper Jaffray.

Thanks a lot guys. I apologize, Igot disconnected for this. I apologize if this question was already asked. But,were there any supply constrains for XLamp during the March quarter and howdoes that impact your CapEx plans into 2008?

Yes so, I think that we're ableto get enough capacity online to pretty much immediate. We were adding capacitythroughout the quarter to meet the growth, but I think we got it pretty closeto imbalance by the end of the quarter. From a CapEx standpoint, our target isto finish the year 45 million to 50 million, which is one more quarter and thenwe're still working on our targets for the next fiscal year at this point intime.

Okay. And what are some of thekey drivers to your gross margins going forward, and how should we think of thetiming of returning the 40% gross margin?

Yeah, the way we're looking atright now is, we have a fairly significant mix shift going within ourbusinesses. The new product lines are obviously becoming a larger percentage ofthe business, so the focus is really, how do we drive the yields up and reducethe cost there so that those gross margins get up closure to corporate average,and then can have drivers higher beyond where we are at today. I think in thenear term we're kind of in a transition period where we're really working onimproving the gross margins on the new products as they become a largerpercentage of the total. We don't have a target for, yes, to when we're goingto get the 40, but we're going to work on the same thing, it's really aboutcontinuing to scale up China at component level, yield improvements as well aswe get more into fiscal '09, the fact that we have more of our chips built onfour and should start to give us a little bit leverage on the chip side of thebusiness.

Okay, great. And maybe one finalquestion, more of a big picture as you integrate LED Lighting Fixtures, what'sthe feedback you've gotten from potential customers? Are we seeing any signs ofmaybe revenue synergy now that there is a little bit more coordination betweenyour products and the fixtures out there?

Yes so, I guess it's really twosides, when you say potential customers, you mean at the end-customer level orat the fixture level?

At the end customer level or atthe fixture level?

At the end customer level.

Yeah, so one of the things we'refinding is that, it's interesting to be able to have direct access to them. Ithink there will be much better appreciation of what's driving their decisionprocess than we did even six weeks ago. And, what your finding is that there isa pretty significant pent up demand for people that really want to implementreal sustainability programs, and frankly the biggest complaint we hear is,give me a real product that I can install, so I can start moving forward. Rightnow that real product for us is the LR6 which is the Downlight and it'sobviously has some pretty, we’re getting some pretty great feedback. I alludedearlier to the IHOP comments. We have some other interesting test going on thatwe can't release yet, but I would tell you that and generally people lookingfor energy efficient lighting, we get very positive feedback. The challenge forus is those that’s one product and we really efficacy have to get the LR4 andthe LR24 out there as well because in most cases what we find is that people wantednews. They have more than one application for the technology and so generallywhat you’re looking for is people would like to use a combination to LR6 andLR4 and LR24 which are products that are coming, but not yet released yet. Andso, it's good at this point. It's a lot of positive news and as I said earlierreally the focus right now is back, do we got to get these other products outthere in the market and released.

Right, thanks guys.

Sure.

Our next question comes from theline of Carter Shoop with Deutsche Bank Securities.

Hi good afternoon.

Hi Carter.

This is a quick follow-up there,when do you expect LR4 and LR24 to be in commercial production?

Both of them should be in volumeproduction some time over the next six months. The LR4 will come first and thenthe LR24. I don't have a specific date for you, but I think we are targetingLR4 sometime here mid summer and the LR 24 early Feb.

Okay, thanks. In regards tofuture acquisitions would it make sense to continue down the acquisition linehere possibly making that as fixture acquisitions down the road or do you thinkthat what you currently have with LLF is going be sufficient for at least thenext few years?

Well right now our focus is onintegrating LLF, and I think we have a lot of work to do there, and I thinkthere are a lot of opportunities. I think there are more opportunities versussynergies there that we would probably appreciate it even through the processof deciding to make that acquisition. And, the challenge for us and that’spretty unique. They are focused on a segment that’s really about providing anLED lighting solution that is for existing infrastructure. Most of our traditional customersare trying to design LED lightning solutions that are really new constructiontype things. So right now the way it's working is, LLF looks prettycomplementary to what our LED component customers are doing. They are kind ofthroughout working hand in hand. In the near term, the goal is we want toobviously drive some incremental growth from the LED lighting solutionsbusiness, but really want to use it to drive LED lighting adoption, which Ithink we’re going to see next year as well they help build momentum on thecomponent side. And third, they go together. Interms of where we might go beyond that – I think short-term focus is integratewhat we have and we're going to keep our eyes open, but it will have to besomething that truly gives us this synergy to drive LED lighting. I think oneof the challenges is that we think that model is changing pretty dramatically,and so the question is you better all try to built it yourself like we aregoing with the LED Lighting Solutions Group, or you better off trying to buy anexisting business, and I don’t think we made our mind up there, and what’s bestyet for the short-term focus is use them to drive the market and sell morecomponent.

That’s helpful. When you thinkabout the power LED market, when do you think that market will start to comecommoditize a little bit? Obviously it’s in a very high growth period now.There is not lot of competition, but given the rapid pace of change that we’veseen in some of the other markets within LED space. How do you guys envisionthat this market developing? Is it going to be two years down the road and whatwe will see lot of Asian competitors in the market place with comparableproducts, so you think it's going to be further down in the road?

Well, it’s real hard to figure how faster come up the curve.There are really several key things for the power LED business. You obviouslyhave to have access to the best dye technology, and I think there, clearly, wehave a gap and compared to what else is available in the market place today. Imean, when we saw our power LED, we really only see generally Philips Lumileds asone competitor, and if there is a second competitor we see it's probably Nichiabut that’s about it. That's a combination of access tothe dye technology and also access to some packaging technology, and then thethird piece is as we really have the IP to do it the way you want to do it.What we see out there today is that and I think Lumileds is probably my by bestproof point. Right, here is a company that essentially invented the first powerLED more than 10 years ago, and we saw them stumble last quarter because thetechnology is extremely complicated path. Creating a really a high end powerLED and then packing is, there is a lot of technology lesson, so I think we'reseveral years down the road to where there is a differentiator on the aperformance sense. And, Carter that doesn’t mean there won't be people whowon’t come out in the mid-to-lower end of the market place, and I think you aregoing to always see that. But, I think there is a segment, as long as thelighting market is driven by lumens per watt, and efficiency, and performance,I think then we're in a pretty good position to really drive that segmentfurther at least in near future.

That’s helpful. And, the lastquestion is the housekeeping question here. Could you talk a little bit aboutthe revenue to distribution channel, maybe how that compared in the Marchquarter to the March ’07 quarter?

Yeah. Well, so March ’07distribution was a pretty small part of our business, March ’08 distribution isthe driver of the power LED component side of the business, and it's a growingpiece of the regular components as well. Our goal as we came into the year wasreally to build up that channel to drive the market, because we're talkingabout really trying to approach 100s and 1000s of customers. And, I would saythat it's going well. It's a combination of the big guys, the [arrows] and theworld peace, but also a lot of regional distributors. And, that combination isworking pretty well. And, we definitely have work to do. I would say today,while we've had good success in North American and Asia, there are a lot ofopportunities for us to have more success in Europeright now. And, that's kind of our focus is, but, it'll continue to be animportant part of the gross strategy in '09.

Thanks.

Sure.

Our next question comes from theline of Jiwon Lee with Sidoti & Company. Jiwon Lee - Sidoti & Company: Good afternoon.

Hey. Jiwon Lee - Sidoti & Company: Just a couple of quick questionshere, your 4-inch wafer transition, where do you stand in terms of translatingthat to your LED and other lighting business?

Yes, that last quarter we gotstarted and we did produce, we were able to get some initial products qualifiedinto a relatively small percentage of the total production, but it went prettywell. We're now shifting our focus to starting to qualify somewhat what I'llcall the more new products of that newer generation, which is the combinationof both the very bright small chip as well as the power LEDs. That's going tohappen here over the next couple of quarters. So, I think, we're on track afterone quarter, but we haven't seen a significant impact really to the big runnersyet, and I think it's something that we'll see more in kind of the first halfof fiscal '09. So, it's going to take another quarter to get more of theseproducts to qualify to start to make it a significant part of the production.So, if you're looking for an affect on the business, it’s really first half of'09. Jiwon Lee - Sidoti & Company: Okay. And I missed that commenton your inventory growth quarter-over-quarter, the inventory was mainly on theraw material side including substrate or what was that?

That's not substrate since wemake it on substrate that would be with. Most was on raw materials, so if you-- more than half of the growth in inventory was raw materials and the additionof LLF acquisition. So those two things or just a nature of us as we grow thesupply chain out and add a bunch of new product lines. The rest of that was inWIP and FGI kind of split between the two of them but it less than half of itand it's really the nature of you know -- we have a vertical integrated supplychain from wafers to chips to packaging in Asia and as we extended that supplychain to Asia. We are working through how we manage that and the reality isthat it's longer than it was six months ago, but that's what we are working on. Jiwon Lee - Sidoti & Company: Okay. And then back to theselitigations that you have, especially with the Bridgelux. I know you expandedthe scope a little while ago and I think the law suit has been going on as muchas I can tell at least a year and a half. So, I mean does thing kind oftypically drag out like this or can you tell us a little bit more about whereyou are in terms of the stage and why you are projecting this lengthy sort of expenditure?

Well, so I think whenever you getan IP litigation you know at some point the expenditures are going to go upwhen they get near time, when you are going to start actually. The cases getbeyond, the discovery phases and actually get into the court phase and so weare starting to get close in and part of the BridgeLux suit to get into thatand then the BridgeLux suite is more than one. There is the Texascase as well as the case in Californiaand so it's just a nature of where those are in their process and this is thetime where it ramps up and we get to pay the outside more as a lot of money totry and do their job. So it's not unexpected but it's hard to predict becausethe courts really control the timing and until you get to a certain point theydon't start scheduling these things firmly and you don’t see those inincremental expenses. So I think in the short-term we are in a kind of probablya fairly heavy period for the next couple of quarters, at least at this point.But again, the court's can reschedule things, change the timing and we are justgoing to have to react to it as it happens, little bit out of our hands.

[Operator Instructions]. Yournext question comes from the line of Harsh Kumar with Morgan, Keegan.

Guys this is (inaudible) comingin for Harsh. Just a couple of quick questions. Were there any 10% customersduring the quarter? Chuck Swoboda We'd only break those out in theK. I can tell you there were no significant customer shifts in the quarter. Unidentified Analyst Alright. And then on CapEx, canyou give a little color on that are you'll capitalizing some things that you'llpreviously expensed?

No, not really. The 45 to 50 isthe same target range we gave you last quarter. So we are pretty much stayingwithin that range and it's pretty much the same as usual.

Your next question comes from theline of Bennett Notman with Davenport and Company

Hi. Couple of housekeeping itemsthat I missed. I know you gave guidance for gross margin in the coming quarter,but I missed the number, what did you say it was?

The quarter, for Q4 it's34% to36%

Okay. And then on the LED chipbusiness, you said that was flat sequentially pretty much?

Yeah.

So, I’m just trying to understandsort of what falls into the buckets of the component business. How much of the COTCOis in that versus I guess other products?

Yeah, basically chips is in chipsand then basically component is the combination of our XLamp products and theformer COTCO products, which we call High Brightness components now. Both of thosecombined are what we called LED components.

Our next question comes from theline of Hans Mosesmann with Raymond James.

Thanks. Chuck, governmentcontracts you mentioned that’s going to be less and less of the factor. Howshould we view that over the next several quarters, what magnitude are we goingto model that?

Yes, I think John gave you asense for that, that’s going to be down a little bit more in Q4. I don’t knowJohn if you give him a specific.

I didn’t give him specific.

Yeah, but it’s going to be down alittle bit more and I think this is probably the level we'll settle at here forat least the next couple of quarters. It doesn’t mean there is not additionalgovernment funding out there and we continue to work on things. It's kind ofthe nature of the timing right now. So, I think my best estimate at this pointis after we get to the Q4 level, it will probably sit there for at least thenext couple of quarters and then there maybe some opportunity to slightlyincrease it, but on a relative basis Hans. As a percentage it’s probably likelyto continue to shrink on a percentage basis in either case.

Okay. And two quick follow-ons.On inventories I know that you want them to come down a little bit. How shouldwe view inventories that with this new model or transitioning to more of acomponent company?

Yeah. When we make components,unlike most people in the components business we own our whole supply chain, sowe own the chips and the wafers. I think at the current levels we are at, weare going to try to keep at these ranges, we are going to see for things we cando to squeeze it down a little bit. I think, I am not going to put a projectionout there for you, because it’s really, you know with this much business nowthat the chips are being made here and then moving to Asia for packaging, Ithink we are still putting in place some systems, and will really get a betterhandle on it going forward. I would imagine our goal would be not to have itgrow significantly from this point, at the same time I think we do have adifferent model and so we are still really down at it…

Our next question comes from theline of Mike Burton with ThinkEquity Partners.

For the LLF revenue expectationsfor Q2 can you give us a target gross margin for that segment. Should we thinkin the lines of where Color Kinetics was in the mid 50s?

What I would tell you is that wedon't break it out specifically, but I can tell you that it will start outbelow the corporate average. So we have some opportunities there to reduce thecost and improve the margin in the product going forward. It's not at a matureproduct line level at this time.

Okay. And then, following up withone of the Carter's questions, can you talk a little bit about your strategy asit relates to perhaps licensing your IP to some of the Asian chipmanufacturers. There have been some rumors about that this morning out of Taiwanthat you were involved with the licensing deal. I would like if you could justcomment on that and if and going forward?

We generally haven't been veryactive in licensing our technology or IP to anyone in Asia.I shouldn't say Asia that's too broad. In Taiwan,I think we have done somethings in the past. We have a fairly broad crosslicensing arrangement with Nichia. And I think, we view that there will be somemore of that, we have more of an approach to cross licensing than straight outlicensing our technology or IP. And I think that's kind of our approach goingforward, does that mean we won't make an exception, now there is always achance we can make some exceptions if the business case made sense. But as ofright now I think our focus is more about -- if we're going to do somelicensing it will probably be more of the nature of cross licensing, with someof the people it's really deep IP portfolios.

Our next question comes from theline of Jed Dorsheimer with Canaccord Adams.

Hi, thanks. My first question is,Chuck you mentioned BridgeLux and Newmark in terms of litigation, but I didn'thear Honeywell or Honeywell Intellectual Properties. Any comments on that andthen I have a follow-up. Thanks.

Yeah Jed, no. On the Honeywell Ijust didn't mentioned it, because it’s not a significant driver to the costincrease in the near term, and it's the only reason I didn't mentioned. It isout there, but it's really still early stage tough so. It now what's drivingour financial. It’s forecast from a patent litigation expense standpoint. So,it just early on that one and it's the only reason I didn't mentioned it.

Alright. And then my secondquestion has to do with some of your related party transactions specificallysome of the ones that Mr. [Lo] is involved with. As we look at Lighthouse, COTCO,LLF, United Luminous International and Light engine, the $21 million sequentialjump in receivables, could you provide any additional color on how much of thatsequential increase was to any of those five companies?

I'm a little confused in the fivecompanies, I think one of the..

Oh, it's, so Lighthouse I thinkthrough gold peak right is the..

The Lighthouse, Lighthouse, andwho else did you say?

Well you've acquired COTCO andLLF, so COTCO's output

Yeah, the COTCO is us now right,so.

Yeah, yeah, so United LuminousI'm sorry. So, United Luminous International and Light Engine, which I think isnow a 10% customer of yours.

I think, United Luminous andLight Engine are kind of the same company, but I would tell you that a twothings. One is that they are important customers. We obviously don't break upthe percentage at this point in the year, but they are important customers tous. I would point out you by the way that they have actually been decliningpercentage wise somewhere to actually lower but they are still big importantcustomers for us. The daily parts of the business have actually grown a littlebit faster and from our payment standpoint, I don't think they represent any ofthe increase in AR. I don't have specifics in front of me, but I don't believethey make up any of the change.

Our next question comes from theline of Mike Burton with ThinkEquity Partners.

Hey thanks one more was, I justwanted to know a little bit more about, with the closure of the LLFacquisition, can you talk a little about some of the management teams rolesthere, in particular Neal Hunter, Cindy Merrell, are they have been givenincentives to stay on or any insight into what their plans are? Thanks!

Yeah, Mike they are definitelyincentivized to be a part of not only staying on a near term, but reallyhelping to grow that business. It’s actually part of what we described thatthere was the earn out is designed around some product milestones as well asemployee retention. And, in terms of what their roles are, Neal is running thatbusiness. So, Neal is the president of LED Lightning Solutions and he continuesto drive their push into the lighting market. Some of his key people MikeRoger, Cindy Merrell, Gerry Negley, Tony van de Ven founders of the company,those guys are still there. Basically, in very similar roles to what they hadbefore the acquisition, and we are letting them run and we want them to make itsuccessful. It's part of one larger Cree company. We are on the same team, butthat being said we are really trying to let them continue to be aggressive anddrive the market.

Alright, good to hear thanks.

Our next question comes from theline of Hans Mosesmann with Raymond James.

Thank you, I had, that was thequestion I wanted the answer. Thank you.

Our final question for todaycomes from the line of Andrew Huang with American Technology Research.

Hi just a couple of quick followups. John could you repeat the gross margin guidance on a GAAP and non-GAAPbasis please.

The gross margin guidance fornext quarter is 34% to 36%, and it’s the same for both GAAP and non-GAAP.

Okay, got it and then Chuck, Ithink during the press release out in the last couple of days talking about theCree Solution provider network. So, I was wondering if you could kind of giveus an idea of how that's going to work, and maybe then give us some sense ofthe traction that we are getting?

Yeah, so the way to think aboutthe solution providers is that the third parties that are out there theybasically understand our XLamp products pretty well, but more than just understandingXLamp they bring some design expertise from a lighting system standpoint. Oneof the challenges that is making LED lighting happen is that that a lot of ourcustomers have frankly never design with LEDs and don’t understand a lot ofsubtleties. So there will is to bring expertise whether that be thermal,optical, drivers or combination of all that really kind of bring that togetherfor the customers. So, the easiest way to think of them is the kind of anextension of our sales force, and we really use them to complement not only ourdirect sales activities, but actually what the distributors are doing as well.

Got it. Okay, thanks a lot.

Alright thank you. Okay, thankyou for your time today and we appreciate your interest and support and lookforward to reporting our fourth quarter of fiscal 2008 results on August 12th2008. Have a good evening. Thank you.

Thank you for your participationin today’s Cree Incorporated third quarter 2008 fiscal year financial resultsconference call, you may now disconnect.