For some time I have been warning Illumina (Nasdaq:ILMN) investors that they ignored Congressional budget wrangling, and the health of state university funding, at their own peril. Apparently that all came home to roost this quarter, as Illumina announced a significant shortfall in its third quarter revenue and warned that the fourth quarter could be difficult, as well. Though Illumina is clearly a technology leader, and likely will remain so for at least the near term, its customers don't fully control their own spending and that has been an underappreciated risk factor in the stock.
Problems Come Home to Roost in Q3
After the close on Thursday, leading life sciences tools company, Illumina, announced that revenue for the third quarter was going to be well short of prior expectations. Though management has typically been conservative with guidance, and often surpassed it, revenue for the third quarter looks like it will be on the order of $235 million, well short of the $278 million average estimate and also well short of the $260 million Street-low estimate.
Read the full piece here:
http://stocks.investopedia.com/stock-analysis/2011/Illumina-Investors-Get-Schooled-ILMN-AFFX-PACB-LIFE-TMO-A-WAT1007.aspx
4 comments:
The industry may well be transitioning as well, from the large very expensive sequencers to the less expensive benchtop models such as Ion Torrent from LIFE and Illumina's Miseq. Strained budgets favor budget instruments. What I'll also be curious to see is if the strain on large government centers favors the emergence of fee for sequencing companies like Complete Genomics (GNOM). Per sequence prices for GNOM have recently been dropping faster than customer growth, but may well be reaching a point where research centers reevaluate the the 'do it themselves or buy' decision.
Those are good questions.
I haven't heard much on benchtop sequencing yet. When I talk to people they say "yeah, it's great technology", but when I ask them if they're buying I here a lot of "well ... we're evaluating it".
I think the rise of core labs may be stunting the benchtop market, but you're on to something with the fee-for-service idea. I could see a lot of smaller institutions (who don't have the resources for core labs) going that route.
I broke my rule when I purchased ILMN. I only in vest in stocks I know something about. I realized my portfolio needed exposure to some type of biotech stocks and now that I've taken a haircut on ILMN. Should I expect to take the same type of haircut on TECH or the supply end of biotech fallout?
Concerned Biotech Newbie
Rob -
Don't feel too bad. I was a sell-side analyst for quite a while, and I think I could probably count the number of portfolio managers who really understood ILMN on my fingers and toes and have a few digits left over...
As for TECH ... If TECH fails, then I don't know what a stable, enduring business ought to look like. The biggest risk with TECH is buying it too expensively; the stock does trade in a valuation range and buying at the high end of the range will mean a long wait to see real returns.
But, if you're intending to hold TECH for the long term, I don't think you have much to worry about.
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