Executive Summary / Key Takeaways

• Illumina is demonstrating a strong resurgence, driven by robust clinical market growth and the successful transition to its NovaSeq X platform, which is exceeding internal targets for adoption.
• The company's strategic expansion into multiomics, through acquisitions like SomaLogic and innovative product launches such as Illumina Protein Prep and the 5-base solution, is poised to unlock significant new revenue streams and deepen its competitive moat.
• Despite macroeconomic headwinds, including U.S. NIH funding uncertainty, new tariffs, and export restrictions in China, Illumina delivered Q3 2025 revenue of $1.08 billion (flat year-over-year, +2% ex-China) and non-GAAP diluted EPS of $1.34 (+18% year-over-year), both exceeding guidance.
• Proactive cost reduction initiatives and operational efficiencies are expanding profitability, with non-GAAP operating margin reaching 24.5% in Q3 2025, reinforcing confidence in achieving long-term targets of high single-digit revenue growth and 26% non-GAAP operating margins by 2027 (excluding Greater China).
• Investors should monitor the continued NovaSeq X adoption in clinical settings, the successful commercialization of multiomics offerings, and the resolution of geopolitical challenges, which are critical for realizing Illumina's full growth potential.

A New Era for Genomic Insights

Illumina, Inc., a pioneer in sequencing and array-based solutions for genetic and genomic analysis, is charting a course for renewed growth and profitability. The company's overarching strategy is to transition from a "cost per gigabase" model to delivering the "highest quality biological insight at the lowest end-to-end cost." This strategic pivot is underpinned by its foundational strengths in proprietary technology and an ambitious innovation roadmap, positioning Illumina at the forefront of the rapidly expanding genomics and multiomics industry.

Since its incorporation in 1998, Illumina has served diverse markets, including life sciences, oncology, reproductive health, and agriculture. Key historical milestones, such as the launch of the NovaSeq X platform and the strategic spin-off of GRAIL in June 2024, have shaped its current trajectory. The company is now leveraging its core capabilities to capitalize on the increasing demand for genomic applications, while proactively addressing market challenges and competitive dynamics.

Technological Leadership and Multiomics Expansion

Illumina's core differentiated technology lies in its proprietary sequencing and array-based solutions, which are foundational to its market leadership. The NovaSeq X platform stands as a testament to this, offering higher throughput, trusted accuracy, and a streamlined workflow compared to its predecessor, the NovaSeq 6000. By Q3 2025, approximately 78% of high-throughput gigabases shipped and 51% of high-throughput revenue were generated on the NovaSeq X platform, exceeding the company's goal of 75% gigabases and 50% revenue by year-end. This rapid adoption drives significant sequencing volume, effectively offsetting transitional pricing effects and positioning Illumina for sustained growth, particularly in the clinical segment.

The company's strategic expansion into multiomics is a critical growth pillar. This involves broadening its offerings beyond DNA sequencing to include other 'omics' data, such as proteomics and epigenomics.

• Proteomics: In Q2 2025, Illumina announced the acquisition of SomaLogic from Standard BioTools (SBIO) for $350 million in cash, plus potential milestones and royalties, expected to close in the first half of 2026. This acquisition enhances Illumina's presence in affinity-based proteomics. SomaLogic's SomaScan Assay can analyze over 9,500 unique human proteins per sample, delivering deep, actionable insights for drug discovery, diagnostics, and health monitoring. The Illumina Protein Prep assay, launched in Q3 2025, integrates NGS with protein analysis, providing highly consistent results in about 2.5 days with minimal hands-on time and at a lower cost per insight. This integration extends Illumina's end-to-end capabilities from sample preparation through data interpretation.
• Epigenomics: The 5-base solution, launched in Q3 2025, is an integrated library preparation and software offering that simultaneously reads genetic variants and DNA methylation. Utilizing proprietary chemistry and a new DRAGEN algorithm, it preserves both variant and methylation information in a single workflow, delivering accurate single-base resolution while reducing complexity and cost.
• Spatial and Single-Cell Analysis: A new spatial offering, announced in February 2025 and slated for 2026 release, features a significantly larger capture area, higher resolution, and greater sensitivity, enabling researchers to analyze millions of cells per experiment. Additionally, a new single-cell offering for CRISPR research, Perturb-Seq, is expected to launch later in 2025, allowing researchers to study genetic changes at scale.
• Software and Data: DRAGEN v4.4 software, launched in May 2025, offers a 30% improvement in structural variant calling, includes oncology applications for clinical research, and supports enhanced multiomics pipelines. In Q3 2025, Illumina introduced BioInsight, a new business focused on accelerating data-driven discovery by combining population sequencing programs, data partnerships, and software/AI capabilities. This initiative aims to monetize data, software, and AI-enabled services, adding another layer of growth.
• Accessibility: The MiSeq i100 Plus, launched in late 2024, has seen over 500 placements, with customers praising its faster turnaround times, ease of use, and room temperature reagent storage. This makes sequencing more accessible for labs, particularly those new to NGS and in emerging markets.

These technological advancements collectively strengthen Illumina's competitive moat, drive higher-value applications, and are foundational to achieving its long-term growth and margin expansion targets. The "so what" for investors is clear: these innovations are not merely incremental improvements but strategic moves designed to expand market opportunities, enhance customer stickiness, and secure future revenue streams by delivering comprehensive biological insights.

Competitive Landscape and Strategic Positioning

Illumina operates as a leader in the genomics industry, yet it faces a dynamic and competitive landscape. While many competitors attempt to differentiate on a single dimension, Illumina's strategy focuses on delivering multi-dimensional value encompassing the highest quality data, best workflow, and lowest end-to-end cost. This integrated approach resonates strongly with customers.

• Against Diversified Giants (e.g., Thermo Fisher Scientific (TMO)): Illumina, as a specialized leader in genomic analysis, offers high-throughput sequencing solutions that are often more efficient for large genomic datasets. While Thermo Fisher boasts a broader life sciences portfolio and greater financial stability, Illumina's genomics-specific innovation and proprietary platforms provide a distinct edge in performance and reliability for complex analyses, particularly in clinical and research settings.
• Against Niche Players (e.g., Qiagen (QGEN)): Illumina's platforms generally provide greater sequencing depth and breadth, offering more comprehensive genomic insights crucial for advanced research and clinical applications. Qiagen excels in sample preparation and affordability for routine diagnostics. Illumina's end-to-end ecosystem fosters stronger customer loyalty through recurring consumables revenue, while Qiagen's leaner cost structure may offer an advantage in price-sensitive segments.
• Against Emerging Technologies (e.g., Pacific Biosciences (PACB)): Illumina's high-throughput, short-read sequencing is often more efficient for large-scale projects, making its solutions versatile across various clinical applications. Pacific Biosciences specializes in long-read sequencing for niche research. Illumina's established market presence and operational execution contribute to a more stable growth trajectory and cash flow generation, although PACB may lead in specific technological capabilities like detailed sequence resolution.
• Indirect Competition: Indirect threats come from CRISPR-based gene editing firms and AI-driven data analytics providers. Illumina addresses these by integrating AI capabilities (e.g., NVIDIA (NVDA) collaboration, BioInsight) and expanding its multiomics portfolio, aiming to maintain its central role in generating and interpreting genomic data.

Illumina's competitive advantages, or "moats," include its proprietary sequencing technology, which offers enhanced accuracy and scalability, leading to superior margins through recurring consumables revenue and stronger customer loyalty. Its strong brand and extensive distribution network further differentiate it. However, vulnerabilities include high R&D intensity, which can strain financial performance, and supply chain dependencies. The high R&D requirements and regulatory hurdles in the genomics industry also serve as significant barriers to entry, helping Illumina defend its market position.

Financial Performance and Outlook

Illumina's financial performance in 2025 reflects a business in transition, demonstrating resilience amidst significant headwinds.

For the third quarter of 2025, Illumina reported total revenue of $1.08 billion, which was flat year-over-year on both a reported and constant currency basis, yet exceeded the top end of its guidance range. Revenue excluding China grew approximately 2% year-over-year. Non-GAAP operating margin expanded by 190 basis points to 24.5%, and non-GAAP diluted EPS was $1.34, reflecting strong year-over-year expansion and exceeding guidance.

Year-to-date 2025, revenue decreased 3% to $3.184 billion compared to $3.268 billion in YTD 2024. This was primarily due to a decrease in service and other revenue, largely influenced by the GRAIL Spin-Off and lower strategic partnership revenue, as well as a decrease in instrument revenue. However, this was partially offset by an increase in consumables revenue. Income from operations for YTD 2025 was $606 million, a significant improvement from a loss of $1.008 billion in YTD 2024, driven by a $1.636 billion decrease in operating expense, primarily due to lower GRAIL operating expenses, including a $1.886 billion goodwill and intangible impairment recognized in YTD 2024.

Core Illumina's gross margin decreased to 66.30% in YTD 2025, primarily due to higher tariff costs and a $23 million intangible asset impairment. However, excluding tariffs, the base gross margin was up approximately 90 basis points year-over-year in Q3 2025, demonstrating underlying operational improvements. Non-GAAP operating expenses in Q3 2025 were $484 million, down approximately 6% year-over-year, reflecting multiyear cost reduction programs and disciplined spending while prioritizing key growth investments.

The company's liquidity remains robust. As of September 28, 2025, Illumina held $1.05 billion in cash and cash equivalents. Net cash provided by operating activities for YTD 2025 was $758 million, and free cash flow in Q3 2025 was $253 million. Illumina also actively returned capital to shareholders, repurchasing $120 million of common stock in Q3 2025. The company ended Q3 2025 with a gross leverage of approximately 1.6x gross debt to last 12 months' EBITDA.

For the full year 2025, Illumina has raised its guidance. The company now anticipates a total constant currency revenue decline in the range of (1.5%) to (0.5%), an improvement from prior estimates. Revenue growth outside of China is projected to be between 0.5% and 1.5% on a constant currency basis. Non-GAAP operating margin is expected to be in the range of 22.75% to 23%, and non-GAAP diluted EPS is guided between $4.65 and $4.75, representing 13% year-over-year growth at the midpoint.

Looking ahead to 2026, Illumina expects clinical dynamics to remain strong, with continued NovaSeq X transition driving volume growth. Research and applied conditions are anticipated to remain muted, consistent with the latter half of 2025, though pricing headwinds are expected to ease as the NovaSeq X transition is largely complete in this segment. Planned multiomics launches in 2026 are also expected to begin contributing to growth as research end markets recover.

Risks and Challenges

Despite the positive momentum, Illumina faces several pertinent risks. Macroeconomic factors, including inflation and exchange rate fluctuations, continue to impact the business. Geopolitical challenges, particularly export restrictions in China, pose a significant headwind. In Q1 2025, Illumina was added to the unreliable entities list by regulatory authorities in China, prohibiting the export of sequencing instruments into the country. While the company has received approval to locally manufacture select instruments for OEM partners, a long-term resolution remains uncertain, impacting future revenue from the region.

U.S. NIH funding uncertainty continues to constrain the research environment, leading some academic customers to delay projects and manage capital more conservatively. The company also faces increased costs from new U.S. import tariffs, estimated at approximately $85 million for 2025, which it aims to partially mitigate through supply chain optimization and pricing actions. Additionally, ongoing shareholder derivative complaints and securities class actions related to the GRAIL acquisition present legal and reputational risks, though the company intends to vigorously defend these litigations.

Conclusion

Illumina is undergoing a significant transformation, leveraging its foundational sequencing technology and strategic expansion into multiomics to drive future growth. The successful and accelerated adoption of the NovaSeq X platform, particularly in the resilient clinical market, is a powerful testament to the company's technological leadership and operational execution. Coupled with a robust pipeline of multiomics innovations and proactive cost management, Illumina is well-positioned to achieve its long-term financial targets of high single-digit revenue growth and 26% non-GAAP operating margins by 2027, excluding Greater China.

While geopolitical complexities in China, U.S. research funding uncertainties, and tariff-related costs present notable headwinds, management's disciplined approach to cost reduction and strategic investments underscores a commitment to sustained profitability and shareholder value. Illumina's ability to consistently deliver high-quality biological insights at a lower end-to-end cost, supported by its expanding technological ecosystem, will be crucial in solidifying its competitive advantage and unlocking the vast potential of genomics and multiomics in the years to come.