Illumina Q3 2023 Misses Revenue Expectations Amid Weak China Sales and Repeated Guidance Cuts

The temperature dropped sharply, and everyone could feel the chill.

Sequencing GiantIlluminaAnnounced Third Quarter Results, Missed Most Analysts' Expectations, Q3 Report Is A“Disappointing”The result.

1. Revenue

The third quarter,Illumina The comprehensive income is 11.2 Billion USD, flat year-over-year, growth calculated in constant currency 1%, a month-on-month decrease of5%, below the Wall Street consensus expectation of 11.3 Billion US dollars.IlluminaCore businesses accounted for the vast majority of the third-quarter revenue, wherein Grail Contributed approximately 2100 Million US dollars, although it was the same period last year 1000 More than twice the amount in millions of US dollars.

IlluminaCore sequencing services and other revenue1.42Billion USD, year-on-year growth15%; among which, the revenue from sequencing consumables is6.95billion dollars, a year-on-year decrease of4%, mainly due to the decline in sales of research customers12%, and the strong sales to clinical customers, driven by the continued momentum in oncology and genetic disease testing, partially offset the decline in research; sequencing instrument revenue was1.79Billion USD, year-on-year growth10%, which is mainly due toNovaSeq XPromote, partially offsetNovaSeq 6000Decline in shipment volume.

Due toNovaSeq XThe transition, high-throughput consumables revenue continued to decline, and due to customer purchase restrictions, the sales cycle was extended, with shipments in the third quarter being affected.NovaSeq XInstrument97Taiwan, lower than expected (Wall Street forecast103platform). Correspondingly, it is expected that this yearNova XThe shipment volume from390+Installation has dropped to now.330-340。

It is worth mentioning that,Due to tighter funding and budget pressures, customers' purchasing power and project planning continue to be affected.；Due to the intensification of competition, the options for mid-throughput sequencers have increased, forIlluminaThe expected decline in mid-throughput instruments will offset the sales growth of high-throughput sequencers.；Affected byNovaSeq XThe impact of the transition, customers are strengtheningNovaSeq XBefore operation, it is decreasing.NovaSeq 6000Consumables Purchase Volume. Eventually,As customers gradually transition to the new system,NovaSeq X The platform's shipments will decrease, and revenue from sequencing consumables used with the machines will also decline.。

The Third QuarterIlluminaThe comprehensive net loss is 7.54 Billion dollars, the loss includes Grail Related 8.21 Impairment of Goodwill and Intangible Assets in the Amount of $ Billion (Due to Grail The decline in market value and the forecastGrailCash flow decreased). In the same period last year,Illumina Accrued and Grail Related 39.1 Billion-dollar goodwill impairment.

After flattening in the third quarter,IlluminaReduced again 2023 Annual Revenue Guidance: Expected Consolidated Revenue to Decrease 2% To 3%, wherein Illumina Core revenue will decrease. 3% To 4%. Expected Grail The revenue will be in 9000 Million USD to 1.1 Between billion US dollars. In this year8 Month:IlluminaHas already lowered this year's revenue guidance, will 2023 Expected annual revenue growth cut by about 1%, among which Illumina Core revenue is expected to be flat year over year. And these expectations are all related to1Contrary to the company's forecast of strong growth at the beginning of the year (initially predicted revenue increase 7% To 10%）。

Based on such results,Illumina Stock Price Plummets in Response 9%, fell through100USD.

2.Grail

This is newCEO Jacob ThaysenAssume Office40The Empress Makes Her First Public Appearance.

ForJacob ThaysenSpeaking of,The first key priority is to figure outGrailThe situation. During the teleconference, he also shared insights onGrailMore progress.

He has requested and the board has established a special committee to expedite the process regardingGrailThe decision, whether it is to spin off, split up, raise external funds, or go public. At the same time,IlluminaAdvisors have been hired to prepare for a sale or capital markets transaction.IlluminaTo be submitted to the U.S. Securities and Exchange Commission on a confidential basisForm-10. After this,Although the appeals in the two major courts are still ongoing,IlluminaWill also simultaneously contact third parties, reaching out to potential investors or potential buyers.。

Jacob ThaysenMentioned,IlluminaThe appeal will continue, which will provideGrailProvide more flexibility for asset divestiture and future transactions. But this appeal will not affect the ability to act swiftly that has already begun.Illumina It is reported that the U.S. Court of Appeals for the Fifth Circuit is expected to 2023 A ruling on its appeal is expected by the end of the year, the European Court will 2024 The ruling on its appeal will be made in the middle of the year. Previously,Illumina stated that if any of its antitrust appeals fail, it will divest Grail。

Last month, under the terms of a European Commission order, if it fails to prevail in court,IlluminaMust be in 12 Within months (and may be extended 3 months) Peeling Grail, and restore the relatively independent status before the completion of the acquisition.If seeking a spin-off,IlluminaThen it must be submitted to Grail Provide funding support for two and a half years.Grail Expected 2023 Annual operating loss is 6.7 billion dollars. Considering the capital required to maintain operations,GrailMore cash may be needed in the future. This funding requirement is undoubtedly a challenge forIlluminano small challenge.

In addition, the U.S. Securities and Exchange Commission (SEC) Still in the process of IlluminaAcquisitionGrail More details have been unfolded in the investigation. Recently, Karl·Icahn (Carl Icahn) A new lawsuit was filed, claimingIlluminaThe previous board violated fiduciary duties.'fiduciary duties', made“Inadequate, Partial, and Misleading Disclosures”, affecting the voting of the board members, requesting that multiple Illumina Board members removed and required to bear the acquisition Grail Cost of failure. InSECUnder active investigation, Icahn's nearly insane stance and claims might be hiding something bigger behind them.“Truth”, will it cause greater“Earthquake”。

3. The Chinese Market

If we focus on the Chinese market,IlluminaGreater China Region Q39800Million USD in revenue decreased year-over-year26%, a decrease in fixed currency terms.25%。

9In mid-August, Li Qing, the General Manager of Greater China who had been in office for four years, resigned. Stimulated by factors such as the pandemic,Illumina/Illumina did not continue the growth momentum of the previous two years.IlluminaThe competition faced in the Chinese market is unprecedented, and has become more evident since the middle of last year.

Apart from the increasingly fierce competition among domestic brands in China, there are growing localization demands on one hand, and on the other hand, the need for a more adaptable commercial strategy that suits the Chinese market, is more flexible, and receives consistent support from headquarters. This presents a challenge for any executive who is about to take office.IlluminaChina RegionGMOverall, it remains a persistent and increasingly severe challenge.。

4. Strategic Considerations

This is alsoJacob ThaysenThe first time to reveal to the outside world thatIlluminaStrategic Thinking.

A major premise is:It is expected that the macroeconomic environment will not improve in the short term, and geopolitical issues will continue to persist.. On the other hand, seeingNovaSeq XUtilizing the early signs that have already shown some promising indications,Imagine when market conditions improve,XIncreased utilization will drive continuous growth in consumer products and overall company growth.。

Therefore,Jacob ThaysenFocus on three strategic priorities:

First, it is necessary to push for top-line growth as much as possible in this environment. This meansContinue Sales and ShippingNovaSeq XAnd other instruments, laying the foundation for increasing consumables demand.

Secondly, it is necessary to continue driving innovation that customers focus on. These innovations include automation and sample-to-answer solutions, multi-omics, and so on.To make full use ofNovaSeq XFull production capacity。

Third, it is necessary to focus on operational excellence across geographies, functions, and processes.Will continue to reduce annualized operating expenses, from the initial forecast at the beginning of the year.1Billion US dollars continues to decrease by approximately1.75Billion dollars to improve profit margins。

But ifXThe demand cannot continue to grow, or even ifXWith the growth, can it drive the continuous growth of consumables sales?If a longer sales cycle is required to promoteXSales?If a longer time is needed to makeXMore and more frequent operation?If the demand is shrinking, it is not due to the reduction in consumables demand caused by platform transition, or it cannot bringXA significant increase in consumables demand? This series of questions are not impossible, but more answers may need to evolve over the next few quarters.

On the conference call, one analyst asked:“If24Annual performance only maintains with23Year-on-year, then19-24The annualized growth rate over five years is only5%, similar to other life science tool providers, but with annual R&D expenditures reaching up to20%Is the game still worth playing?”This question appears stark, harsh, yet penetrates to the core.

"Although we cannot control external factors, we can optimize our actions to successfully navigate this period and restore the company to accelerated growth on the other side."

Jacob ThaysenThere is no real answer; but this question is also worth answering by peers, where is the way out?

What a troublesome time, forJacob ThaysenFor the future, there may still be a bone-chilling winter ahead.

It's getting cold, please add clothes to keep warm.

Reference:

https://investor.illumina.com/financials/default.aspx#quarterly