Illumina's Poor Streak Is A Sign Of Market Saturation

Illumina, Inc. ILMN preannounced Q3 revenues significant below expectations, marking the fourth miss in the past six quarters.

Internal growth forecasts seem to be “failing to accurately reflect market demand,” BTIG’s Dane Leone said in a report. He maintained a Neutral rating on Illumina, commenting that the company “may be experiencing a structurally lower growth outlook.”

Q3 Performance

Instrument sales have continued to decelerate, and a 26 year-over-year percent decline implies a 12 percent sequential decline in instrument sales. Instrument revenues peaked in Q2 of 2015 at $160 million and have declined every quarter since then, hitting ~$111 million in Q3 of 2016, Leone noted.

Related Link: Cantor Cuts Illumina's Price Target To $155, Positive On Pacific Biosciences Of California

Revised Estimates

Management indicated Q4 revenue to be flat to slightly up sequentially. Leone revised the Q4 revenue estimate to ~$615 million, representing 4 percent year-over-year organic growth, marking the slowest growth rate since 2012. The revenue estimate for 2016 has been revised to ~$2,395 million, which supports EPS of ~$3.38, below the lower-end of management’s previous guidance range.

Market Saturation

Illumina’s continuous below-expectation results indicates market saturation and internal growth forecasts are not accurately reflecting market demand.

“Illumina has set expectations for new products such as the Firefly to be launched during 2017, but in the face of tougher competition, and less differentiation between products or product cycles, the company may be experiencing a structurally lower growth outlook,” the analyst wrote.

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