Illumina Stock Dives on Weak Quarterly Sales Report

10/7/11Follow @xconomy

Illumina shareholders are having a rough day today.

The San Diego-based maker of genome sequencing tools (NASDAQ: ILMN) fell $12.85 a share, or 32 percent, to $27.08 at 11:45 am Eastern time today. The drop came after Illumina released a dismal third-quarter sales report, in which it reported $235 million in revenue on an unaudited basis. That performance fell about $40 million short of expectations, said Tycho Peterson, an analyst with JP Morgan, in a note to clients today. Even worse, Illumina withdrew its 2011 sales forecast “due to the many market uncertainties.”

Illumina, the market leader in high-speed gene sequencing instruments, primarily blamed the shortfall on the continued uncertainty around government budgets in the U.S. and Europe. Those government research budgets, particularly at the National Institutes of Health, enable most of Illumina’s scientific customers to buy instruments, and consumable chemical reagents to run them. Illumina also said its existing customers are using fewer reagents, and that fewer than expected chose to upgrade their instruments.

“We are highly disappointed with our revenue for the third quarter,” said Illumina CEO Jay Flatley in a statement. ”In the quarter, we saw what we believe to be an unprecedented slowdown in purchasing due to uncertainties in research funding and overall economic conditions, as well as a temporary excess of sequencing capacity in the market. We expect these conditions to continue through at least the fourth quarter, while the 2012 – 2013 U.S. budgets for NIH and other related agencies are determined.”

JP Morgan’s Peterson lowered his price target on Illumina stock from $67 to $44, but he cautioned investors that the selling today could just be a short-term blip.

“We remind ourselves that this is a company with a rich tradition of innovation, that the sequencing markets are nascent and ripe for expansion, and that the competitive dynamics continue to swing in its favor,” Peterson said. “Illumina is now a “show me” story with limited near-term visibility, but it is hard to ignore the long-term potential altogether in our view.”

Illumina said it plans to provide its full third-quarter financial report after markets close on Oct. 25.

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