Illumina Shares Got Crushed: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Illumina (Nasdaq: ILMN  ) plummeted a staggering 30% today after the genetic analysis instrument maker projected current-quarter revenue well below expectations and suspended its full-year guidance.

So what: The whiff was so bad -- Illumina now sees third-quarter revenue of $235 million versus the average analyst estimate of $278 million -- that investors are being forced to seriously rework their growth assumptions. In fact, CEO Jay Flatley called the slump in new purchases "unprecedented," blaming it on slower upgrades, research-funding uncertainty, and simply a big drop in demand for its products.   

Now what: Don't expect things to turnaround anytime soon. "We expect these conditions to continue through at least the fourth quarter, while the 2012-2013 U.S. budgets for National Institutes of Health and other related agencies are determined," Flatley said. Of course, with rivals like Affymetrix (Nasdaq: AFFX  ) and Life Technologies (Nasdaq: LIFE  ) also getting pounded on the news, the entire space might be providing long-term investors with an enticing entry point.

Interested in more info on Illumina? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Illumina. Try any of our Foolish newsletter services free for 30 days.

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  • Report this Comment On October 08, 2011, at 8:43 AM, TopAustrianFool wrote:

    This is exactly what happens with Boom and Bust cycles. What the Fed did in 2009 to stimulate the economy caused a lot of companies to invest in longer term production and now with the end of QE there is a lot of downsizing a liquidation. Investors don't know which companies will survive liquidation and which will go bust, so they are pulling a lot of their money out of the market.

    ILMN with their connection to research and academia is the typical company to which stimulus dollars went. I know because I am connected to academia and I work on research, and I saw a lot of scrambling then to hire and increase capacity in order to spend stimulus dollars. Now the stimuls is gone and the economy is not growing. Add to that the coming cuts and you have a recipe for liquidation.

    So the main question is the following. What is ILMN's ability to adapt, liquidate and downsize? That depends in how much debt they have and how much cash they have. If you can answer these questions, you will know if this is a hold or a sell.

    Put in this category all the alternative energy companies. The ones making solar panels, bateries, windmills, etc.

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