Turnaround at Affymetrix

Yesterday, Affymetrix (Nasdaq: AFFX  ) announced that it had continued its turnaround from an abysmal 2006 with another strong quarter.

Year-over-year revenue increased 12% on strong sales of its new Genome-Wide Human SNP Array 6.0, as revenue from reagents increased 56% from the year-ago quarter. Instrument sales, which saw 25% year-over-year growth, also added to the revenue growth this quarter and should drive sales of consumables in the coming years.

Maybe more impressive than the increase in revenue was the 18% decrease in operating expenses. The decreased expenses came in almost every category, from a 2.2% improvement in gross margins to SG&A expenses that were lower than the year-ago quarter despite the increase in sales. As the company gets manufacturing of its 6.0 chip up and running at the Singapore plant, look for further decreases in expenses.

The big news yesterday was that Affymetrix is increasing the number of patent infringement lawsuits it has against its rival Illumina (Nasdaq: ILMN  ) . In addition to increasing the number of U.S. patents that it says Illumina's products infringe upon, Affymetrix also filed lawsuits in the United Kingdom and Germany. I'm not a lawyer, but it seems like the company might be posturing in order to get Illumina to establish a licensing agreement before its next court date in the middle of February.

Going forward into 2008, Affymetrix is going to take a minor hit to its top line, as the amortized income from its $70 million deal with Roche will run out next quarter. Hopefully, its recently established diagnostic business will start to generate income when one or more of its 10 partners gets 510K approval from the FDA.

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