In the wake of uncertainty caused by ongoing trade discussions between the White House and China, Pacific Biosciences of California (NASDAQ:PACB) tumbled 10% on Friday ahead of competitor Illumina's (NASDAQ:ILMN) second-quarter earnings release next Monday and its own earnings next Thursday.
Pacific Biosciences shares rallied sharply higher in early June after management unveiled new tools researchers can use to sequence genes more cheaply and quickly. However, worries that protectionist trade policies could derail sales to customers in China increased late last month, creating uncertainty.
It's been smoother sailing for Pacific Biosciences investors in July, but that didn't stop investors from taking some chips off the table on Friday.
Given that Pacific Biosciences' sales declined 22% year over year, to $19.4 million, and its net loss increased slightly, to $24.2 million in Q1, and Illumina's revenue rose 30% year over year, to $782 million, and its adjusted net income rose 128%, to $214 million in Q1, it's not surprising that investors are a little antsy ahead of next week's numbers.
Pacific Biosciences had hoped that its next-generation sequencer, the Sequel, would help it close the growing gap between it and Illumina, but the launch of Illumina's new sequencing machine, the NovaSeq, last year helped solidify its market share and prevent that from happening. Although Pacific Biosciences' business continues to trail Illumina's, its installed base of sequencing machines is growing, and new improvements, such as those announced in June, could boost demand for consumables used in sequencing, providing some future revenue tailwinds.
For that to happen, though, it will need to avoid falling victim to the brewing technology trade battle between the U.S. and China. Over 30% of Pacific Biosciences' sales came from China last year, up from less than 10% in 2016. Since Pacific Biosciences is more reliant on China than in the past, some concern may be warranted, especially following China's decision to nix a planned technology tie-up between U.S. chipmaker Qualcomm and NXP earlier this week.
Todd Campbell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Illumina. The Motley Fool owns shares of Qualcomm. The Motley Fool recommends NXP Semiconductors and Pacific Biosciences of California. The Motley Fool has a disclosure policy.