Illumina (ILMN 2.40%) delivered strong revenue and earnings growth the last time it reported quarterly results in October. In particular, the gene-sequencing leader posted great sequencing system sales -- the highest in three years.

The company announces its full-year 2018 and fourth-quarter financial results after the market closes on Tuesday, Jan. 29, 2019. What's in store in those Q4 results? Here are three things you can expect from Illumina's Q4 earnings update. 

DNA helix under a magnifying glass with color-coded DNA sequences in background

Image source: Getty Images.

1. Continued strength in instrument sales

The brightest spot in Q3 will probably again be Illumina's best news in the fourth quarter. Expect the company to report solid year-over-year growth in instrument sales.

Going into 2018, Illumina predicted that NovaSeq sales would be "heavily back-end loaded." We certainly saw this play out in the third quarter. CFO Sam Samad said in the company's Q3 conference call that "a meaningful ramp in terms of instrument revenue" is also anticipated in Q4.

While the launch for NovaSeq has been an overwhelming success, Illumina still has a long runway for more sales. CEO Francis deSouza noted in October that the company hasn't even "crossed over the halfway point" of the upgrade cycle. 

2. Slowing sequencing consumables growth

Illumina enjoys something of a razor-and-blades business model. While the company makes a lot of money from instrument sales, 55% of its revenue in Q3 came from consumables sales. But don't look for the sequencing consumables revenue growth seen earlier in 2018.

There are several dynamics at play. NovaSeq consumables revenue is growing just as you'd expect it would with an increasing number of systems installed. However, many of the NovaSeq customers have transitioned from Illumina's HiSeq high-throughput sequencing system. HiSeq consumables revenue is therefore falling. Over the long run, NovaSeq should drive higher overall consumables revenue, but there could be some lumpiness in the near term.

The biggest issue that will hold back consumables revenue in Q4, though, is the impact of trade tensions between the U.S. and China. So far, the only tariffs that have been imposed on the company affect its instruments. And this was only a 5% tariff that Illumina learned about in Q3.

However, some customers in China accelerated purchases of consumables in both Q2 and Q3 in anticipation of potential tariffs on consumables. As a result, Q4 consumables revenue will likely decline from Q3 although Illumina should still report solid year-over-year consumables revenue growth.

3. A sequential dip in microarray revenue

You might think that the seasonality effect would help boost microarray revenue in Q4. It makes sense that there would be higher demand for consumer genomics as customers gave DNA tests from Ancestry, 23andMe, and other companies as Christmas presents. But while seasonality will be a tailwind in the fourth quarter, don't count on total microarray revenue increasing on a sequential basis. In fact, it's likely to decline a little from Q3.

There's a good reason for the dip. Microarray revenue is made up of both instrument sales and consumables sales. Consumables sales will probably be higher in Illumina's Q4 results. However, the company's microarray instrument revenue in Q3 was the highest since 2011 thanks to a large direct-to-consumer (DTC) customer scaling up ahead of the holiday season. This one-time boost will make Q4 microarray revenue lower than Q3.

This quarter-over-quarter decline shouldn't overshadow what should be strong year-over-year growth in microarray revenue, though. The consumer genomics market is still in its early stages and should be a growth engine for Illumina for a long time to come.  

Overall picture

It's quite possible that Illumina disappoints Wall Street with its Q4 results. The company's guidance for the fourth quarter projects adjusted earnings per share (EPS) between $1.30 and $1.35. But the consensus analysts' earnings estimate is $1.36 per share.

Illumina also stated in October that Q4 revenue would probably be "flat to slightly up" from the third quarter. Wall Street expects slightly higher quarter-over-quarter revenue but wouldn't be happy with revenue that was essentially at the same level as the Q3 figure.

On the other hand, Illumina has sandbagged some in the past with guidance. The company beat analyst earnings estimates by at least 20% in the first three quarters of 2018.

More importantly, what really matters isn't what Wall Street thinks. Illumina's business remains exceptionally strong. Its prospects continue to look very good with five different drivers of future growth. The overall picture for the company is a good one regardless of what's in its Q4 results.

Check out the latest Illumina earnings call transcript.