Competition in the DNA sequencing market is heating up. Life Technologies (Nasdaq: LIFE) bought Ion Torrent to bring in a cheaper machine. Pacific Biosciences of California (Nasdaq: PACB) is launching a next generation sequencer. Complete Genomics (Nasdaq: GNOM) is taking a different approach, offering outsourcing for researchers' sequencing needs.
None of it seems to be affecting Illumina's (Nasdaq: ILMN) growth all that much. The scientific equipment maker registered a solid 47% year-over-year increase in revenue during the first quarter. Illumina already has a backlog of orders for MiSeq, which will compete with the Ion Torrent PGM. The miniature version of the HiSeq will begin shipping in the third quarter and ramp up in the fourth quarter.
Getting machines out to customers quickly is important, not just to get into the market before Life Tech has captured it, but also because the machines consume reagents that Illumina sells. The faster the machines are installed, the faster the ramp up in consumables can occur.
The increase in revenue clearly helped Illumina, as selling, general and administrative expense dropped from 26.2% of revenue last year to just 23.3% of revenue this year. Total operating profit increased more than 80%, even with some substantial one-time charges.
While that's outstanding, investors should keep an eye on Illumina's research and development expenses, which only increased 15% year over year. Research and development spending needs to continue growing – otherwise, Illumina will just shoot itself in the proverbial long-term foot. Illumina must innovate or expect to be passed by in this competitive business. Fortunately, management doesn't sound like they're planning on decreasing research as a percent of revenue any further.
