Business Context and Reporting Period
Company: ILLUMINA, INC. (ILMN)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended June 28, 2026
Business Overview: Illumina is a global leader in DNA sequencing and array-based technologies. In January 2026, the company acquired SomaLogic, a proteomics company, to advance its multiomics strategy. Financial results for SomaLogic are included from the acquisition date.
Key Financial Metrics
| Metric (in millions) | Q2 2026 | Q2 2025 | YTD 2026 | YTD 2025 |
|---|---|---|---|---|
| Total Revenue | $1,159 | $1,059 | $2,251 | $2,100 |
| Gross Profit | $770 | $695 | $1,491 | $1,378 |
| Gross Margin | 66.4% | 65.6% | 66.2% | 65.6% |
| Operating Income | $245 | $214 | $454 | $378 |
| Operating Margin | 21.1% | 20.2% | 20.2% | 18.0% |
| Net Income | $207 | $235 | $340 | $366 |
| Diluted EPS | $1.35 | $1.49 | $2.22 | $2.31 |
| Cash & Equivalents (End of Period) | $1,040 | $934 | $1,040 | $934 |
| Short-term Investments | $128 | $215 | $128 | $215 |
| Total Debt (Principal) | $2,000 | $2,000 | $2,000 | $2,000 |
| Free Cash Flow (YTD) | $412 | $412 | $412 | $412 |
Note: Free Cash Flow calculated as Net Cash from Operating Activities ($490M) minus Capital Expenditures ($78M) for YTD 2026.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 9% in Q2 2026 and 7% YTD 2026 compared to the prior year. Growth was driven by increased demand for NovaSeq X instruments and consumables, as well as revenue from the SomaLogic acquisition.
- Profitability: Operating income increased 15% in Q2 and 20% YTD. Operating margin improved to 20.2% YTD 2026 from 18.0% YTD 2025, aided by a reduction in restructuring charges and government incentives.
- Net Income Decline: Despite higher operating income, Net Income decreased 12% in Q2 and 7% YTD. This was primarily due to a significant decrease in "Other income (expense), net," driven by a net loss on the retained GRAIL investment in YTD 2026 compared to a substantial gain in YTD 2025.
- Geographic Impact: Revenue from the Greater China region decreased by $7 million in Q2 and $27 million YTD, attributed to the company's inclusion on China's "unreliable entities list."
- Acquisition Activity: The company acquired SomaLogic for a total purchase price of $460 million (including $382 million cash and $81 million contingent consideration) in January 2026.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management expects to continue progress toward strategic goals of revenue growth and improved margins by the end of 2027. However, they anticipate continued headwinds from tariffs, inflation, and geopolitical conflicts.
- Tariffs and Refunds: The company has incurred significant costs from tariffs enacted in April 2025. Following a Supreme Court ruling and subsequent court orders, the company is seeking refunds of IEEPA-related tariffs, though the timing and amount of recovery remain uncertain.
- Cost Pressures: Gross margins faced pressure from higher memory chip costs, increased freight costs due to Middle East conflicts, and a sales mix shift toward lower-margin instruments.
- Legal Proceedings: Significant ongoing litigation includes shareholder derivative suits and securities class actions related to the GRAIL acquisition. The company intends to vigorously defend these matters.
- Share Repurchases: The Board authorized a new $1.5 billion repurchase program in April 2026, in addition to the remaining $279 million under the 2024 program. The company repurchased $123 million of stock in Q2 2026.
- Unusual Items: A $23 million intangible asset impairment was recognized in Q2 2025, which favorably impacted the year-over-year gross margin comparison for 2026.
Investor Verification Checklist
- SomaLogic Integration: Verify the actual revenue contribution and margin profile of the SomaLogic acquisition against management's multiomics strategy projections.
- Tariff Refund Status: Monitor the progress and final amount of tariff refunds received from U.S. Customs and Border Protection following the court orders.
- GRAIL Investment Volatility: Assess the impact of the retained GRAIL investment on "Other income (expense)" and its potential to cause future earnings volatility.
- China Market Exposure: Evaluate the long-term impact of the "unreliable entities list" designation on revenue from the Greater China region.
- Debt Maturity Profile: Review the upcoming maturity of the $500 million 2026 Term Notes due in September 2026 and the company's liquidity position to service this debt.
- Legal Reserves: Monitor developments in the GRAIL-related securities class actions and shareholder derivative suits for potential changes in legal reserves.