Understanding Illumina’s Gross Margin Trend

Gross margin

Illumina’s (ILMN) total cost of revenue, consisting of product revenue costs, service costs, and other revenue and amortization related to acquired intangible assets increased from $232.0 million in the third quarter of 2017 to $256.0 million in the third quarter of 2018.

Illumina’s cost of product revenue increased from $173.0 million in the third quarter of 2017 to $184.0 million in the third quarter of 2018. Its cost of service and other revenue increased from $50.0 million in the third quarter of 2017 to $62.0 million in the third quarter of 2018. Its amortization of acquired intangible assets increased from $9.0 million in the third quarter of 2017 to $10.0 million in the third quarter of 2018.

Understanding Illumina’s Gross Margin Trend

Illumina’s gross profit grew from $482.0 million in the third quarter of 2017 to $597.0 million in the third quarter of 2018. Its gross margin expanded from 68.8% in the third quarter of 2017 to 71.16% in the third quarter of 2018 due to a higher share of consumables, which fetch higher margins on total revenue.

Expected trend

For 2018 and 2019, Illumina’s gross margins are expected to be 70.16% and 70.33%, respectively, compared to its gross margin of 68.42% in 2017.

In comparison, the 2018 gross margins of peers Danaher (DHR), Thermo Fisher Scientific (TMO), and Waters Corporation (WAT) are expected to be 56.04%, 47.07%, and 58.95%, respectively.

We’ll take a look at Illumina’s operational performance in the next article.