ILLUMINA, INC. (ILMN)

MANAGEMENT’S DISCUSSION & ANALYSIS
Our Management’s Discussion and Analysis (MD&A) is designed to help readers understand our results of operations, financial condition, and cash flow. It is provided in addition to the accompanying condensed consolidated financial statements and notes. This MD&A is organized as follows:

•Management’s Overview and Outlook. High-level discussion of our operating results and significant known trends that affect our business.

•Results of Operations. Discussion of our revenues and expenses.

•Liquidity and Capital Resources. Discussion of key aspects of our condensed consolidated statements of cash flows, changes in our financial position, and our financial commitments.

•Critical Accounting Policies and Estimates. Discussion of significant changes since our most recent Annual Report on Form 10-K that we believe are important to understanding the assumptions and judgments underlying our condensed consolidated financial statements.

•Recent Accounting Pronouncements. Summary of recent accounting pronouncements applicable to our condensed consolidated financial statements.

•Quantitative and Qualitative Disclosures About Market Risk. Discussion of our financial instruments’ exposure to market risk.

Our discussion of our results of operations, financial condition, and cash flows for Q2 2025 and YTD 2025 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our filing of Form 10-Q for the fiscal quarter ended June 29, 2025.

This MD&A discussion contains forward-looking statements that involve risks and uncertainties. See Consideration Regarding Forward-Looking Statements preceding the Condensed Consolidated Financial Statements section of this report for additional factors relating to such statements. This MD&A should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this report and our Annual Report on Form 10-K for the fiscal year ended December 28, 2025. Operating results are not necessarily indicative of results that may occur in future periods.

MANAGEMENT’S OVERVIEW AND OUTLOOK

This overview and outlook provide a high-level discussion of our operating results and significant known trends that affect our business. We believe an understanding of these trends is important to understanding our financial results for the periods being reported herein as well as our future financial performance. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere.

About Illumina

Our focus on innovation has established us as a global leader in DNA sequencing and array-based technologies, serving customers in the research, clinical and applied markets. Our products are used for applications in the life sciences, oncology, reproductive health, agriculture and other emerging segments. Our customers include leading genomic research centers, academic institutions, government laboratories, and hospitals, as well as pharmaceutical, biotechnology, commercial molecular diagnostic laboratories, and consumer genomics companies. Our comprehensive line of products addresses the scale of experimentation and breadth of functional analysis to advance disease research, drug development, and the development of molecular tests. This portfolio of leading-edge sequencing and array-based solutions addresses a range of genomic complexity and throughput, enabling researchers and clinical practitioners to select the best solution for their scientific challenge.

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On January 30, 2026, we acquired SomaLogic, a proteomics company that provides high-throughput protein measurement technology and related data analysis services, and other specified assets from Standard BioTools. We believe our acquisition of SomaLogic will enhance our presence in the proteomics market and advance our multiomics strategy. We have included the financial results of SomaLogic in our condensed consolidated financial statements from the date of acquisition. Refer to note 2. Acquisitions, Intangible Assets and Goodwill for details.

Our financial results have been, and will continue to be, impacted by several significant trends, which are described below. While these trends are important to understanding and evaluating our financial results, this discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto within the Condensed Consolidated Financial Statements section of this report, and the other transactions, events, and trends discussed in Risk Factors within the Other Key Information section of this report.

Financial Overview

In 2024, we outlined key strategic goals focused on a return to revenue growth and improved margin performance by the end of 2027. We continued to make progress toward these goals in YTD 2026. Revenue increased 7% to $2,251 million and operating margin increased to 20.2% in YTD 2026 as compared to 18.0% in YTD 2025.

Throughout 2025 and 2026, we experienced several headwinds, including macroeconomic factors such as tariffs, inflation, exchange rate fluctuations and concerns about an economic downturn, competitive challenges in our China region, inclusion on the unreliable entities list by regulatory authorities in China, impacts from armed conflicts between Russia and Ukraine and in the Middle East, including Iran, and reductions in the U.S. government’s funding of the NIH. Moreover, in 2026, we have experienced higher fuel, energy, and shipping costs related to the conflict and instability in the Middle East and higher costs associated with memory chips used in our products, both of which have negatively impacted gross margin in 2026. We expect these factors to continue to impact our sales and results of operations in 2026, and beyond, the magnitude and duration of which remains uncertain.

In April 2025, the U.S. government and several other countries enacted tariffs. Under the current environment, the largest cost impact to us relates to importation from our manufacturing facility in Singapore. The remainder is a mix of importation of parts and sub-assemblies to our manufacturing operations in the U.S. and importation into China. In February 2026, the U.S. Supreme Court held that the International Emergency Economic Powers Act (IEEPA) does not authorize the imposition of tariffs. In March 2026, the U.S. Court of International Trade ordered U.S. Customs and Border Protection (CBP) to process refunds of IEEPA-related tariffs, and CBP has been implementing that process in phases. We have incurred significant costs under IEEPA-related tariffs since their implementation. While we intend to seek refunds, and have begun that process, the timing and amount of recoveries remain uncertain and will depend on the scope and timing of future phases, any further court or administrative developments, and completion of applicable administrative steps. We expect to recognize any recoveries, which to date have been immaterial, in our consolidated financial statements when realized (generally upon receipt). We have taken and will continue to take action to mitigate the impact of tariffs. We have partially mitigated the effects of tariffs through supply-chain optimization, cost measures, and pricing actions, and aim to continue such efforts in the future.

Financial highlights for YTD 2026 included the following:

•Revenue increased 7% in YTD 2026 to $2,251 million compared to $2,100 million in YTD 2025 primarily due to increases in consumables and instruments related to demand for our NovaSeq X instrument. Service and other revenue increased primarily due to revenue attributable to SomaLogic, which we acquired in January 2026.

•Gross margin was 66.2% in YTD 2026 compared to 65.6% in YTD 2025. The increase in gross margin was driven primarily by a $23 million intangible asset impairment recognized in Q2 2025. Excluding this impact, gross margin decreased primarily due to higher tariff costs, increased sales mix toward lower-margin instruments as compared to higher-margin consumables, the addition of lower-margin SomaLogic revenue, and higher memory chip and freight costs, partially offset by decreases for field service and warranty costs. Gross margin depends on many factors, including: market conditions that may impact our pricing; sales mix changes among consumables, instruments, services, and strategic partnership revenue; product mix changes between established products and new products; excess and obsolete inventories; royalties; our cost structure for manufacturing operations relative to volume; freight costs; tariffs; and product support obligations.

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•Income from operations was $454 million in YTD 2026 compared to $378 million in YTD 2025. The increase was due to an increase in gross profit of $113 million, offset by an increase in operating expense of $37 million. The increase in operating expense was primarily due to increases in legal expenses, costs related to our ERP upgrade, and employee-related compensation costs, partially offset by a decrease in restructuring charges of $36 million and an increase in benefits recognized from government incentives of $21 million.

•Our effective tax rate was 18.4% in YTD 2026 compared to 25.1% in YTD 2025. The variance from the U.S. federal statutory tax rate of 21% was primarily due to prior year tax return adjustments. The tax rate in YTD 2026 was favorably impacted by the mix of earnings in jurisdictions with lower statutory tax rates than the U.S. federal statutory tax rate, such as in Singapore.

•We ended Q2 2026 with cash, cash equivalents, and short-term investments totaling $1,168 million, of which approximately $435 million was held by our foreign subsidiaries.

RESULTS OF OPERATIONS

To enhance comparability, the following table sets forth unaudited condensed consolidated statement of operations data for the specified reporting periods, stated as a percentage of total revenue.(1)

_____________

(1)Percentages may not recalculate due to rounding.

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Revenue

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MANAGEMENT’S DISCUSSION & ANALYSIS

Our Management’s Discussion and Analysis (MD&A) will help readers understand our results of operations, financial condition, and cash flow. It is provided in addition to the accompanying consolidated financial statements and notes. This MD&A is organized as follows:

•Management’s Overview and Outlook. High level discussion of our operating results and significant known trends that affect our business.

•Results of Operations. Discussion of our revenues and expenses.

•Liquidity and Capital Resources. Discussion of key aspects of our consolidated statements of cash flows, changes in our financial position, and our financial commitments.

•Critical Accounting Policies and Estimates. Discussion of critical accounting policies and the significant assumptions, estimates, and judgments we make in applying such policies.

•Quantitative and Qualitative Disclosure about Market Risk. Discussion of our financial instruments’ exposure to market risk.

•Recent Accounting Pronouncements. Summary of recent accounting pronouncements applicable to our consolidated financial statements.

This MD&A generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended 2024.

This MD&A discussion contains forward-looking statements that involve risks and uncertainties. See Consideration Regarding Forward-Looking Statements preceding the Business & Market Overview section of this report for additional factors relating to such statements. See Risk Factors within the Business & Market Information section of this report for a discussion of certain risk factors applicable to our business, financial condition, and results of operations. Operating results are not necessarily indicative of results that may occur in future periods.

MANAGEMENT’S OVERVIEW AND OUTLOOK

This overview and outlook provide a high-level discussion of our operating results and significant known trends that affect our business. We believe an understanding of these trends is important to understanding our financial results for the periods being reported herein as well as our future financial performance. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere.

About Illumina

Our focus on innovation has established us as a global leader in DNA sequencing and array-based technologies, serving customers in the research, clinical and applied markets. Our products are used for applications in the life sciences, oncology, reproductive health, agriculture and other emerging segments. Our customers include leading genomic research centers, academic institutions, government laboratories, and hospitals, as well as pharmaceutical, biotechnology, commercial molecular diagnostic laboratories, and consumer genomics companies. Our comprehensive line of products addresses the scale of experimentation and breadth of functional analysis to advance disease research, drug development, and the development of molecular tests. This portfolio of leading-edge sequencing and array-based solutions addresses a range of genomic complexity and throughput, enabling researchers and clinical practitioners to select the best solution for their scientific challenge.

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On June 24, 2024, we completed the Spin-Off of GRAIL into a new public company through the distribution of approximately 85.5% of the outstanding shares of common stock of GRAIL to Illumina stockholders on a pro rata basis. We retained approximately 14.5% of the shares of GRAIL common stock immediately following the Spin-Off. The disposition of GRAIL did not meet the criteria to be reported as a discontinued operation and accordingly, GRAIL’s assets, liabilities, results of operations and cash flows have not been reclassified. In connection with the Spin-Off, Illumina’s stockholders received one share of GRAIL common stock for every six shares of Illumina common stock held on the Record Date. Refer to note 8. GRAIL Spin-Off for further details.

We have one reportable segment, Core Illumina, as of December 28, 2025. Prior to the Spin-Off of GRAIL on June 24, 2024, our reportable segments included both Core Illumina and GRAIL. See note 12. Segment and Geographic Information within the Consolidated Financial Statements section of this report for details on our reportable segments.

On June 22, 2025, we entered into a Stock Purchase Agreement (the Purchase Agreement) with Standard BioTools to acquire SomaLogic and other specified assets for $350 million in cash, subject to customary adjustments. The Purchase Agreement further provides for, in connection with the revenues generated from certain products and services, (i) royalty streams and (ii) up to $75 million in potential milestone payments to Standard BioTools. We believe the acquisition will enhance our presence in the expanding proteomics market and advance our multiomics strategy. The transaction was completed on January 30, 2026. See note 13. Subsequent Events for further details.

Our financial results have been, and will continue to be, impacted by several significant trends, which are described below. While these trends are important to understanding and evaluating our financial results, this discussion should be read in conjunction with our consolidated financial statements and the notes thereto within the Consolidated Financial Statements section of this report, and the other transactions, events, and trends discussed in Risk Factors within the Business & Market Information section of this report.

Financial Overview

In 2024, we outlined key strategic goals focused on a return to revenue growth and improved margin performance by the end of 2027. Throughout 2025, we experienced several headwinds including macroeconomic factors such as tariffs, inflation, exchange rate fluctuations and concerns about an economic downturn, competitive challenges in our China region, the sanctions imposed on Russia as a result of the armed conflict between Russia and Ukraine, and reductions in the U.S. government’s funding of the NIH, all of which have impacted both Illumina directly and our customers’ behavior. For example, some customers, specifically research customers, continue to manage inventory and capital more conservatively and some labs are delaying projects due to funding concerns. Additionally, in early 2025, we were added to the unreliable entities list by regulatory authorities in China. See the risk factor “Regulatory authorities in China have added Illumina to the List of Unreliable Entities” in Risk Factors within the Business & Market Information section of this report for additional information. We expect these factors to continue to impact our sales and results of operations in 2026 and beyond, the size and duration of which is significantly uncertain.

Beginning in April 2025, the U.S. government and several other countries enacted tariffs. Under the current tariff environment, the largest cost impact to us relates to importation from our manufacturing facility in Singapore. The remainder is a mix of importation of parts and sub-assemblies to our manufacturing operations in the United States and importation into China. We have and will continue to take several actions to fully mitigate the impact of these tariffs, and we partially mitigated the impact in 2025, through supply chain optimization, cost measures, and pricing actions. Based on the current tariff environment, our aim is to more fully mitigate the impact in 2026.

Despite these challenges, we made significant progress towards our strategic goals in achieving revenue growth and improving operating margins in 2025. During 2025, we focused on our operational excellence initiatives to improve productivity and achieve cost savings and on our capital allocation strategy, including significant share repurchases. In early 2025, we also implemented an incremental $100 million cost reduction program for 2025, including optimizing stock-based compensation and non-labor spending and accelerating certain productivity measures, as well as workforce reductions, to help mitigate the expected impact of a reduction in revenue and related operating income from our Greater China business, as a result of being added to the List of Unreliable Entities, and the uncertainty in the U.S. government’s funding of the NIH. We expect to make further progress towards our strategic goals in 2026.

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Financial highlights for 2025 included the following:

•Core Illumina revenue was $4.34 billion in 2025 and relatively flat compared to revenue of $4.33 billion in 2024. Consumables revenue increased primarily due to demand for high-throughput consumables, partially offset by decreased service and other revenue, primarily due to decreased revenue from our strategic partnerships, and a decrease in instruments revenue, primarily due to fewer shipments of our high- and mid-throughput sequencing instruments. Total revenue in 2025 was impacted, across all products and services, by a decrease in revenue in our Greater China region of $65 million, primarily due to our inclusion on the List of Unreliable Entities. Consolidated revenue decreased 1% in 2025 to $4.34 billion compared to $4.37 billion in 2024 primarily due to a decrease in service and other revenue, driven by a decrease in GRAIL service and other revenue of $55 million as a result of the Spin-Off in 2024.

•Core Illumina gross margin was 66.1% in 2025 compared to 67.1% in 2024. Gross margin decreased primarily due to higher costs related to tariffs and a $23 million intangible asset impairment, partially offset by lower strategic partnership revenue, that is lower margin, and a more favorable product mix towards consumables. Consolidated gross margin was 66.1% in 2025 compared to 65.4% in 2024, and the increase was driven by the Spin-Off of GRAIL in 2024. Our gross margin depends on many factors, including: market conditions that may impact our pricing; sales mix changes among consumables, instruments, services, and development and licensing revenue; product mix changes between established products and new products; excess and obsolete inventories; royalties; our cost structure for manufacturing operations relative to volume; freight costs; tariffs; and product support obligations.

•Core Illumina income from operations was $807 million in 2025 compared to $1,473 million in 2024. Total operating expense increased $628 million and gross profit decreased $39 million. The increase in Core Illumina operating expense was primarily due to a gain of $456 million recognized in 2024 for legal contingency and settlement, primarily related to the withdrawn European Commission fine, and a gain recognized on our contingent consideration liabilities, primarily related to the GRAIL CVRs, of $315 million, partially offset by a decrease in acquisition-related costs, which included $53 million in 2024 directly related to the GRAIL Spin-Off. Excluding these impacts, Core Illumina operating expense decreased in 2025, primarily due to our continued focus on our operational excellence and cost reduction initiatives to accelerate growth and expand operating margins. Consolidated income from operations was $807 million in 2025 compared to a loss of $833 million in 2024. Total operating expense decreased $1,631 million and gross profit increased $9 million. The decrease in operating expense was primarily driven by a decrease in GRAIL operating expense of $2,267 million due to the Spin-Off in 2024, primarily related to the $1,886 million goodwill and intangible asset impairments recognized in 2024.

•Our effective tax rate was 21.7% and (3.8)% in 2025 and

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