Table	of	Contents

# UNITED	STATES	SECURITIES	AND	EXCHANGE	COMMISSION

# ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF	1934

# For	the	fiscal	year	ended	December	28,	2008

# TRANSITION	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF	1934

# Illumina,	Inc.

(Exact	name	of	Registrant	as	Specified	in	Its	Charter)

Delaware

(State	or	other	Jurisdiction	of Incorporation	or	Organization)

9885	Towne	Centre	Drive,

San	Diego,	California

(Address	of	Principal	Executive	Offices)

(I.R.S.	Employer Identification	No.)

(zip	code)

Registrant's	telephone	number,	including	area	code:

Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

Title	of	Each	Class

# Name	of	Exchange	on	Which	Registered

Common	stock,	$0.01	par	value The	NASDAQ	Global	Select	Market

# Securities	registered	pursuant	to	Section	12(g)	of	the	Act:

Indicate	by	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.		Yes	þ					No	o

Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15(d)	of	the	Act.		Yes	o					No	þ

Indicate	by	check	mark	whether	the	Registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934	during	the	preceding	12	months	(or	for	such	shorter	period	that	the Registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing	requirements	for	the	past	90	days.		Yes	þ					No	o

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the	best	of	Registrant's	knowledge,	in	definitive	proxy	or	information statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10-K.		o

Indicate	by	check	mark	whether	the	registrant	is	a	large	accelerated	filer,	an	accelerated	filer,	a	non-accelerated	filer,	or	a	smaller	reporting	company.	See	the	definitions	of	"large	accelerated	filer,"	"accelerated	filer"	and	"smaller reporting	company"	in	Rule	12b-2	of	the	Exchange	Act.	(Check	one):

Large	accelerated	filer	þ Accelerated	filer	o Non-accelerated	filer	o Smaller	reporting	company	o (Do	not	check	if	a	smaller	reporting	company)

Indicate	by	check	mark	whether	the	registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Exchange	Act).		Yes	o					No	þ

As	of	February	2,	2009,	there	were	121,077,875	shares	(excluding	17,927,983	shares	held	in	treasury)	of	the	Registrant's	Common	Stock	outstanding.	The	aggregate	market	value	of	the	Common	Stock	held	by	non-affiliates	of the	Registrant	as	of	June	27,	2008	(the	last	business	day	of	the	Registrant's	most	recently	completed	second	fiscal	quarter),	based	on	the	closing	price	for	the	Common	Stock	on	The	NASDAQ	Global	Select	Market	on	that	date,	was $4,849,118,890.	This	amount	excludes	an	aggregate	of	2,556,098	shares	of	Common	Stock	held	by	officers	and	directors	and	each	person	known	by	the	Registrant	to	own	10%	or	more	of	the	outstanding	Common	Stock.	Exclusion	of shares	held	by	any	person	should	not	be	construed	to	indicate	that	such	person	possesses	the	power,	directly	or	indirectly,	to	direct	or	cause	the	direction	of	the	management	or	policies	of	the	Registrant,	or	that	the	Registrant	is	controlled by	or	under	common	control	with	such	person.

# DOCUMENTS	INCORPORATED	BY	REFERENCE

Portions	of	the	Registrant's	definitive	proxy	statement	for	the	annual	meeting	of	stockholders	expected	to	be	held	on	May	8,	2009	are	incorporated	by	reference	into	Items	10	through	14	of	Part	III	of	this	Report.

# PART	I

# PART	II

PART	III

      Item	12 Security	Ownership	of	Certain	Beneficial	Owners	and	Management	and	Related	Stockholder	Matters 46

# ITEM	1. Business.

This	Annual	Report	on	Form	10-K	may	contain	forward-looking	statements	within	the	meaning	of	Section	27A	of	the	Securities	Act	of	1933,	and	Section	21E	of	the	Securities	Exchange	Act	of 1934.	These	statements	relate	to	future	events	or	our	future	financial	performance.	We	have	attempted	to	identify	forward-looking	statements	by	terminology	including	"anticipates,"	"believes,"	"can," "continue,"	"could,"	"estimates,"	"expects,"	"intends,"	"may,"	"plans,"	"potential,"	"predicts,"	"should"	or	"will"	or	the	negative	of	these	terms	or	other	comparable	terminology.	These	statements	are only	predictions	and	involve	known	and	unknown	risks,	uncertainties	and	other	factors,	including	the	risks	outlined	under	"Item	1A.	Risk	Factors"	in	this	Annual	Report,	that	may	cause	our	actual results,	levels	of	activity,	performance	or	achievements	to	be	materially	different	from	any	future	results,	levels	of	activity,	performance	or	achievements	expressed	or	implied	by	these	forward-looking statements.	Although	we	believe	that	the	expectations	reflected	in	the	forward-looking	statements	are	reasonable,	we	cannot	guarantee	future	results,	levels	of	activity,	performance	or	achievements. Accordingly,	you	should	not	unduly	rely	on	these	forward-looking	statements,	which	speak	only	as	of	the	date	of	this	Annual	Report.	We	are	not	under	any	duty	to	update	any	of	the	forward-looking statements	after	the	date	we	file	this	Annual	Report	on	Form	10-K	or	to	conform	these	statements	to	actual	results,	unless	required	by	law.	You	should,	however,	review	the	factors	and	risks	we	describe in	the	reports	we	file	from	time	to	time	with	the	Securities	and	Exchange	Commission.

Illumina®,	Array	of	Arraystm,	BeadArraytm,	BeadXpress®,	CSPro®,	DASL®,	GoldenGate®,	Genome	Studiotm,	Infinium®,	IntelliHyb®,	iSelect®,	Making	Sense	Out	of	Life®,	Oligator®, Sentrix®,	Solexa®,	and	VeraCode®	are	our	trademarks.	This	report	also	contains	brand	names,	trademarks	or	service	marks	of	companies	other	than	Illumina,	and	these	brand	names,	trademarks	and service	marks	are	the	property	of	their	respective	holders.

# Available	Information

Our	annual	report	on	Form	10-K,	quarterly	reports	on	Form	10-Q,	current	reports	on	Form	8-K,	and	all	amendments	to	those	reports	are	available	free	of	charge	on	our	website, www.illumina.com.	The	information	on	our	website	is	not	incorporated	by	reference	into	this	report.	Such	reports	are	made	available	as	soon	as	reasonably	practicable	after	filing	with,	or	furnishing	to, the	Securities	and	Exchange	Commission	(SEC).	The	SEC	also	maintains	an	Internet	site	at	www.sec.gov	that	contains	reports,	proxy	and	information	statements,	and	other	information	regarding issuers	that	electronically	file	with	the	SEC.	Copies	of	our	annual	report	will	be	made	available,	free	of	charge,	upon	written	request.

# Overview

We	are	a	leading	developer,	manufacturer	and	marketer	of	integrated	systems	for	the	large	scale	analysis	of	genetic	variation	and	biological	function.	We	were	incorporated	in	California	in	April 1998	and	reincorporated	in	Delaware	in	July	2000.	Our	principal	executive	offices	are	located	at	9885	Towne	Centre	Drive,	San	Diego,	California	92121.	Our	telephone	number	is	(858)	202-4500.

Using	our	proprietary	technologies,	we	provide	a	comprehensive	line	of	products	and	services	that	currently	serve	the	sequencing,	genotyping	and	gene	expression	markets.	In	the	future,	we expect	to	enter	the	market	for	molecular	diagnostics.	Our	customers	include	leading	genomic	research	centers,	pharmaceutical	companies,	academic	institutions,	clinical	research	organizations	and biotechnology	companies.	Our	tools	provide	researchers	around	the	world	with	the	performance,	throughput,	cost	effectiveness	and	flexibility	necessary	to	perform	the	billions	of	genetic	tests	needed	to extract	valuable	medical	information	from	advances	in	genomics	and	proteomics.	We	believe	this	information	will	enable	researchers	to	correlate	genetic	variation	and	biological	function,	which	will enhance	drug	discovery	and	clinical	research,	allow	diseases	to	be	detected	earlier	and	permit	better	choices	of	drugs	for	individual	patients.

On	January	26,	2007,	we	completed	the	acquisition	of	Solexa,	Inc.	(Solexa)	for	26.2	million	shares	of	our	common	stock.	As	a	result	of	that	acquisition,	we	develop	and	commercialize sequencing	technologies	used	to

perform	a	range	of	analyses,	including	whole	genome	re-sequencing,	gene	expression	analysis	and	small	RNA	analysis.	We	believe	we	are	the	only	company	with	genome-scale	technology	for sequencing,	genotyping	and	gene	expression,	the	three	cornerstones	of	modern	genetic	analysis.

During	the	first	quarter	of	2008,	we	reorganized	our	operating	structure	into	two	newly	created	business	segments,	Life	Sciences	and	Diagnostics.	During	2008,	the	Diagnostics	Business	Unit had	limited	business	activity	and,	accordingly,	operating	results	were	reported	on	an	aggregate	basis	as	one	operating	segment.	In	the	future,	at	each	reporting	period	end,	we	will	reassess	our	reportable operating	segments,	particularly	as	we	enter	the	market	for	molecular	diagnostics.

On	August	1,	2008,	we	completed	the	acquisition	of	Avantome,	Inc.	(Avantome).	As	consideration	for	the	acquisition,	we	paid	$25.8	million	in	cash	and	may	pay	up	to	an	additional $35.0	million	in	contingent	cash	consideration	based	on	the	achievement	of	certain	milestones.	Avantome	is	a	development	stage	company	working	on	developing	low-cost,	long	read	sequencing technology.	We	expect	this	technology,	if	and	when	available	as	a	product,	to	have	applicability	to	both	the	research	and	diagnostic	markets.

# Our	Strategy

Our	goal	is	to	make	our	Genome	Analyzer,	BeadArray	and	BeadXpress	platforms	the	industry	standards	for	products	and	services	addressing	the	genetic	analysis	markets.	We	plan	to	achieve this	by:

•	focusing	on	emerging	high-growth	markets;

•	seeking	new	and	complementary	technologies	through	strategic	acquisitions	and	other	investments;

•	expanding	our	technologies	into	multiple	product	lines,	applications	and	market	segments;	and

•	strengthening	our	technological	leadership.

# Our	Markets

Our	current	technologies	serve	three	primary	markets:		next-generation	sequencing,	mid-to-high-complexity	microarrays	for	genotyping	and	gene	expression,	and	the	"applied	markets,"	the majority	of	which	are	comprised	of	agricultural	research.	Next-generation	sequencing	is	the	most	rapidly	growing	of	these	three	markets.	It	is	fueled	by	private	and	public	funding,	new	global	initiatives to	broadly	characterize	genetic	variation,	and	the	migration	of	legacy	genetic	applications	to	sequencing	based	technologies.	We	believe	our	DNA	sequencing	systems,	coupled	with	complementary technologies	from	strategic	investments,	including	the	acquisition	of	Avantome	and	our	collaborative	alliance	with	Oxford	Nanopore	Technologies	will	enable	us	to	address	numerous	market	segments with	innovative	solutions.

In	2009,	we	expect	to	enter	the	market	for	molecular	diagnostics.	The	molecular	diagnostic	market	is	currently	estimated	at	nearly	$3	billion	with	the	potential	to	grow	to	over	$5	billion	by	2012. This	market	assessment	covers	regulated	assays	and	reagents,	and	does	not	factor	in	laboratory-developed	tests,	which	account	for	a	significant	portion	of	the	total	market.	The	primary	growth	drivers	in the	molecular	diagnostics	market	are	the	continued	discovery	of	genetic	markers	with	proven	clinical	utility,	the	increasing	adoption	of	genetic	based	diagnostic	tests,	and	the	expansion	of reimbursement	programs	to	include	a	greater	number	of	approved	diagnostic	tests.	We	believe	our	Veracode	technology	platform	is	ideally	suited	to	provide	a	cost-effective,	high-throughput,	mid-	to low-multiplex	solution	to	the	molecular	diagnostic	market.	We	are	planning	to	submit	the	platform	for	review	by	the	Food	and	Drug	Administration	in	2009.

# Industry	Background

# Genetic	Variation	and	Biological	Function

Every	person	inherits	two	copies	of	each	gene,	one	from	each	parent.	The	two	copies	of	each	gene	may	be	identical,	or	they	may	be	different.	These	differences	are	referred	to	as	genetic variation.	Examples	of	the	physical	consequences	of	genetic	variation	include	differences	in	eye	and	hair	color.	Genetic	variation	can	also	have	important	medical	consequences.	Genetic	variation affects	disease	susceptibility,	including	predisposition

to	cancer,	diabetes,	cardiovascular	disease	and	Alzheimer's	disease.	In	addition,	genetic	variation	may	cause	people	to	respond	differently	to	the	same	drug	treatment.	Some	people	may	respond	well, others	may	not	respond	at	all,	and	still	others	may	experience	adverse	side	effects.	A	common	form	of	genetic	variation	is	a	single-nucleotide	polymorphism,	or	SNP.	A	SNP	is	a	variation	in	a	single position	in	a	DNA	sequence.	It	is	estimated	that	the	human	genome	contains	over	ten	million	SNPs.

While	in	some	cases	a	single	SNP	will	be	responsible	for	medically	important	effects,	it	is	now	believed	that	combinations	of	SNPs	may	contribute	to	the	development	of	most	common	diseases. Since	there	are	millions	of	SNPs,	it	is	important	to	investigate	many	representative,	well-chosen	SNPs	simultaneously	in	order	to	discover	medically	valuable	information.

Another	contributor	to	disease	and	dysfunction	is	the	over-	or	under-expression	of	genes	within	an	organism's	cells.	A	very	complex	network	of	genes	interacts	to	maintain	health	in	complex organisms.	The	challenge	for	scientists	is	to	delineate	the	associated	genes'	expression	patterns	and	their	relationship	to	disease.	Until	recently,	this	problem	was	addressed	by	investigating	effects	on	a gene-by-gene	basis.	This	is	time	consuming	and	difficulties	exist	when	several	pathways	cannot	be	observed	or	"controlled"	at	the	same	time.	With	the	advent	of	microarray	technology,	thousands	of genes	can	now	be	tested	at	the	same	time.

There	are	multiple	methods	of	studying	genetic	variation	and	biological	function,	including	sequencing,	SNP	genotyping	and	gene	expression	profiling,	each	of	which	is	uniquely	addressed	in our	breadth	of	products	and	services.	Our	broad	portfolio	of	current	products	and	services	supports	a	range	of	applications,	from	highest	multiplexing	(for	whole-genome	discovery	and	profiling)	to	mid- and	low-multiplexing	options	(for	high-throughput	targeted	screening).

# Sequencing

DNA	sequencing	is	the	process	of	determining	the	order	of	bases	(A,	C,	G	or	T)	in	a	DNA	sample,	which	can	be	further	divided	into	de	novo	sequencing,	re-sequencing	and	tag	sequencing.	In	de novo	sequencing,	the	goal	is	to	determine	the	sequence	of	a	representative	sample	from	a	species	never	before	sequenced.	Understanding	the	similarities	and	differences	in	DNA	sequence	between	many species	can	help	our	understanding	of	the	function	of	the	protein	structures	encoded	in	the	DNA.

In	re-sequencing,	the	sequence	of	samples	from	a	given	species	is	determined	and	compared	to	a	standard	or	reference	sequence	to	identify	changes	that	reflect	genetic	variation.	Re-sequencing studies	can	be	performed	on	a	genome-wide	basis,	which	is	referred	to	as	whole-genome	re-sequencing,	or	on	targeted	areas	of	the	genome	(for	example,	regions	identified	by	genome-wide	association study),	which	is	known	as	targeted	re-sequencing.	This	is	an	extremely	comprehensive	form	of	genetic	analysis,	in	which	every	base	is	characterized	for	possible	mutations.	We	believe	that	these underlying	discoveries	will	likely	feed	the	development	of	new	array	products	for	broader	testing	and	biomarker	validation.

In	tag	sequencing,	short	sequences,	often	representative	of	a	larger	molecule	or	genomic	location,	are	detected	and	counted.	In	these	applications,	the	number	of	times	that	each	tag	is	seen provides	quantification	of	an	underlying	biological	process.	As	an	example,	in	digital	gene	expression,	one	or	more	tag	sequences	may	be	analyzed	for	each	expressed	gene,	and	the	number	of	copies	of these	tags	which	are	detected	in	an	experiment	is	a	measure	of	how	actively	that	gene	is	being	expressed	in	the	tissue	sample	being	analyzed.	Similarly,	a	tag	sequencing	approach	known	as	ChIP sequencing	is	used	to	determine	the	locations	and	extent	of	protein	and	DNA	interactions	throughout	the	genome.

# SNP	Genotyping

SNP	genotyping	is	the	process	of	determining	which	base	(A,	C,	G	or	T)	is	present	at	a	particular	site	in	the	genome	within	any	organism.	The	most	common	use	of	SNP	genotyping	is	for genome-wide	association	studies	(GWAS)	to	look	for	an	association	between	DNA	sequence	variants	and	a	specific	phenotype	of	interest.	This	is	commonly	done	by	studying	the	DNA	of	individuals that	are	affected	by	a	common	disease	or	that	exhibit	a	specific	trait	against	the	DNA	of	control	individuals	who	do	not	have	this	disease	or	trait.	The	use	of	SNP	genotyping	to	obtain	meaningful statistics	on	the	effect	of	an	individual	SNP	or	a	collection	of

SNPs	requires	the	analysis	of	millions	of	SNP	genotypes	and	the	testing	of	large	populations	for	each	disease.	For	example,	a	single	large	study	could	involve	genotyping	more	than	1,000,000	SNPs	per patient	in	more	than	1,000	patients,	thus	requiring	1	billion	assays.	Using	previously	available	technologies,	this	scale	of	SNP	genotyping	was	both	impractical	and	prohibitively	expensive.

Large-scale	SNP	genotyping	can	be	used	in	a	variety	of	ways,	including	studies	designed	to	understand	the	genetic	contributions	to	disease	(disease	association	studies),	genomics	based	drug development,	clinical	trial	analysis	(responders	and	non-responders,	and	adverse	event	profiles),	disease	predisposition	testing,	and	disease	diagnosis.	SNP	genotyping	can	also	be	used	outside	of healthcare,	for	example	in	the	development	of	plants	and	animals	with	commercially	desirable	characteristics.	These	markets	will	require	billions	of	SNP	genotyping	assays	annually.

# Gene	Expression	Profiling

Gene	expression	profiling	is	the	process	of	determining	which	genes	are	active	in	a	specific	cell	or	group	of	cells	and	is	accomplished	by	measuring	mRNA,	the	intermediary	messenger	between genes	(DNA)	and	proteins.	Variation	in	gene	expression	can	cause	disease,	or	act	as	an	important	indicator	of	disease	or	predisposition	to	disease.	By	comparing	gene	expression	patterns	between	cells from	different	environments,	such	as	normal	tissue	compared	to	diseased	tissue	or	in	the	presence	or	absence	of	a	drug,	specific	genes	or	groups	of	genes	that	play	a	role	in	these	processes	can	be identified.	Studies	of	this	type,	often	used	in	drug	discovery,	require	monitoring	thousands,	and	preferably	tens	of	thousands,	of	mRNAs	in	large	numbers	of	samples.	Once	a	smaller	set	of	genes	of interest	has	been	identified,	researchers	can	then	examine	how	these	genes	are	expressed	or	suppressed	across	numerous	samples,	for	example,	within	a	clinical	trial.

As	gene	expression	patterns	are	correlated	to	specific	diseases,	gene	expression	profiling	is	becoming	an	increasingly	important	diagnostic	tool.	Diagnostic	use	of	expression	profiling	tools	is anticipated	to	grow	rapidly	with	the	combination	of	the	sequencing	of	various	genomes	and	the	availability	of	more	cost-effective	technologies.

# Our	Technologies

# Sequencing	Technology

Our	DNA	sequencing	technology,	acquired	as	part	of	the	Solexa	merger	in	the	first	quarter	of	2007,	is	based	on	the	use	of	our	sequencing-by-synthesis	(SBS)	biochemistry.	In	SBS,	single stranded	DNA	is	extended	from	a	priming	site,	one	base	at	a	time,	using	reversible	terminator	nucleotides.	These	are	DNA	bases	which	can	be	added	to	a	growing	second	strand,	but	which	initially cannot	be	further	extended.	This	means	that	at	each	cycle	of	the	chemistry,	only	one	base	can	be	added.	Each	base	which	is	added	includes	a	fluorescent	label	which	is	specific	to	the	particular	base. Thus	following	incorporation,	the	fluorescence	can	be	imaged,	its	color	determined,	and	the	base	itself	can	be	inferred.	Once	this	is	done,	an	additional	step	removes	both	the	fluorescence	and	the blocking	group	that	had	prevented	further	extension	of	the	second	strand.	This	allows	another	base	to	be	added,	and	the	cycle	can	be	repeated.	Our	technology	is	capable	of	generating	several	billion bases	of	DNA	sequence	from	a	single	experiment	with	a	single	sample	preparation.	The	reversible	terminator	bases	that	we	use	are	novel	synthetic	molecules	which	we	manufacture.	They	are	not	well incorporated	by	naturally	occurring	polymerases,	so	we	have	also	developed	proprietary	polymerase	enzymes	for	this	purpose.	Both	the	nucleotides	and	enzymes	are	the	subject	of	significant	intellectual property	owned	by	us.

In	our	DNA	sequencing	systems,	we	apply	the	SBS	biochemistry	on	microscopic	islands	of	DNA,	referred	to	as	DNA	clusters.	Each	cluster	starts	as	a	single	DNA	molecule,	typically	a	few hundred	bases	long,	attached	to	the	inside	surface	of	a	flow	cell.	We	then	use	a	proprietary	amplification	biochemistry	to	create	copies	of	each	starting	molecule.	As	the	copies	are	made,	they	are covalently	linked	to	the	surface,	so	they	cannot	diffuse	away.	After	a	number	of	cycles	of	amplification,	each	cluster	might	have	500	to	1,000	copies	of	the	original	starting	molecule,	but	still	be	only about	a	micron	(one-millionth	of	a	meter)	in	diameter.	By	making	so	many	copies,	the	fluorescent	signal	from	each	cluster	is	significantly	increased.	Because	the	clusters	are	so	small,	tens	of	millions	of clusters	can	be	independently	formed	inside	a	single	flow	cell.	This

large	number	of	clusters	can	then	be	sequenced	simultaneously	by	alternate	cycles	of	SBS	biochemistry	and	fluorescent	imaging.

# BeadArray	Technology

Our	BeadArray	technology	combines	microscopic	beads	and	a	substrate	in	a	simple	proprietary	manufacturing	process	to	produce	arrays	that	can	perform	many	assays	simultaneously,	enabling large-scale	analysis	of	genetic	variation	and	biological	function	in	a	unique	high-throughput,	cost	effective,	and	flexible	manner.	We	achieve	high-throughput	with	a	high	density	of	test	sites	per	array and	we	are	able	to	format	arrays	either	in	a	pattern	arranged	to	match	the	wells	of	standard	microtiter	plates	or	in	various	configurations	in	the	format	of	standard	microscope	slides.	We	seek	to	maximize cost	effectiveness	by	reducing	consumption	of	expensive	reagents	and	valuable	samples,	and	through	the	low	manufacturing	costs	associated	with	our	technologies.	Our	ability	to	vary	the	size,	shape and	format	of	the	well	patterns	and	to	create	specific	bead	pools,	or	sensors,	for	different	applications	provides	the	flexibility	to	address	multiple	markets	and	market	segments.	We	believe	that	these features	have	enabled	our	BeadArray	technology	to	become	a	leading	platform	for	the	high-growth	market	of	SNP	genotyping	and	have	allowed	us	to	be	a	key	player	in	the	gene	expression	market.

Our	proprietary	BeadArray	technology	consists	of	prepared	beads	that	self-assemble	into	microwells	etched	into	an	array	substrate.	We	have	deployed	our	BeadArray	technology	in	two	different array	formats,	the	Array	Matrix	and	the	BeadChip.	Our	first	bead	based	product	was	the	Array	Matrix	which	incorporates	fiber	optic	bundles.	Each	bundle	is	comprised	of	approximately	50,000 individual	fibers	and	96	of	these	bundles	are	placed	into	an	aluminum	plate	to	form	an	Array	Matrix.	BeadChips	are	microscope	slide-size	silicon	wafers	with	varying	numbers	of	sample	sites	per	slide. Both	formats	are	chemically	etched	to	create	tens	of	thousands	to	tens	of	millions	of	wells	for	each	sample	site.

In	a	separate	process,	we	create	sensors	by	affixing	a	specific	type	of	molecule	to	each	of	the	billions	of	microscopic	beads	in	a	batch.	We	make	different	batches	of	beads,	with	the	beads	in	a given	batch	coated	with	one	particular	type	of	molecule.	The	particular	molecules	on	a	bead	define	that	bead's	function	as	a	sensor.	For	example,	we	create	a	batch	of	SNP	sensors	by	attaching	a particular	DNA	sequence,	or	a	short	segment	of	synthetically	manufactured	DNA	called	an	oligonucleotide	(oligo),	to	each	bead	in	the	batch.	We	combine	batches	of	coated	beads	to	form	a	pool specific	to	the	type	of	array	we	intend	to	create.	A	bead	pool	one	milliliter	in	volume	contains	sufficient	beads	to	produce	thousands	of	arrays.

To	form	an	array,	a	pool	of	coated	beads	is	brought	into	contact	with	the	array	surface	where	they	are	randomly	drawn	into	the	wells,	one	bead	per	well.	The	beads	in	the	wells	comprise	our individual	arrays.	Because	the	beads	assemble	randomly	into	the	wells,	we	perform	a	final	procedure	called	"decoding"	in	order	to	determine	which	bead	type	occupies	which	well	in	the	array.	We employ	several	proprietary	methods	for	decoding,	a	process	that	requires	only	a	few	steps	to	identify	all	the	beads	in	the	array.	One	beneficial	by-product	of	the	decoding	process	is	a	functional validation	of	each	bead	in	the	array.	This	quality	control	test	characterizes	the	performance	of	each	bead	and	can	identify	and	eliminate	use	of	any	empty	wells.	We	ensure	that	each	bead	type	on	the array	is	sufficiently	represented	by	including	multiple	copies	of	each	bead	type.	Multiple	bead	type	copies	improve	the	reliability	and	accuracy	of	the	resulting	data	by	allowing	statistical	processing	of the	results	of	identical	beads.	We	believe	we	are	the	only	microarray	company	to	provide	this	level	of	quality	control	in	the	industry.

An	experiment	is	performed	by	preparing	a	sample,	such	as	DNA,	and	introducing	it	to	the	array.	The	molecules	in	the	sample	bind	to	their	matching	molecules	on	the	coated	beads.	The molecules	in	either	the	sample	or	on	the	bead	are	labeled	with	fluorescent	dye	either	before	or	after	the	binding.	The	iScan	or	BeadArray	Reader	detects	the	fluorescent	dye	by	shining	a	laser	on	the	fiber optic	bundle	or	on	the	BeadChip.	This	allows	the	detection	of	the	molecules	resulting	in	a	quantitative	analysis	of	the	sample.

# VeraCode	Technology

Our	proprietary	VeraCode	technology	platform	leverages	the	power	of	digital	holographic	codes	to	provide	a	robust	detection	method	for	multiplex	assays	requiring	high	precision,	accuracy	and speed.

Commercially	launched	in	March	of	2007	for	the	research	market,	VeraCode	enables	low-cost	multiplexing	from	1	to	384-plex	in	a	single	well.	At	the	heart	of	the	VeraCode	technology	are	cylindrical glass	beads	measuring	240	microns	in	length	by	28	microns	in	diameter.	Each	VeraCode	bead	type	is	inscribed	with	a	unique	digital	holographic	code	to	designate	and	track	the	specific	analyte	or genotype	of	interest	throughout	the	multiplex	reaction.	We	believe	the	up	to	24	bits	of	information	inscribed	in	each	code	allows	for	an	unprecedented	level	of	error	checking,	improves	the	robustness	of the	optical	readout	process	and	provides	a	level	of	reliability	that	sets	a	new	standard	in	multiplex	testing.	Unlike	traditional	microarrays,	the	VeraCode	microbeads	are	used	in	solution,	which	takes advantage	of	solution-phase	kinetics	for	more	rapid	hybridization	times,	dramatically	reducing	the	time	to	achieve	results.	This	technology	enables	us	to	serve	a	number	of	markets	including	research, agriculture,	forensics,	pharmaceuticals	and	molecular	diagnostics.

# Our	Products

Using	our	proprietary	technologies,	our	products	give	our	customers	the	ability	to	analyze	the	genome	at	any	level	of	complexity	from	whole	genome	sequencing	to	low	multiplex	assays.	This enables	us	to	serve	a	number	of	markets,	including	research,	agriculture,	forensics,	pharmaceuticals	and	molecular	diagnostics.	The	majority	of	our	product	sales	consist	of	instruments	and	consumables based	on	these	various	technologies.	For	the	years	ended	December	28,	2008,	December	30,	2007	and	December	31,	2006,	instrument	sales	comprised	32%,	33%	and	23%,	respectively,	of	total revenues	and	consumable	sales	represented	58%,	53%	and	54%,	respectively,	of	total	revenues.

Our	major	products	include	the	following:

# Instrumentation

| Product | Product	Description | Applications | Launch	Date |
| :--- | :--- | :--- | :--- |
| Genome\tAnalyzer\tII | Instrument\tfor\thigh-throughput\t(14\t—\t18Gb\tper\trun) | Whole-genome\tsequencing,\ttargeted\tsequencing,\tgene | Q1\t2008 |
|  | sequencing\tusing\tIllumina\tsequencing\tby\tsynthesis | expression\tdiscovery\tand\tprofiling\tand\tepigenomics |  |
|  | technology. | analysis. |  |
| iScan\tSystem | High-resolution\timaging\tinstrument\tto\trapidly\tscan\tour | Array\tbased\twhole-genome\tgenotyping,\tgene\texpression | Q1\t2008 |
|  | BeadArray\tbased\tassays. | and\tDNA\tmethylation\tanalysis. |  |
| BeadXpress\tReader | Low-\tto\tmid-multiplex,\thigh-throughput\tinstrument\tfor | Low-multiplex\tgenotyping,\tgene\texpression\tand\tprotein | Q1\t2007 |
|  | readout\tof\tassays\t(e.g.,\tbiomarker\tvalidation\tand | analysis. |  |

# Consumables

| Product | Product	Description | Applications | Launch	Date |
| :--- | :--- | :--- | :--- |
| Standard\tSequencing\tKit | Reagents\tused\tfor\tsequencing\tby\tsynthesis | Whole-genome\tsequencing,\ttargeted\tsequencing,\tgene | Q1\t2007 |
|  | chemistry\ton\tthe\tGenome\tAnalyzer. | expression\tdiscovery\tand\tprofiling\tand\tepigenomics |  |
|  |  | analysis. |  |
| Paired-End\tGenomic\tDNA | Streamlined\tlibrary\tpreparation\tkit\tto\tgenerate | Whole-genome\tsequencing,\ttargeted\tsequencing,\tgene | Q2\t2008 |
| Sample\tPrep\tKit | 200\t—\t500\tkb\tinsert\tpaired-end\treads. | expression\tdiscovery\tand\tprofiling\tand\tepigenomics |  |
|  |  | analysis. |  |
| InfiniumHD\tWhole-Genome\tBeadChips | Multi-sample\tDNA\tAnalysis\tmicroarrays\tthat | Array\tbased\twhole-genome\tgenotyping. | Q1\t—\tQ4\t2008 |
|  | interrogate\tup\tto\t1.2\tmillion\tmarkers\tper\tsample. |  |  |
|  | Product\tline\tincludes\tHuman1M-Duo,\tHuman610- |  |  |
|  | Quad,\tHuman660W-Quad\tand\tHumanCytoSNP-12. |  |  |
| iSelect\tCustom\tGenotyping\tBeadChips | Customer\tdesignable\tSNP\tgenotyping\tarrays\tfor | Array\tbased\tcustom\tgenotyping. | Q2\t2006 |
|  | 6,000\tto\t200,000\tmarkers\tfor\tuse\twith\tany\tspecies. |  |  |
| Whole-Genome\tGene\tExpression\tBeadChips | Multi-sample\texpression\tprofiling\tarrays\twith\tup- | Gene\texpression\tprofiling\tand\texpression\tQuantitative | FY05\t—\tFY08 |
|  | to-date\tcontent\tfor\thuman,\tmouse\tand\trat. | Trait\tLoci\t(QTL)\tanalysis. |  |

# Our	Services

We	have	been	offering	sequencing	services	on	our	Genome	Analyzers	since	2007.	Our	services	range	from	small	sets	of	samples	requiring	as	little	as	one	run	to	finish,	to	large-scale	projects, like	whole-genome	sequencing,	necessitating	multiple	instruments	running	in	parallel	for	extended	periods	of	time.	The	breadth	of	applications	offered	includes	novel	custom	products	as	well	as	all released	products.	These	applications	include	but	are	not	limited	to	re-sequencing,	de	novo	sequencing,	small	RNA	discovery	and	profiling,	gene	expression	using	tag	based	or	using	random	primed RNA	sampling	technology,	ChIP	SEQ	and	methylome	interrogation.

# Array

We	have	been	offering	FastTrack	Genotyping	Services	since	2002.	Our	FastTrack	Genotyping	Services	offers	all	of	our	genotyping	products,	including	standard	and	custom	GoldenGate, standard	Infinium	and	Infinium	HD,	as	well	as	iSelect	Infinium.	Our	projects	range	in	size	from	a	few	hundred	samples	to	over	10,000	samples.	Our	current	capacity	peak	is	450	million	genotypes	per day.	Our	customer	base	includes	academic	institutions,	and	biotech	and	pharmaceutical	companies.

# Intellectual	Property

We	have	an	extensive	patent	portfolio,	including,	as	of	February	1,	2009,	ownership	of,	or	exclusive	licenses	to,	135	issued	U.S.	patents	and	168	pending	U.S.	patent	applications,	including	four allowed	applications	that	have	not	yet	issued	as	patents,	some	of	which	derive	from	a	common	parent	application.	Our	issued	patents,	which	are	directed	at	various	aspects	of	our	arrays,	assays,	oligo synthesis,	sequencing	technology,	instruments	and	chemical	detection	technologies,	expire	between	2010	and	2026.	We	are	seeking

to	extend	the	patents	directed	at	the	full	range	of	our	technologies.	We	have	received	or	filed	counterparts	for	many	of	these	patents	and	applications	in	one	or	more	foreign	countries.

We	also	rely	upon	trade	secrets,	know-how,	copyright	and	trademark	protection,	as	well	as	continuing	technological	innovation	and	licensing	opportunities	to	develop	and	maintain	our competitive	position.	Our	success	will	depend	in	part	on	our	ability	to	obtain	patent	protection	for	our	products	and	processes,	to	preserve	our	trade	secrets,	to	enforce	our	patents,	copyrights	and trademarks,	to	operate	without	infringing	the	proprietary	rights	of	third	parties	and	to	acquire	licenses	related	to	enabling	technology	or	products.

We	are	party	to	various	exclusive	and	non-exclusive	license	agreements	and	other	arrangements	with	third	parties,	which	grant	us	rights	to	use	key	aspects	of	our	array	and	sequencing technologies,	assay	methods,	chemical	detection	methods,	reagent	kits	and	scanning	equipment.	We	have	exclusive	licenses	from	Tufts	University	to	patents	that	are	directed	at	our	use	of	BeadArray technology.	These	patents	were	filed	by	Dr.	David	Walt,	a	member	of	our	board	of	directors,	the	Chairman	of	our	Scientific	Advisory	Board	and	one	of	our	founders.	Our	exclusive	licenses	expire	with the	termination	of	the	underlying	patents,	which	will	occur	between	2010	and	2020.	We	also	have	additional	nonexclusive	licenses	from	various	third	parties	for	other	components	of	our	products.	In most	cases,	the	agreements	remain	in	effect	over	the	term	of	the	underlying	patents,	may	be	terminated	at	our	request	without	further	obligation	and	require	that	we	pay	customary	royalties	while	the agreement	is	in	effect.

# Research	and	Development

We	have	made	substantial	investments	in	research	and	development	since	our	inception.	We	have	assembled	a	team	of	skilled	engineers	and	scientists	who	are	specialists	in	biology,	chemistry, informatics,	instrumentation,	optical	systems,	software,	manufacturing	and	other	related	areas	required	to	complete	the	development	of	our	products.	Our	research	and	development	efforts	have	focused primarily	on	the	tasks	required	to	optimize	our	Sequencing,	BeadArray,	VeraCode	and	Oligator	technologies	and	to	support	commercialization	of	the	products	and	services	derived	from	these technologies.	As	of	December	28,	2008,	we	had	a	total	of	406	employees	engaged	in	research	and	development	activities.

Our	research	and	development	expenses	for	2008,	2007,	and	2006	(inclusive	of	charges	relating	to	stock-based	compensation	of	$14.1	million,	$10.0	million	and	$3.9	million,	respectively)	were $100.0	million,	$73.9	million	and	$33.4	million,	respectively.	We	expect	research	and	development	expense	to	increase	during	2009	as	we	continue	to	expand	our	research	and	product	development efforts.

# Marketing	and	Distribution

Our	current	products	address	the	genetic	analysis	portion	of	the	life	sciences	market,	in	particular,	experiments	involving	sequencing,	SNP	genotyping	and	gene	expression	profiling.	These experiments	may	be	involved	in	many	areas	of	biologic	research,	including	basic	human	disease	research,	pharmaceutical	drug	discovery	and	development,	pharmacogenomics,	toxicogenomics	and agricultural	research.	Our	potential	customers	include	pharmaceutical,	biotechnology,	agrichemical,	diagnostics	and	consumer	products	companies,	as	well	as	academic	or	private	research	centers.	The genetic	analysis	market	is	relatively	new	and	emerging	and	its	size	and	speed	of	development	will	be	ultimately	driven	by,	among	other	items:

•	the	ability	of	the	research	community	to	extract	medically	valuable	information	from	genomics	and	to	apply	that	knowledge	to	multiple	areas	of	disease-related	research	and	treatment; •	the	availability	of	sufficiently	low	cost,	high-throughput	research	tools	to	enable	the	large	amount	of	experimentation	required	to	study	genetic	variation	and	biological	function;	and •	the	availability	of	government	and	private	industry	funding	to	perform	the	research	required	to	extract	medically	relevant	information	from	genomic	analysis.

We	market	and	distribute	our	products	directly	to	customers	in	North	America,	Europe	and	Asia-Pacific.	In	each	of	these	areas,	we	have	dedicated	sales,	service	and	application	support personnel	responsible	for	expanding	and	managing	their	respective	customer	bases.	In	smaller	markets	within	Europe	and	Asia-Pacific,

we	sell	our	products	and	provide	services	to	customers	through	distributors	that	specialize	in	life	science	products.	We	expect	to	significantly	increase	our	sales	and	distribution	resources	during	2009 and	beyond	as	we	launch	a	number	of	new	products	and	expand	the	number	of	customers	that	can	use	our	products.

# Manufacturing

We	manufacture	our	sequencing	and	array	platforms,	reagent	kits,	scanning	equipment	and	oligos.	Our	manufacturing	capacity	for	consumables	has	grown	to	support	our	increased	customer demand	during	2008.	In	the	third	quarter	of	2008,	we	began	shipping	BeadChips	from	our	new	Singapore	facility.	We	are	also	focused	on	continuing	to	enhance	the	quality	and	manufacturing	yield	of our	Array	Matrices,	BeadChips	and	FlowCells.	To	continue	to	increase	throughput	and	improve	the	quality	and	manufacturing	yield	as	we	increase	the	complexity	of	our	products,	we	are	exploring ways	to	continue	increasing	the	level	of	automation	in	the	manufacturing	process.	We	adhere	to	access	and	safety	standards	required	by	federal,	state	and	local	health	ordinances,	such	as	standards	for the	use,	handling	and	disposal	of	hazardous	substances.

# Raw	Materials

Our	manufacturing	operations	require	a	wide	variety	of	raw	materials,	electronic	and	mechanical	components,	chemical	and	biochemical	materials	and	other	supplies.	While	we	have	multiple commercial	sources	for	many	of	our	components	and	supplies,	there	are	some	raw	materials	we	obtain	from	single	source	suppliers.	If	we	are	unable	to	secure	a	sufficient	supply	of	those	or	other product	components,	our	business	could	be	temporarily	interrupted.	To	mitigate	this	risk,	we	can	redesign	our	products	for	alternative	components	or	use	alternative	reagents.	In	addition,	while	we generally	attempt	to	keep	our	inventory	at	minimal	levels,	we	do	purchase	incremental	inventory	as	circumstances	warrant	to	protect	our	supply	chain.

# Competition

Although	we	expect	that	our	products	and	services	will	provide	significant	advantages	over	products	and	services	currently	available	from	other	sources,	we	expect	to	encounter	intense competition	from	other	companies	that	offer	products	and	services	for	the	sequencing,	SNP	genotyping	and	gene	expression	markets.	These	include	companies	such	as	Affymetrix,	Agilent,	Beckman Coulter,	Complete	Genomics,	Fluidigm,	GE	Corp.,	Life	Technologies,	Luminex,	Pacific	Biosciences,	Roche	Diagnostics	and	Sequenom.	Some	of	these	companies	have	or	will	have	substantially	greater financial,	technical,	research,	and	other	resources	and	larger,	more	established	marketing,	sales,	distribution	and	service	organizations	than	we	do.	In	addition,	they	may	have	greater	name	recognition than	we	do	in	the	markets	we	address	and	in	some	cases	a	larger	installed	base	of	systems.	Each	of	these	markets	is	very	competitive	and	we	expect	new	competitors	to	emerge	and	the	intensity	of competition	to	increase.	In	order	to	effectively	compete	with	these	companies,	we	will	need	to	demonstrate	that	our	products	have	superior	throughput,	cost	and	accuracy	advantages	over	competing products.	Rapid	technological	development	may	result	in	our	products	or	technologies	becoming	obsolete.	Products	offered	by	us	could	be	made	obsolete	either	by	less	expensive	or	more	effective products	based	on	similar	or	other	technologies.	Although	we	believe	that	our	technology	and	products	will	offer	advantages	that	will	enable	us	to	compete	effectively	with	these	companies,	we	cannot assure	you	that	we	will	be	successful.

# Segment	and	Geographic	Information

During	the	first	quarter	of	2008,	we	reorganized	our	operating	structure	into	a	newly	created	Life	Sciences	Business	Unit,	which	includes	all	products	and	services	related	to	the	research	market, namely	the	Sequencing,	BeadArray	and	BeadXpress	product	lines.	We	also	created	a	Diagnostics	Business	Unit	to	focus	on	the	emerging	opportunity	in	molecular	diagnostics.	During	2008,	we	had limited	activity	related	to	the	Diagnostics	Business	Unit	and	operating	results	were	reported	on	an	aggregate	basis	to	our	chief	operating	decision	maker,	the	chief	executive	officer.	Accordingly,	we operated	in	one	reportable	segment	during	2008.

We	currently	sell	our	products	to	a	number	of	customers	outside	the	United	States,	including	customers	in	other	areas	of	North	America,	Europe	and	Asia-Pacific.	Shipments	to	customers outside	the	United	States	totaled	$293.2	million,	or	51%	of	our	total	revenue	during	2008,	compared	to	$159.1	million,	or	43%,	and

$81.5	million,	or	44%,	in	2007	and	2006,	respectively.	Sales	to	territories	outside	of	the	United	States	were	generally	denominated	in	U.S.	dollars.	In	2008,	we	reorganized	our	international	structure	to establish	more	efficient	channels	between	product	development,	product	manufacturing	and	sales.	The	reorganization	increased	our	foreign	subsidiaries'	anticipated	dependence	on	the	U.S.	entity	for management	decisions,	financial	support,	production	assets	and	inventory	thereby	making	the	foreign	subsidiaries	more	of	a	direct	and	integral	component	of	the	U.S.	entity's	operations.	As	a	result,	we reassessed	the	primary	economic	environment	of	our	foreign	subsidiaries	and	determined	the	subsidiaries	are	more	U.S.	dollar	based,	resulting	in	a	U.S.	dollar	functional	currency	determination.	We expect	that	sales	to	international	customers	will	continue	to	be	an	important	and	growing	source	of	revenue.	See	Note	14	of	the	Notes	to	Consolidated	Financial	Statements	for	further	information concerning	our	foreign	and	domestic	operations.

# Seasonality

Historically,	customer	purchasing	patterns	have	not	shown	significant	seasonal	variation,	although	demand	for	our	products	is	usually	lowest	in	the	first	quarter	of	the	calendar	year	and	highest in	the	third	quarter	of	the	calendar	year	as	academic	customers	spend	unused	budget	allocations	before	the	end	of	the	government's	fiscal	year.

# Environmental	Matters

We	are	committed	to	the	protection	of	our	employees	and	the	environment.	Our	operations	require	the	use	of	hazardous	materials	which	subject	us	to	a	variety	of	federal,	state	and	local environmental	and	safety	laws	and	regulations.	We	believe	we	are	in	material	compliance	with	current	applicable	laws	and	regulations;	however,	we	could	be	held	liable	for	damages	and	fines	should contamination	of	the	environment	or	individual	exposures	to	hazardous	substances	occur.	In	addition,	we	cannot	predict	how	changes	in	these	laws	and	regulations,	or	the	development	of	new	laws	and regulations,	will	affect	our	business	operations	or	the	cost	of	compliance.

# Employees

As	of	December	28,	2008,	we	had	a	total	of	1,536	employees.	None	of	our	employees	are	represented	by	a	labor	union.	We	consider	our	employee	relations	to	be	positive.	Our	success	will depend	in	large	part	upon	our	ability	to	attract	and	retain	employees.	In	addition,	we	employ	a	number	of	temporary	and	contract	employees.	We	face	competition	in	this	regard	from	other	companies, research	and	academic	institutions,	government	entities	and	other	organizations.

# Executive	Officers

Our	executive	officers	and	their	ages	as	of	February	1,	2009,	are	as	follows:

Jay	Flatley,	age	56,	is	President	and	Chief	Executive	Officer	of	Illumina.	Prior	to	his	appointment	in	1999,	Mr.	Flatley	was	the	President	and	Chief	Executive	Officer	of	Molecular	Dynamics, later	acquired	by	Amersham	Pharmacia	Biotech	in	1998	and	now	a	part	of	GE	Healthcare.	Mr.	Flatley,	who	was	a	founder	and	member	of	the	board	of	directors	for	Molecular	Dynamics,	lead	the company	to	its	initial	public	offering	(IPO)	in	1993,	in	addition	to	helping	the	company	develop	and	launch	over	15	major	instrumentation	systems,	including	the	world's	first	capillary	based	DNA sequencer.	Prior	to	joining	Molecular	Dynamics,	Mr.	Flatley	was	Vice	President	of	Engineering	and	Strategic	Planning	for	Plexus	Computers,	a	manufacturer	of	high-performance	Unix	super- microcomputers.	Before	his	career	at	Plexus,	Mr.	Flatley	was	Executive	Vice	President	for	Manning	Technologies	and	held	various	manufacturing	positions	while	working	for	the	Autolab	division	of Spectra	Physics.

Christian	Henry,	age	40,	is	Senior	Vice	President	and	Chief	Financial	Officer.	Mr.	Henry	joined	Illumina	in	June	2005	and	is	responsible	for	worldwide	financial	operations,	controllership functions	and	facilities	management.	In	addition,	throughout	2008,	Mr.	Henry	was	Acting	General	Manager	of	Illumina's	DNA	Sequencing	business.	Mr.	Henry	served	previously	as	the	Chief	Financial Officer	for	Tickets.com,	a	publicly	traded,	online	ticket	provider	that	was	acquired	by	Major	League	Baseball	Advanced	Media,	LP.	Prior	to	that,

Mr.	Henry	was	Vice	President,	Finance	and	Corporate	Controller	of	Affymetrix,	Inc.,	a	publicly	traded	life	sciences	company,	where	he	oversaw	accounting,	planning,	SEC	and	management	reporting, treasury	and	risk	management.	He	previously	held	a	similar	position	at	Nektar	Therapeutics	(formerly	Inhale	Therapeutic	Systems,	Inc.).

Christian	Cabou,	age	60,	is	Senior	Vice	President,	General	Counsel	and	Secretary	of	Illumina.	Mr.	Cabou	joined	Illumina	in	May	2006	and	has	worldwide	responsibility	for	all	legal	and intellectual	property	matters.	Mr.	Cabou	is	also	Illumina's	Code	of	Ethics	Compliance	Officer.	Before	joining	Illumina,	Mr.	Cabou	spent	five	years	as	General	Counsel	for	GE	Global	Research	and, before	that,	was	Senior	Counsel	of	Global	Intellectual	Property	for	GE	Medical	Systems.	Prior	to	his	position	at	GE,	Mr.	Cabou	spent	seven	years	with	the	law	firm	Foley	&	Lardner	where	he	was	a partner.	He	had	twenty	years	of	experience	in	engineering	design	and	management	prior	to	his	career	in	law	and	intellectual	property.

Greg	Heath,	age	51,	is	Senior	Vice	President	&	General	Manager,	Diagnostics	Business	Unit	of	Illumina.	Dr.	Heath	joined	Illumina	in	March	2008	and	is	responsible	for	managing	Illumina's emerging	diagnostics	business,	specifically	overseeing	the	development	of	diagnostic	content	for	the	BeadXpress	system,	and	ultimately	for	Illumina's	sequencing	platform.	Dr.	Heath	joined	Illumina from	Roche	Molecular	Systems	where	he	held	a	number	of	senior	executive	positions,	including	head	of	clinical	genomics,	senior	vice	president	of	global	product	marketing,	senior	vice	president	of global	marketing	and	business	development,	and	most	recently,	senior	vice	president	of	global	business.	From	2000	—	2003,	Dr.	Heath	was	head	of	business	development	and	licensing	for	the diagnostics	division	of	F.	Hoffman	La	Roche	in	Basel.	Prior	to	this,	Dr.	Heath	held	numerous	roles	in	marketing	and	business	development	with	Roche	Diagnostics'	U.S.	affiliate.

Joel	McComb,	age	44,	is	Senior	Vice	President	&	General	Manager,	Life	Sciences	Business	Unit	of	Illumina.	Mr.	McComb	joined	Illumina	in	March	2008	and	is	responsible	for	managing	all products	and	services	related	to	the	research	market,	namely	the	Sequencing,	BeadArray	and	VeraCode	product	lines.	Mr.	McComb	joined	Illumina	from	GE	Healthcare	where	he	held	a	number	of executive	positions,	including	president	of	the	interventional	medicine	business	and	president	of	life	sciences	discovery	systems.	From	2001	—	2004,	Mr.	McComb	was	president,	chief	executive officer	and	board	member	of	Innovadyne	Technologies.	Prior	to	Innovadyne,	Mr.	McComb	held	various	positions	at	Beckman	Coulter,	including	roles	as	general	manager	of	the	primary	care	diagnostic division	and	director	of	corporate	business	development.

Tristan	Orpin,	age	42,	is	Senior	Vice	President,	Commercial	Operations	of	Illumina.	Mr.	Orpin	joined	Illumina	in	December	2002	in	the	role	of	Vice	President	of	Worldwide	Sales,	and	in January	of	2007	was	promoted	to	the	position	of	Senior	Vice	President	of	Commercial	Operations.	Before	joining	Illumina,	Mr.	Orpin	was	Director	of	Sales	and	Marketing	for	Sequenom	from September	1999	to	August	2001.	Later,	Mr.	Orpin	was	elected	Vice	President	of	Sales	and	Marketing	and	held	this	position	from	August	2001	to	November	2002.	Prior	to	2001,	Mr.	Orpin	served	in several	senior	sales	and	marketing	positions	at	Bio-Rad	Laboratories.

Mostafa	Ronaghi,	Ph.D.,	age	40,	is	Senior	Vice	President	and	Chief	Technology	Officer	of	Illumina.	Dr.	Ronaghi	joined	Illumina	in	August	2008	and	is	responsible	for	leading	internal	research programs	and	evaluating	new	technologies	for	the	Company.	In	2007,	Dr.	Ronaghi	co-founded	Avantome,	a	privately	held	sequencing	company.	Before	this,	he	co-founded	NextBio,	a	search	engine	for life	science	data.	In	2001,	Dr.	Ronaghi	co-founded	ParAllele	Bioscience,	which	was	eventually	acquired	by	Affymetrix,	Inc.,	and	was	involved	in	the	development	and	commercialization	of	highly multiplexed	technology	for	genetic	testing.	In	1997,	he	co-founded	Pyrosequencing	AB,	which	was	renamed	Biotage	in	2003.	In	June	2000,	the	company	completed	a	successful	initial	public	offering on	the	Stockholm	Stock	Exchange.	Dr.	Ronaghi	was	a	principal	investigator	at	Stanford	University	from	2002	—	2008	where	he	focused	on	the	development	of	novel	tools	for	molecular	diagnostic applications.

# ITEM	1A. Risk	Factors.

Our	business	is	subject	to	various	risks,	including	those	described	below.	In	addition	to	the	other	information	included	in	this	Form	10-K,	the	following	issues	could	adversely	affect	our operating	results	or	our	stock	price.

We	expect	intense	competition	in	our	target	markets,	which	could	render	our	products	obsolete,	result	in	significant	price	reductions	or	substantially	limit	the	volume	of	products	that	we	sell.

This	would	limit	our	ability	to	compete	and	maintain	profitability.	If	we	cannot	continuously	develop	and	commercialize	new	products,	our	revenue	may	not	grow	as	intended.

We	compete	with	life	sciences	companies	that	design,	manufacture	and	market	instruments	for	analysis	of	genetic	variation	and	biological	function	and	other	applications	using	technologies, capillary	electrophoresis,	mass	spectrometry,	flow	cytometry,	microfluidics,	nanotechnology,	next-generation	DNA	sequencing	and	mechanically	deposited,	inkjet	and	photolithographic	arrays.	We anticipate	that	we	will	face	increased	competition	in	the	future	as	existing	companies	develop	new	or	improved	products	and	as	new	companies	enter	the	market	with	new	technologies.	The	markets	for our	products	are	characterized	by	rapidly	changing	technology,	evolving	industry	standards,	changes	in	customer	needs,	emerging	competition,	new	product	introductions	and	strong	price	competition. For	example,	prices	per	data	point	for	genotyping	have	fallen	significantly	over	the	last	two	years	and	we	anticipate	that	prices	will	continue	to	fall.	One	or	more	of	our	competitors	may	render	our technology	obsolete	or	uneconomical.	Some	of	our	competitors	have	greater	financial	and	personnel	resources,	broader	product	lines,	a	more	established	customer	base	and	more	experience	in	research and	development	than	we	do.	Furthermore,	life	sciences	and	pharmaceutical	companies,	which	are	our	potential	customers	and	strategic	partners,	could	develop	competing	products.	For	example,	during the	third	quarter	of	fiscal	2007,	Life	Technologies	(previously	referred	to	as	Applied	Biosystems	Group,	a	business	segment	of	Applera	Corporation)	launched	the	SOLiDtm	System,	its	next	generation sequencing	technology.	If	we	are	unable	to	develop	enhancements	to	our	technology	and	rapidly	deploy	new	product	offerings,	our	business,	financial	condition	and	results	of	operations	will	suffer.

# Negative	conditions	in	global	credit	markets	may	result	in	delayed	payments	from	our	customers	and	may	negatively	impact	our	smaller	suppliers.

The	recent	economic	conditions	and	market	turbulence	may	impact	the	operations	of	certain	of	our	customers	and	suppliers.	Certain	of	our	customers	may	face	challenges	gaining	timely	access to	sufficient	credit,	which	could	result	in	an	impairment	of	their	ability	to	make	timely	payments	to	us.	If	that	were	to	occur,	our	allowance	for	doubtful	accounts	and	our	days	sales	outstanding	could increase.	Additionally,	these	economic	conditions	may	cause	our	smaller	suppliers	to	be	unable	to	supply	in	a	timely	manner	sufficient	quantities	of	customized	components,	which	would	impair	our ability	to	manufacture	on	schedule	and	at	commercially	reasonable	costs.	In	addition,	due	to	discontinuing	parts,	suppliers	may	also	extend	lead	times,	limit	supplies	or	increase	prices	due	to	capacity constraints	or	other	factors.

In	addition,	our	business	depends	on	the	overall	demand	for	methods	of	analysis	of	genetic	variation	and	biological	function.	We	rely	in	large	part	on	the	research	and	development	spending	of our	customers,	which	is	often	discretionary,	and	the	recent	economic	downturn	has	caused	many	companies	to	reduce	their	research	and	development	budgets.	If	the	current	worldwide	economic downturn	continues,	our	customers	may	delay	or	reduce	their	purchases	of	our	products	and	services.	A	reduction	in	demand	will	reduce	our	revenues	and	harm	our	profitability.

# Due	to	our	increasing	foreign	operations,	fluctuations	in	foreign	currency	exchange	rates	could	negatively	impact	our	results	of	operations.

We	are	focused	on	expanding	our	international	operations	in	key	markets.	We	have	sales	offices	located	internationally	throughout	Europe	and	the	Asia	Pacific	region,	as	well	as	manufacturing facilities	in	the	United	Kingdom	and	Singapore.	During	2008,	the	majority	of	our	sales	to	international	customers	and	purchases	of	raw	materials	from	international	suppliers	were	denominated	in	the U.S.	dollar.	Changes	in	the	value	of	the

relevant	currencies	may	affect	the	cost	of	certain	items	required	in	our	operations.	Changes	in	currency	exchange	rates	may	also	affect	the	relative	prices	at	which	we	are	able	sell	products	in	the	same market.

Our	revenues	from	international	customers	may	be	negatively	impacted	as	increases	in	the	U.S.	dollar	relative	to	our	international	customers	local	currency	could	make	our	products	more expensive,	impacting	our	ability	to	compete.	Our	costs	of	materials	from	international	suppliers	may	increase	if	in	order	to	continue	doing	business	with	us	they	may	raise	their	prices	as	the	value	of	the U.S.	dollar	decreases	relative	to	their	local	currency.

Foreign	policies	and	actions	regarding	currency	valuation	could	result	in	actions	by	the	United	States	and	other	countries	to	offset	the	effects	of	such	fluctuations.	The	recent	global	financial downturn	has	led	to	a	high	level	of	volatility	in	foreign	currency	exchange	rates	and	that	level	of	volatility	may	continue	and	thus	adversely	impact	our	business	or	financial	conditions.

# If	we	are	unable	to	find	third-party	manufacturers	to	manufacture	components	of	our	products,	we	may	not	be	able	to	launch	or	support	our	products	in	a	timely	manner,	or	at	all.

The	nature	of	our	products	requires	customized	components	that	currently	are	available	from	a	limited	number	of	sources.	For	example,	we	currently	use	multiple	components	in	our	products that	are	single-sourced.	If	we	are	unable	to	secure	a	sufficient	supply	of	those	or	other	product	components,	we	will	be	unable	to	meet	demand	for	our	products.	We	may	need	to	enter	into	contractual relationships	with	manufacturers	for	commercial-scale	production	of	some	of	our	products,	or	develop	these	capabilities	internally,	and	we	cannot	assure	you	that	we	will	be	able	to	do	this	on	a	timely basis,	for	sufficient	quantities	or	on	commercially	reasonable	terms.	Accordingly,	we	may	not	be	able	to	establish	or	maintain	reliable,	high-volume	manufacturing	at	commercially	reasonable	costs.

# If	we	lose	our	key	personnel	or	are	unable	to	attract	and	retain	additional	personnel,	we	may	be	unable	to	achieve	our	goals.

We	are	highly	dependent	on	our	management	and	scientific	personnel,	including	Jay	Flatley,	our	president	and	chief	executive	officer.	The	loss	of	their	services	could	adversely	impact	our ability	to	achieve	our	business	objectives.	We	will	need	to	hire	additional	qualified	personnel	with	expertise	in	molecular	biology,	chemistry,	biological	information	processing,	sales,	marketing	and technical	support.	We	compete	for	qualified	management	and	scientific	personnel	with	other	life	science	companies,	universities	and	research	institutions,	particularly	those	focusing	on	genomics. Competition	for	these	individuals,	particularly	in	the	San	Diego	and	San	Francisco	area,	is	intense,	and	the	turnover	rate	can	be	high.	Failure	to	attract	and	retain	management	and	scientific	personnel would	prevent	us	from	pursuing	collaborations	or	developing	our	products	or	technologies.

Our	planned	activities	will	require	additional	expertise	in	specific	industries	and	areas	applicable	to	the	products	developed	through	our	technologies,	including	the	life	sciences	and	healthcare industries.	Thus,	we	will	need	to	add	new	personnel,	including	management,	and	develop	the	expertise	of	existing	management.	The	failure	to	do	so	could	impair	the	growth	of	our	business.

# We	may	encounter	difficulties	in	managing	our	growth.	These	difficulties	could	impair	our	profitability.

We	have	experienced	and	expect	to	continue	to	experience	rapid	and	substantial	growth	in	order	to	achieve	our	operating	plans,	which	will	place	a	strain	on	our	human	and	capital	resources.	If we	are	unable	to	manage	this	growth	effectively,	our	profitability	could	suffer.	Our	ability	to	manage	our	operations	and	growth	effectively	requires	us	to	continue	to	expend	funds	to	enhance	our operational,	financial	and	management	controls,	reporting	systems	and	procedures	and	to	attract	and	retain	sufficient	numbers	of	talented	employees.	If	we	are	unable	to	scale	up	and	implement improvements	to	our	manufacturing	process	and	control	systems	in	an	efficient	or	timely	manner,	or	if	we	encounter	deficiencies	in	existing	systems	and	controls,	then	we	will	not	be	able	to	make available	the	products	required	to	successfully	commercialize	our	technology.	Failure	to	attract	and	retain	sufficient	numbers	of	talented	employees	will	further	strain	our	human	resources	and	could impede	our	growth.

# A	significant	portion	of	our	sales	is	to	international	customers.

Shipments	to	customers	outside	the	United	States	comprised	51%,	43%	and	44%	of	our	revenue	for	the	years	ended	December	28,	2008,	December	30,	2007	and	December	31,	2006, respectively.	We	intend	to	continue	to	expand	our	international	presence	by	selling	to	customers	located	outside	of	the	U.S.	and	we	expect	the	total	amount	of	non-U.S.	sales	to	continue	to	grow.	Export sales	entail	a	variety	of	risks,	including:

•	longer	payment	cycles	and	difficulties	in	collecting	accounts	receivable	outside	of	the	United	States;

•	currency	exchange	fluctuations;

•	challenges	in	staffing	and	managing	foreign	operations;

•	tariffs	and	other	trade	barriers;

•	unexpected	changes	in	legislative	or	regulatory	requirements	of	foreign	countries	into	which	we	import	our	products;

•	difficulties	in	obtaining	export	licenses	or	in	overcoming	other	trade	barriers	and	restrictions	resulting	in	delivery	delays;	and

•	significant	taxes	or	other	burdens	of	complying	with	a	variety	of	foreign	laws.

In	addition,	we	are	also	subject	to	general	geopolitical	risks,	such	as	political,	social	and	economic	instability	and	changes	in	diplomatic	and	trade	relations.	One	or	more	of	these	factors	could have	a	material	adverse	effect	on	our	business,	financial	condition	and	operating	results.

# We	may	encounter	difficulties	in	integrating	acquisitions	that	could	adversely	affect	our	business,	specifically	the	effective	launch	and	customer	acceptance	of	new	technology	platforms.

We	have	made,	and	may	in	the	future	make,	acquisitions	of	or	significant	investments	in	businesses	with	complementary	products,	services	or	technologies.	Acquisitions	involve	numerous	risks, including,	but	not	limited	to:

•	difficulties	in	integrating	the	operations,	technologies,	products	and	personnel	of	acquired	companies;

•	lack	of	synergies	or	the	inability	to	realize	expected	synergies	and	cost-savings;

•	difficulties	in	managing	geographically	dispersed	operations;

•	revenue	and	expense	levels	of	acquired	entities	differing	from	those	anticipated	at	the	time	of	the	acquisitions;

•	negative	near-term	impacts	on	financial	results	after	an	acquisition;

•	the	potential	loss	of	key	employees,	customers	and	strategic	partners	of	acquired	companies;

•	claims	by	terminated	employees	and	shareholders	of	acquired	companies	or	other	third	parties	related	to	the	transaction;

•	the	issuance	of	dilutive	securities,	assumption	or	incurrence	of	additional	debt	obligations	or	expenses,	or	use	of	substantial	portions	of	our	cash;

•	diversion	of	management's	attention	from	normal	daily	operations	of	the	business;

•	inconsistencies	in	standards,	controls,	procedures	and	policies;	and

•	the	impairment	of	intangible	assets	as	a	result	of	technological	advancements,	or	worse-than-expected	performance	of	acquired	companies;

Acquisitions	and	other	transactions	are	inherently	risky	and	our	previous	or	future	transactions	may	not	be	successful.	The	inability	to	effectively	manage	the	risks	associated	with	these transactions	could	materially	and	adversely	affect	our	business,	financial	condition	or	results	of	operations.

# Any	inability	to	protect	effectively	our	proprietary	technologies	could	harm	our	competitive	position.

Our	success	will	depend	in	part	on	our	ability	to	obtain	patents	and	maintain	adequate	protection	of	our	intellectual	property	in	the	United	States	and	other	countries.	If	we	do	not	protect	our intellectual	property	adequately,	competitors	may	be	able	to	use	our	technologies	and	thereby	erode	our	competitive	advantage.	The	laws	of	some	foreign	countries	do	not	protect	proprietary	rights	to the	same	extent	as	the	laws	of	the	United	States,	and	many	companies	have	encountered	significant	challenges	in	protecting	their	proprietary	rights	abroad.	These	challenges	can	be	caused	by	the absence	of	rules	and	methods	for	the	establishment	and	enforcement	of	intellectual	property	rights	abroad.

The	patent	positions	of	companies	developing	tools	for	the	life	sciences	and	pharmaceutical	industries,	including	our	patent	position,	generally	are	uncertain	and	involve	complex	legal	and factual	questions.	We	will	be	able	to	protect	our	proprietary	rights	from	unauthorized	use	by	third	parties	only	to	the	extent	that	our	proprietary	technologies	are	covered	by	valid	and	enforceable	patents or	are	effectively	maintained	as	trade	secrets.	We	intend	to	apply	for	patents	covering	our	technologies	and	products	as	we	deem	appropriate.	However,	our	patent	applications	may	be	challenged	and may	not	result	in	issued	patents	or	may	be	invalidated	or	narrowed	in	scope	after	they	are	issued.	Questions	as	to	inventorship	may	also	arise.	Any	finding	that	our	patents	and	applications	are unenforceable	could	harm	our	ability	to	prevent	others	from	practicing	the	related	technology,	and	a	finding	that	others	have	inventorship	rights	to	our	patents	and	applications	could	require	us	to	obtain certain	rights	to	practice	related	technologies,	which	may	not	be	available	on	favorable	terms,	if	at	all.

In	addition,	our	existing	patents	and	any	future	patents	we	obtain	may	not	be	sufficiently	broad	to	prevent	others	from	practicing	our	technologies	or	from	developing	competing	products.	There also	is	risk	that	others	may	independently	develop	similar	or	alternative	technologies	or	design	around	our	patented	technologies.	Also,	our	patents	may	fail	to	provide	us	with	any	competitive advantage.	We	may	need	to	initiate	lawsuits	to	protect	or	enforce	our	patents,	or	litigate	against	third	party	claims,	which	would	be	expensive	and,	if	we	lose,	may	cause	us	to	lose	some	of	our intellectual	property	rights	and	reduce	our	ability	to	compete	in	the	marketplace.	Furthermore,	these	lawsuits	may	divert	the	attention	of	our	management	and	technical	personnel.

We	also	rely	upon	trade	secret	protection	for	our	confidential	and	proprietary	information	and	have	taken	security	measures	to	protect	this	information.	These	measures,	however,	may	not provide	adequate	protection	for	our	trade	secrets	or	other	confidential	information.	Among	other	things,	we	seek	to	protect	our	trade	secrets	and	confidential	information	by	entering	into	confidentiality agreements	with	employees,	collaborators	and	consultants.	Nevertheless,	employees,	collaborators	or	consultants	may	still	disclose	our	confidential	information,	and	we	may	not	otherwise	be	able	to protect	effectively	our	trade	secrets.	Accordingly,	others	may	gain	access	to	our	confidential	information,	or	may	independently	develop	substantially	equivalent	information	or	techniques.

# Litigation	or	other	proceedings	or	third	party	claims	of	intellectual	property	infringement	could	require	us	to	spend	significant	time	and	money	and	could	prevent	us	from	selling	our	products or	services	or	impact	our	stock	price.

Our	commercial	success	depends,	in	part,	on	our	non-infringement	of	the	patents	or	proprietary	rights	of	third	parties	and	on	our	ability	to	protect	our	own	intellectual	property.	Third	parties have	asserted	and	may	in	the	future	assert	that	we	are	employing	their	proprietary	technology	without	authorization.	As	we	enter	new	markets,	we	expect	that	competitors	will	likely	claim	that	our products	infringe	their	intellectual	property	rights	as	part	of	a	business	strategy	to	impede	our	successful	entry	into	those	markets.	In	addition,	third	parties	may	have	obtained	and	may	in	the	future obtain	patents	allowing	them	to	claim	that	the	use	of	our	technologies	infringes	these	patents.	We	could	incur	substantial	costs	and	divert	the	attention	of	our	management	and	technical	personnel	in defending	ourselves	against	any	of	these	claims.	Any	adverse	ruling	or	perception	of	an	adverse	ruling	in	defending	ourselves	against	these	claims	could	have	a	material	adverse	impact	on	our	stock price,	which	may	be	disproportionate	to	the	actual	import	of	the	ruling	itself.	Furthermore,	parties	making	claims	against	us	may	be	able	to	obtain	injunctive	or	other	relief,	which	effectively	could	block our	ability	to	develop	further,	commercialize	and	sell	products,	and	could	result	in	the

award	of	substantial	damages	against	us.	In	the	event	of	a	successful	claim	of	infringement	against	us,	we	may	be	required	to	pay	damages	and	obtain	one	or	more	licenses	from	third	parties,	or	be prohibited	from	selling	certain	products.	In	addition,	we	may	be	unable	to	obtain	these	licenses	at	a	reasonable	cost,	if	at	all.	We	could	therefore	incur	substantial	costs	related	to	royalty	payments	for licenses	obtained	from	third	parties,	which	could	negatively	affect	our	gross	margins.	In	addition,	we	could	encounter	delays	in	product	introductions	while	we	attempt	to	develop	alternative	methods	or products.	Defense	of	any	lawsuit	or	failure	to	obtain	any	of	these	licenses	on	favorable	terms	could	prevent	us	from	commercializing	products,	and	the	prohibition	of	sale	of	any	of	our	products	could materially	affect	our	ability	to	grow	and	maintain	profitability.

# Changes	in	our	effective	income	tax	rate	could	impact	our	profitability.

We	are	subject	to	income	taxes	in	both	the	United	States	and	numerous	foreign	jurisdictions.	Significant	judgments	based	on	interpretations	of	existing	tax	laws	or	regulations	are	required	in determining	the	provision	for	income	taxes.	Our	effective	income	tax	rate	could	be	adversely	affected	by	various	factors	including,	but	not	limited	to,	changes	in	the	mix	of	earnings	in	tax	jurisdictions with	different	statutory	tax	rates,	changes	in	the	valuation	of	deferred	tax	assets	and	liabilities,	changes	in	existing	tax	laws	or	tax	rates,	changes	in	the	level	of	non-deductible	expenses	including	share- based	compensation,	changes	in	our	future	levels	of	research	and	development	spending,	mergers	and	acquisitions,	and	the	result	of	examinations	by	various	tax	authorities.

# If	we	are	unable	to	increase	our	manufacturing	capacity	and	develop	and	maintain	operation	of	our	manufacturing	capability,	we	may	not	be	able	to	launch	or	support	our	products	in	a	timely manner,	or	at	all.

We	continue	to	ramp	up	our	capacity	to	meet	the	anticipated	demand	for	our	products.	Although	we	have	significantly	increased	our	manufacturing	capacity	and	we	believe	we	have	plans	in place	sufficient	to	ensure	we	have	adequate	capacity	to	meet	our	business	plan	for	2009,	there	are	uncertainties	inherent	in	expanding	our	manufacturing	capabilities	and	we	may	not	be	able	to	increase our	capacity	in	a	timely	manner.	For	example,	manufacturing	and	product	quality	issues	may	arise	as	we	increase	production	rates	at	our	manufacturing	facilities	and	launch	new	products.	As	a	result, we	may	experience	difficulties	in	meeting	customer,	collaborator	and	internal	demand,	in	which	case	we	could	lose	customers	or	be	required	to	delay	new	product	introductions,	and	demand	for	our products	could	decline.	Additionally,	in	the	past,	we	have	experienced	variations	in	manufacturing	conditions	that	have	temporarily	reduced	production	yields.	Due	to	the	intricate	nature	of manufacturing	products	that	contain	DNA,	we	may	encounter	similar	or	previously	unknown	manufacturing	difficulties	in	the	future	that	could	significantly	reduce	production	yields,	impact	our	ability to	launch	or	sell	these	products,	or	to	produce	them	economically,	prevent	us	from	achieving	expected	performance	levels	or	cause	us	to	set	prices	that	hinder	wide	adoption	by	customers.

Additionally,	we	currently	manufacture	in	a	limited	number	of	locations.	Our	manufacturing	facilities	are	located	in	San	Diego	and	Hayward,	California;	Singapore;	and	Little	Chesterford, United	Kingdom.	These	areas	are	subject	to	natural	disasters	such	as	earthquakes	or	floods.	If	a	natural	disaster	were	to	significantly	damage	one	of	our	facilities	or	if	other	events	were	to	cause	our operations	to	fail,	we	may	be	unable	to	manufacture	our	products,	provide	our	services	or	develop	new	products.

Also,	many	of	our	manufacturing	processes	are	automated	and	are	controlled	by	our	custom-designed	Laboratory	Information	Management	System	(LIMS).	Additionally,	the	decoding	process in	our	array	manufacturing	requires	significant	network	and	storage	infrastructure.	If	either	our	LIMS	system,	or	our	networks	or	storage	infrastructure	were	to	fail	for	an	extended	period	of	time,	it	may adversely	impact	our	ability	to	manufacture	our	products	on	a	timely	basis	and	would	prevent	us	from	achieving	our	expected	shipments	in	any	given	period.

# We	expect	that	our	results	of	operations	will	fluctuate.	This	fluctuation	could	cause	our	stock	price	to	decline.

Our	revenue	is	subject	to	fluctuations	due	to	the	timing	of	sales	of	high-value	products	and	services	projects,	the	impact	of	seasonal	spending	patterns,	the	timing	and	size	of	research	projects	our customers	perform,	changes	in	overall	spending	levels	in	the	life	sciences	industry,	and	other	unpredictable	factors	that	may	affect	customer	ordering	patterns.	Given	the	difficulty	in	predicting	the timing	and	magnitude	of	sales	for	our	products	and	services,	we	may	experience	quarter-to-quarter	fluctuations	in	revenue	resulting	in	the	potential	for	a	sequential	decline	in	quarterly	revenue.	A	large portion	of	our	expenses	is	relatively	fixed,	including	expenses	for	facilities,	equipment	and	personnel.	In	addition,	we	expect	operating	expenses	to	continue	to	increase	significantly	in	absolute	dollars. Accordingly,	if	revenue	does	not	grow	as	anticipated,	we	may	not	be	able	to	maintain	annual	profitability.	Any	significant	delays	in	the	commercial	launch	of	our	products,	unfavorable	sales	trends	in our	existing	product	lines,	or	impacts	from	the	other	factors	mentioned	above,	could	adversely	affect	our	future	revenue	growth	or	cause	a	sequential	decline	in	quarterly	revenue.	Due	to	the	possibility of	fluctuations	in	our	revenue	and	expenses,	we	believe	that	quarterly	comparisons	of	our	operating	results	are	not	a	good	indication	of	our	future	performance.	If	our	operating	results	fluctuate	or	do	not meet	the	expectations	of	stock	market	analysts	and	investors,	our	stock	price	could	decline.

# Our	success	depends	upon	the	continued	emergence	and	growth	of	markets	for	analysis	of	genetic	variation	and	biological	function.

We	design	our	products	primarily	for	applications	in	the	life	sciences	and	pharmaceutical	industries.	The	usefulness	of	our	technology	depends	in	part	upon	the	availability	of	genetic	data	and	its usefulness	in	identifying	or	treating	disease.	We	are	focusing	on	markets	for	analysis	of	genetic	variation	and	biological	function,	namely	sequencing,	SNP	genotyping	and	gene	expression	profiling. These	markets	are	new	and	emerging,	and	they	may	not	develop	as	quickly	as	we	anticipate,	or	reach	their	full	potential.	Other	methods	of	analysis	of	genetic	variation	and	biological	function	may emerge	and	displace	the	methods	we	are	developing.	Also,	researchers	may	not	seek	or	be	able	to	convert	raw	genetic	data	into	medically	valuable	information	through	the	analysis	of	genetic	variation and	biological	function.	In	addition,	factors	affecting	research	and	development	spending	generally,	such	as	changes	in	the	regulatory	environment	affecting	life	sciences	and	pharmaceutical	companies, and	changes	in	government	programs	that	provide	funding	to	companies	and	research	institutions,	could	harm	our	business.	If	useful	genetic	data	is	not	available	or	if	our	target	markets	do	not	develop in	a	timely	manner,	demand	for	our	products	may	grow	at	a	slower	rate	than	we	expect,	and	we	may	not	be	able	to	sustain	profitability.

# Loss	of	the	tax	deduction	on	our	outstanding	convertible	notes.

We	could	lose	some	or	all	of	the	tax	deduction	for	interest	expense	associated	with	our	$400.0	million	aggregate	principal	amount	of	convertible	notes	due	in	2014	if	the	foregoing	notes	are	not subject	to	the	special	Treasury	Regulations	governing	integration	of	certain	debt	instruments,	the	notes	are	converted,	or	we	invest	in	non-taxable	investments.

# We	may	not	be	able	to	sustain	operating	profitability.

Prior	to	2006,	we	had	incurred	net	losses	each	year	since	our	inception,	and	in	2007	we	reported	a	net	loss	of	$278.4	million,	reflecting	significant	charges	associated	with	our	acquisition	of Solexa	in	January	2007	and	the	settlement	of	our	litigation	with	Affymetrix.	As	of	December	28,	2008,	our	accumulated	deficit	was	$332.5	million.	Our	ability	to	sustain	profitability	will	depend,	in part,	on	the	rate	of	growth,	if	any,	of	our	revenue	and	on	the	level	of	our	expenses.	Non-cash	stock-based	compensation	expense	and	expenses	related	to	prior	and	future	acquisitions	are	also	likely	to continue	to	adversely	affect	our	future	profitability.	We	expect	to	continue	incurring	significant	expenses	related	to	research	and	development,	sales	and	marketing	efforts	to	commercialize	our	products and	the	continued	development	of	our	manufacturing	capabilities.	In	addition,	we	expect	that	our	research	and	development	and	selling	and	marketing	expenses	will	increase	at	a	higher	rate	in	the	future as	a	result	of	the	development	and	launch	of	new	products.	Although	we	have	regained	profitability,	we	may	not	be	able	to	sustain	profitability	on	a	quarterly	basis.

# Negative	conditions	in	the	global	credit	markets	may	impair	the	liquidity	of	a	portion	of	our	investment	portfolio.

Our	investment	securities	consist	of	marketable	debt	securities,	including	treasury	bills	and	commercial	paper	with	strong	credit	ratings,	corporate	bonds	and	short	maturity	mutual	funds providing	similar	financial	returns.	Additionally,	as	of	December	28,	2008,	we	had	$55.9	million	of	auction	rate	securities	issued	primarily	by	municipalities	and	universities.	These	securities	are	debt instruments	with	a	long-term	maturity	and	with	an	interest	rate	that	is	reset	in	short	intervals	through	auctions.	Our	entire	auction	rate	portfolio	is	held	in	a	brokerage	account	with	UBS	Financial Services,	Inc.,	a	subsidiary	of	UBS	AG	(UBS)	and	is	currently	rated	AAA	or	AA	by	a	rating	agency.	Beginning	in	February	2008,	these	auction	rate	securities	became	illiquid	because	their	scheduled auctions	failed	to	settle.	An	auction	failure	occurs	when	the	parties	wishing	to	sell	securities	at	auction	cannot.	As	of	December	28,	2008,	the	securities	continued	to	fail	auction	and	remained	illiquid.

Various	regulatory	agencies	initiated	investigations	into	the	sales	and	marketing	practices	of	several	banks	and	broker-dealers,	including	UBS,	which	sold	auction	rate	securities,	alleging violations	of	federal	and	state	laws.	Along	with	several	other	broker-dealers,	UBS	subsequently	reached	a	settlement	with	the	federal	and	state	regulators	that	required	them	to	repurchase	auction	rate securities	from	certain	investors	at	par	at	some	future	date.	In	November	2008,	we	signed	a	settlement	agreement	to	sell	our	auction	rate	securities	at	par	value	to	UBS	during	the	period	of	June	30,	2010 through	July	2,	2012.

The	settlement	agreement	with	UBS	and	the	associated	put	option	mitigates	the	risk	of	loss	on	our	auction	rate	security	portfolio.	However,	given	the	negative	conditions	in	the	global	credit markets	there	is	still	risk	that	UBS	may	not	be	able	to	fulfill	its	obligation.

# Item	1B. Unresolved	Staff	Comments.

# None.

# Item	2. Properties.

The	following	chart	indicates	the	facilities	we	lease	as	of	December	28,	2008,	the	location	and	size	of	each	such	facility	and	their	designated	use.	During	2008,	we	expanded	our	facilities	and leased	additional	space	to	accommodate	growth	in	our	business.	We	anticipate	continuing	to	expand	our	facilities	over	the	next	several	years	as	we	continue	to	expand	our	worldwide	commercial operations	and	our	manufacturing	capabilities.

In	February	2008,	we	agreed	to	lease	an	additional	facility	in	Little	Chesterford,	United	Kingdom	that	is	in	the	process	of	being	constructed	for	research	and	development,	manufacturing	and administrative	purposes.	This	facility	covers	approximately	41,500	square	feet.	We	expect	to	occupy	this	new	building	by	the	end	of	2009.

# Item	3. Legal	Proceedings.

In	the	recent	past,	we	incurred	substantial	costs	in	defending	ourselves	against	patent	infringement	and	patent	ownership	claims	and	expect,	going	forward,	to	devote	substantial	financial	and managerial	resources	to	protect	our	intellectual	property	and	to	defend	against	any	future	claims	asserted	against	us.	From	time	to	time,	we	may	also	be	parties	to	other	litigation	in	the	ordinary	course	of business.	While	the	results	of	any	litigation	are	uncertain,	management	does	not	believe	the	ultimate	resolution	of	its	legal	matters	will	result	in	a	material	adverse	impact	to	us.

# Applied	Biosystems	Litigation

On	December	26,	2006,	the	Applied	Biosystems	Group	of	Applera	Corporation	(Applied	Biosystems)	filed	suit	in	California	Superior	Court,	Santa	Clara	County	against	Solexa	(which	we acquired	on	January	26,	2007).	This	State	Court	action	related	to	the	ownership	of	several	patents	assigned	in	1995	to	Solexa's	predecessor	company	(Lynx	Therapeutics)	by	a	former	employee (Dr.	Stephen	Macevicz),	who	is	the	inventor	of	these	patents	and	is	named	as	a	co-defendant	in	the	suit.	The	Macevicz	patents	are	directed	to	methods	for	sequencing	DNA	(US	Pat.	Nos.	5,750,341	and 6,306,597)	using	successive	rounds	of	oligonucleotide	probe	ligation	(sequencing-by-ligation),	and	to	a	probe	(5,969,119)	used	in	connection	with	these	sequencing	methods.	Lynx	was	originally	a	unit of	Applied	Biosystems	but	was	spun	out	in	1992.	On	May	31,	2007,	Applied	Biosystems	filed	a	second	suit,	this	time	against	us,	in	the	U.S.	District	Court	for	the	Northern	District	of	California.	This second	suit	sought	a	declaratory	judgment	of	non-infringement	of	the	Macevicz	patents	that	were	the	subject	of	the	State	Court	action	mentioned	above.	Both	suits	were	later	consolidated	in	the U.S.	District	Court	for	the	Northern	District	of	California,	San	Francisco	Division.	By	these	consolidated	actions,	Applied	Biosytems	was	seeking	ownership	of	the	three	Macevicz	patents,	unspecified costs	and	damages,	and	a	declaration	of	non-infringement	and	invalidity	of	these	patents.	Applied	Biosystems	was	not	asserting	any	claim	for	patent	infringement	against	us.

On	January	5,	2009,	the	case	went	to	trial	in	two	phases.	The	first	phase	addressed	the	determination	of	ownership	of	the	patents-in-suit,	and	the	second	phase	addressed	whether	these	patents were	valid	and	infringed	by	Applied	Biosystems.	On	January	14,	2009,	at	the	end	of	the	first	phase,	a	federal	jury	determined	that	Solexa	was	the	rightful	owner	of	all	three	Macevicz	patents.	On January	27,	2009,	the	same	jury	found	that	Applied	Biosystems	did	not	infringe	the	'119	probe	patent	and	that	the	'119	patent	was	valid.	In	August	2008,	the	court	had	ruled	that	Applied	Biosystems' two-base	system	did	not	infringe	the	'341	and	'597	patents.	Prior	to	the	jury	finding	of	non-infringement	of	the	'119	patent,	Applied	Biosystems	conceded	its	one-base	system	infringed	claim	1	of	the '597	patent	and	Solexa	conceded	invalidity	of	that	same	claim	under	the	court's	construction	of	that	claim.	Both	parties	reserved	the	right	to	appeal	the	court's	construction	of	claim	1	of	the	'597	patent, among	other	things.

Our	Genome	Analyzer	products	use	a	different	technology,	called	Sequencing-by-Synthesis	(SBS),	which	is	not	covered	by	any	of	the	Macevicz	patents.	In	addition,	we	have	no	plans	to	use	any of	the	Sequencing-by-Ligation	technologies	covered	by	these	patents.

# Item	4. Submission	of	Matters	to	a	Vote	of	Security	Holders.

No	matters	were	submitted	to	a	vote	of	security	holders	during	the	fourth	quarter	of	fiscal	2008.

# Item	5. Market	for	Registrant's	Common	Equity,	Related	Stockholder	Matters	and	Issuer	Purchases	of	Equity	Securities.

# Market	Information

Our	common	stock	has	been	quoted	on	The	NASDAQ	Global	Select	Market	under	the	symbol	"ILMN"	since	July	28,	2000.	Prior	to	that	time,	there	was	no	public	market	for	our	common	stock. The	following	table	sets	forth,	for	the	periods	indicated,	the	quarterly	high	and	low	sales	prices	per	share	of	our	common	stock	as	reported	on	The	NASDAQ	Global	Select	Market	and	has	been	adjusted to	reflect	the	two-for-one	split	of	our	common	stock	that	was	effected	in	the	form	of	a	100%	stock	dividend	on	September	22,	2008.

|  | 2008 | 2008 | 2007 | 2007 |
| :--- | :--- | :--- | :--- | :--- |
|  | High | Low | High | Low |
| First\tQuarter | $38.30 | $27.89 | $21.10 | $14.06 |
| Second\tQuarter | 43.50 | 34.90 | 21.04 | 14.47 |
| Third\tQuarter | 47.88 | 36.97 | 26.94 | 20.02 |
| Fourth\tQuarter | 42.32 | 18.82 | 31.69 | 25.17 |

# Stock	Performance	Graph

The	graph	below	compares	the	cumulative	total	stockholder	returns	on	our	common	stock	for	the	last	five	fiscal	years	with	the	cumulative	total	stockholder	returns	on	the	NASDAQ	Composite Index	and	the	NASDAQ	Biotechnology	Index	for	the	same	period.	The	graph	assumes	that	$100	was	invested	on	December	26,	2003	in	our	common	stock	and	in	each	index	and	that	all	dividends	were reinvested.	No	cash	dividends	have	been	declared	on	our	common	stock.	Stockholder	returns	over	the	indicated	period	should	not	be	considered	indicative	of	future	stockholder	returns.

# Holders

As	of	February	2,	2009	we	had	476	record	holders	and	56,709	beneficial	holders	of	our	common	stock.

# Dividends

Our	present	policy	is	to	retain	earnings,	if	any,	to	finance	future	growth.	We	have	never	paid	cash	dividends	and	have	no	present	intention	to	pay	cash	dividends	in	the	foreseeable	future.	In addition,	the

indenture	for	our	convertible	senior	notes	due	2014,	which	are	convertible	into	cash	and,	in	certain	circumstances,	shares	of	our	common	stock,	requires	us	to	increase	the	conversion	rate	applicable	to the	notes	if	we	pay	any	cash	dividends.

# Purchases	of	Equity	Securities	by	the	Issuer

On	October	23,	2008,	our	board	of	directors	authorized	a	$120.0	million	stock	repurchase	program,	which	was	announced	October	24,	2008.	The	following	table	summarizes	shares	repurchased pursuant	to	this	program	during	the	quarter	ended	December	28,	2008:

| Period | Total	Number	of<br>Shares<br>Purchased(1) | Average	Price<br>Paid	per	Share(1) | Total	Number	of<br>Shares	Purchased	as<br>Part	of	Publicly<br>Announced<br>Programs(1) | Approximate	Dollar<br>Value	of	Shares<br>that	May	Yet	Be<br>Purchased	Under<br>the	Programs(1) |
| :--- | :--- | :--- | :--- | :--- |
| September\t29\t–\tOctober\t26,\t2008 | 92,969 | $23.67 | 92,969 | $117,797,090 |
| October\t27\t–\tNovember\t23,\t2008 | 2,915,514 | 22.80 | 2,915,514 | 51,260,959 |
| November\t24\t–\tDecember\t28,\t2008 | 100,400 | 20.35 | 100,400 | 49,215,398 |
| Total | 3,108,883 | $22.75 | 3,108,883 | $49,215,398 |

(1) All	shares	purchased	were	in	connection	with	the	Company's	$120.0	million	stock	repurchase	program	announced	October	24,	2008	and	were	made	in	open-market	transactions	or	through privately	negotiated	transactions	in	compliance	with	Rule	10b-18	under	the	Securities	Exchange	Act	of	1934.

# Sales	of	Unregistered	Securities

None	during	the	fourth	quarter	of	fiscal	2008.

# Item	6. Selected	Financial	Data.

The	following	table	sets	forth	selected	historical	consolidated	financial	data	for	each	of	our	last	five	fiscal	years	during	the	period	ended	December	28,	2008.

# Statement	of	Operations	Data

|  | Year	Ended | Year	Ended | Year	Ended | Year	Ended | Year	Ended |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | December\t28, | December\t30, | December\t31 | January\t1, | January\t2, |
|  | 2008 | 2007 | 2006 | 2006 | 2005 |
|  | (52\tweeks) | (52\tweeks) | (52\tweeks) | (52\tweeks) | (53\tweeks) |
|  |  | (In\tthousands,\texcept\tper\tshare\tdata) | (In\tthousands,\texcept\tper\tshare\tdata) |  |  |
| Total\trevenue | $573,225 | $366,799 | $184,586 | $73,501 | $50,583 |
| Income\t(loss)\tfrom\toperations(1),(2),(3) | 80,457 | (301,201) | 37,812 | (21,447) | (5,513) |
| Net\tincome\t(loss) | 50,477 | (278,359) | 39,968 | (20,874) | (6,225) |
| Net\tincome\t(loss)\tper\tshare: |  |  |  |  |  |
| Basic | 0.43 | (2.57) | 0.45 | (0.26) | (0.09) |
| Diluted | 0.38 | (2.57) | 0.41 | (0.26) | (0.09) |
| Shares\tused\tin\tcalculating\tnet\tincome\t(loss)\tper\tshare(4): |  |  |  |  |  |
| Basic | 116,855 | 108,308 | 89,002 | 80,294 | 71,690 |
| Diluted | 133,607 | 108,308 | 97,508 | 80,294 | 71,690 |

# Balance	Sheet	Data

|  | December	28,<br>2008 | December	30,<br>2007 | December	31,<br>2006 | January	1,<br>2006 | January	2,<br>2005 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | (In\tthousands) |  |  |  |
| Cash,\tcash\tequivalents\tand\tshort-term\tinvestments(3),(5),(6),(7) | $640,075 | $386,082 | $130,804 | $50,822 | $66,994 |
| Working\tcapital | 355,379 | 397,040 | 159,950 | 57,992 | 64,643 |
| Total\tassets | 1,377,100 | 987,732 | 300,584 | 100,610 | 94,907 |
| Current\tportion\tof\tlong-term\tdebt(7) | 399,999 | — | — | — | — |
| Long-term\tdebt,\tless\tcurrent\tportion(7) | — | 400,000 | — | 54 | — |
| Total\tstockholders'\tequity(1),(5),(6) | 848,596 | 411,678 | 247,342 | 72,497 | 72,262 |

In	addition	to	the	following	notes,	see	Item	7,	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations"	and	Item	8,	"Financial	Statements	and	Supplementary Data"	for	further	information	regarding	our	consolidated	results	of	operations	and	financial	position	for	periods	reported	therein	and	for	known	factors	that	will	impact	comparability	of	future	results.

(1) The	consolidated	financial	statements	include	results	of	operations	of	acquired	companies	commencing	on	their	respective	acquisition	dates.	In	August	2008,	we	completed	our	acquisition	of Avantome.	As	consideration,	we	paid	$25.8	million	in	cash	and	may	pay	up	to	an	additional	$35.0	million	in	contingent	cash	consideration	based	on	the	achievement	of	certain	milestones.	In January	2007,	we	completed	our	acquisition	of	Solexa	in	a	stock	for	stock	merger	transaction	for	a	total	purchase	price	of	$618.7	million.	In	April	2005,	we	completed	our	acquisition	of	Cyvera Corporation	for	a	total	purchase	price	of	$17.8	million.	As	part	of	the	accounting	for	the	acquisitions,	we	recorded	charges	to	write-off	acquired	in-process	research	and	development,	or	IPR&D, of	$24.7	million,	$303.4	million	and	$15.8	million	during	the	fiscal	years	ended	December	28,	2008,	December	30,	2007	and	January	1,	2006,	respectively.	See	Note	2	of	Notes	to	Consolidated Financial	Statements	for	further	information	regarding	our	Avantome	and	Solexa	acquisitions.

(2) We	adopted	Statement	of	Financial	Accounting	Standards	(SFAS)	123(R),	"Share-Based	Payment,"	on	January	2,	2006	using	the	modified	prospective	transition	method.	Because	we	elected	to use	the	modified	prospective	transition	method,	results	for	prior	periods	have	not	been	restated	to	include	share-based	compensation	expense.	See	Note	1	and	Note	10	of	Notes	to	Consolidated Financial	Statements	for	further	information.

(3) For	the	year	ended	December	30,	2007,	we	recorded	a	$54.0	million	charge	for	the	settlement	of	our	litigation	with	Affymetrix.	In	January	2008,	we	paid	$90.0	million	related	to	the	Affymetrix settlement.	See	Note	5	of	Notes	to	Consolidated	Financial	Statements.

(4) Adjusted	to	reflect	a	two-for-one	stock	split	effective	September	22,	2008.	For	an	explanation	of	the	determination	of	the	number	of	shares	used	to	compute	basic	and	diluted	net	income	(loss) per	share,	see	Note	1	of	Notes	to	Consolidated	Financial	Statements.

(5) In	August	2008,	a	total	of	8,050,000	shares	were	sold	to	the	public	at	a	public	offering	price	of	$43.75	per	share,	raising	net	proceeds	to	us	of	$342.6	million.	See	Note	10	of	Notes	to Consolidated	Financial	Statements.

(6) For	the	years	ended	December	28,	2008	and	December	30,	2007,	we	repurchased	3.1	million	and	14.8	million	shares,	respectively,	of	common	stock	for	$70.8	million	and	$251.6	million, respectively.	See	Note	10	of	Notes	to	Consolidated	Financial	Statements.

(7) In	February	2007,	we	issued	$400.0	million	principal	amount	of	0.625%	Convertible	Senior	Notes	due	2014.	As	of	December	28,	2008,	the	principal	amount	of	these	Notes	is	classified	as current	liabilities	since	the	conditions	to	convertibility	were	satisfied	during	the	third	calendar	quarter	of	2008.	See	Note	8	of	Notes	to	Consolidated	Financial	Statements.

# Item	7. Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations.

The	purpose	of	the	following	discussion	and	analysis	is	to	provide	an	overview	of	the	business	to	help	facilitate	an	understanding	of	significant	factors	influencing	our	historical	operating results,	financial	condition	and	cash	flows	and	also	to	convey	our	expectations	of	the	potential	impact	of	known	trends,	events,	or	uncertainties	that	may	impact	our	future	results.	The	following discussion	and	analysis	should	be	read	in	conjunction	with	"Item	6.	Selected	Financial	Data"	and	our	consolidated	financial	statements	and	notes	thereto	included	elsewhere	in	this	Annual	Report	on Form	10-K.	The	discussion	and	analysis	in	this	Annual	Report	on	Form	10-K	contains	forward-looking	statements	that	involve	risks	and	uncertainties,	such	as	statements	of	our	plans,	strategies, objectives,	expectations,	intentions	and	adequacy	of	resources.	Words	such	as	"anticipate,"	"believe,"	"continue,"	"estimate,"	"expect,"	"intend,"	"may,"	"plan,"	"potential,"	"predict,"	"project"	or similar	words	or	phrases,	or	the	negatives	of	these	words,	may	identify	forward-looking	statements,	but	the	absence	of	these	words	does	not	necessarily	mean	that	a	statement	is	not	forward	looking. Examples	of	forward-looking	statements	include,	among	others,	statements	regarding	the	integration	of	our	acquired	technologies	with	our	existing	technology,	the	commercial	launch	of	new	products and	the	duration	which	our	existing	cash	and	other	resources	is	expected	to	fund	our	operating	activities.

Forward-looking	statements	are	subject	to	known	and	unknown	risks	and	uncertainties	and	are	based	on	potentially	inaccurate	assumptions	that	could	cause	actual	results	to	differ	materially from	those	expected	or	implied	by	the	forward	looking	statements.	Factors	that	could	cause	or	contribute	to	these	differences	include	those	discussed	in	"Item	1A.	Risk	Factors"	as	well	as	those discussed	elsewhere.	The	risk	factors	and	other	cautionary	statements	made	in	this	Annual	Report	on	Form	10-K	should	be	read	as	applying	to	all	related	forward-looking	statements	wherever	they appear	in	this	Annual	Report	on	Form	10-K.

We	are	a	leading	developer,	manufacturer	and	marketer	of	integrated	systems	for	the	large	scale	analysis	of	genetic	variation	and	biological	function.	Using	our	proprietary	technologies,	we provide	a	comprehensive	line	of	products	and	services	that	currently	serve	the	sequencing,	genotyping	and	gene	expression	markets.	In	the	future,	we	expect	to	enter	the	market	for	molecular diagnostics.	Our	customers	include	leading	genomic	research	centers,	pharmaceutical	companies,	academic	institutions,	clinical	research	organizations	and	biotechnology	companies.	Our	tools	provide researchers	around	the	world	with	the	performance,	throughput,	cost	effectiveness	and	flexibility	necessary	to	perform	the	billions	of	genetic	tests	needed	to	extract	valuable	medical	information	from advances	in	genomics	and	proteomics.	We	believe	this	information	will	enable	researchers	to	correlate	genetic	variation	and	biological	function,	which	will	enhance	drug	discovery	and	clinical	research, allow	diseases	to	be	detected	earlier	and	permit	better	choices	of	drugs	for	individual	patients.

On	January	26,	2007,	we	completed	the	acquisition	of	Solexa	for	26.2	million	shares	of	our	common	stock.	As	a	result	of	that	acquisition,	we	develop	and	commercialize	genetic	analysis technologies	used	to	perform	a	range	of	analyses,	including	whole	genome	re-sequencing,	gene	expression	analysis	and	small	RNA	analysis.	We	believe	we	are	the	only	company	with	genome-scale technology	for	sequencing,	genotyping	and	gene	expression,	the	three	cornerstones	of	modern	genetic	analysis.

On	August	1,	2008,	we	completed	the	acquisition	of	Avantome.	As	consideration	for	the	acquisition,	we	paid	$25.8	million	in	cash	and	may	pay	up	to	an	additional	$35.0	million	in	contingent cash	consideration	based	on	the	achievement	of	certain	milestones.	Avantome	is	a	development	stage	company	working	on	developing	low-cost,	long	read	sequencing	technology.	We	expect	this technology,	if	and	when	available	as	a	product,	to	have	applicability	to	both	the	research	and	diagnostic	markets.

Our	revenue	is	subject	to	fluctuations	due	to	the	timing	of	sales	of	high-value	products	and	service	projects,	the	impact	of	seasonal	spending	patterns,	the	timing	and	size	of	research	projects	our customers	perform,	changes	in	overall	spending	levels	in	the	life	science	industry	and	other	unpredictable	factors	that	may	affect	our	customer	ordering	patterns.	Any	significant	delays	in	the commercial	launch	or	any	lack	or	delay	of	commercial	acceptance	of	new	products,	unfavorable	sales	trends	in	our	existing	product	lines,	or	impacts	from	the	other	factors	mentioned	above,	could adversely	affect	our	revenue	growth	or	cause	a	sequential	decline	in	quarterly	revenue.	Due	to	the	possibility	of	fluctuations	in	our	revenue	and	net	income	or	loss,	we	believe	quarterly	comparisons	of our	operating	results	are	not	a	good	indication	of	our	future	performance.

As	of	December	28,	2008,	our	accumulated	deficit	was	$332.5	million	and	total	stockholders'	equity	was	$848.6	million.	Our	losses	have	principally	occurred	as	a	result	of	acquired	in-process research	and	development	(IPR&D)	charges	of	$24.7	million	related	to	our	acquisition	of	Avantome	in	2008	and	$303.4	million	related	to	our	acquisition	of	Solexa	in	2007,	the	substantial	resources required	for	the	research,	development	and	manufacturing	scale-up	effort	required	to	commercialize	our	products	and	services	and	a	charge	of	$54.5	million	in	2007	primarily	related	to	settlement	of	our litigation	with	Affymetrix.	We	expect	to	continue	to	incur	substantial	costs	for	research	and	development	over	the	next	several	years.	We	will	also	need	to	increase	our	selling,	general	and	administrative costs	as	we	build	up	our	sales	and	marketing	infrastructure	to	expand	and	support	the	sale	of	systems,	other	products	and	services.

# Critical	Accounting	Policies	and	Estimates

# General

The	preparation	of	financial	statements	in	accordance	with	U.S.	generally	accepted	accounting	principles	requires	management	to	make	estimates	and	assumptions	that	affect	the	amounts reported	in	our	consolidated	financial	statements	and	accompanying	notes.	Management	bases	its	estimates	on	historical	experience	and	various	other	assumptions	it	believes	to	be	reasonable.	Although these	estimates	are	based	on	management's	best	knowledge	of	current	events	and	actions	that	may	impact	us	in	the	future,	actual	results	may	be	different	from	the	estimates.	Our	critical	accounting policies	are	those	that	affect	our	financial	statements	materially	and	involve	difficult,	subjective	or	complex	judgments	by	management.	Management	has	discussed	the	development	and	selection	of these	critical	accounting	policies	with	the	audit	committee	of	our	board	of	directors,	and	the	audit	committee	has	reviewed	the	disclosure.	Our	accounting	policies	are	more	fully	described	in	Note	1	of the	Consolidated	Financial	Statements.

# Revenue	Recognition

Our	revenue	is	generated	primarily	from	the	sale	of	products	and	services.	Product	revenue	consists	of	sales	of	arrays,	reagents,	flow	cells,	instrumentation,	oligonucleotides	(oligos)	and associated	freight	charges.	Service	and	other	revenue	consists	of	revenue	received	for	performing	genotyping	and	sequencing	services,	extended	warranty	sales	and	amounts	earned	under	research agreements	with	government	grants,	which	are	recognized	in	the	period	during	which	the	related	costs	are	incurred.

We	recognize	revenue	in	accordance	with	the	guidelines	established	by	SEC	Staff	Accounting	Bulletin	(SAB)	No.	104,	Revenue	Recognition.	Under	SAB	No.	104,	revenue	cannot	be	recorded until	all	of	the	following	criteria	have	been	met:	persuasive	evidence	of	an	arrangement	exists;	delivery	has	occurred	or	services	have	been	rendered;	the	seller's	price	to	the	buyer	is	fixed	or determinable;	and	collectibility	is	reasonably	assured.	All	revenue	is	recorded	net	of	any	applicable	allowances	for	returns	or	discounts.

Revenue	for	product	sales	is	recognized	generally	upon	shipment	and	transfer	of	title	to	the	customer,	provided	no	significant	obligations	remain	and	collection	of	the	receivables	is	reasonably assured.	Revenue	from	the	sale	of	instrumentation	is	recognized	when	earned,	which	is	generally	upon	shipment.	Revenue	for	genotyping	and	sequencing	services	is	recognized	when	earned,	which	is generally	at	the	time	the	genotyping	or	sequencing	analysis	data	is	delivered	to	the	customer.

In	order	to	assess	whether	the	price	is	fixed	and	determinable,	we	ensure	there	are	no	refund	rights.	If	payment	terms	are	based	on	future	performance	or	a	right	of	return	exists,	we	defer	revenue recognition	until	the	price	becomes	fixed	and	determinable.	We	assess	collectibility	based	on	a	number	of	factors,	including	past	transaction	history	with	the	customer	and	the	creditworthiness	of	the customer.	If	we	determine	that	collection	of	a	payment	is	not	reasonably	assured,	revenue	recognition	is	deferred	until	the	time	collection	becomes	reasonably	assured,	which	is	generally	upon	receipt	of payment.	Changes	in	judgments	and	estimates	regarding	application	of	SAB	No.	104	might	result	in	a	change	in	the	timing	or	amount	of	revenue	recognized.

Sales	of	instrumentation	generally	include	a	standard	one-year	warranty.	We	also	sell	separately	priced	maintenance	(extended	warranty)	contracts,	which	are	generally	for	one	or	two	years, upon	the	expiration	of	the	initial	warranty.	Revenue	for	extended	warranty	sales	is	recognized	ratably	over	the	term	of	the	extended	warranty	period.	Reserves	are	provided	for	estimated	product warranty	expenses	at	the	time	the	associated	revenue	is	recognized.	If	we	were	to	experience	an	increase	in	warranty	claims	or	if	costs	of	servicing	our	warrantied	products	were	greater	than	our estimates,	gross	margins	could	be	adversely	affected.

While	the	majority	of	our	sales	agreements	contain	standard	terms	and	conditions,	we	do	enter	into	agreements	that	contain	multiple	elements	or	non-standard	terms	and	conditions.	Emerging Issues	Task	Force	(EITF)	No.	00-21,	Revenue	Arrangements	with	Multiple	Deliverables,	provides	guidance	on	accounting	for	arrangements	that	involve	the	delivery	or	performance	of	multiple products,	services,	or	rights	to	use	assets	within	contractually	binding	arrangements.	Significant	contract	interpretation	is	sometimes	required	to	determine	the	appropriate	accounting,	including	whether the	deliverables	specified	in	a	multiple	element	arrangement	should	be	treated	as	separate	units	of	accounting	for	revenue	recognition	purposes,	and	if	so,	how	the	price	should	be	allocated	among	the deliverable	elements,	when	to	recognize	revenue	for	each	element,	and	the	period	over	which	revenue	should	be	recognized.	We	recognize	revenue	for	delivered	elements	only	when	we	determine	that the	fair	values	of	undelivered	elements	are	known	and	there	are	no	uncertainties	regarding	customer	acceptance.

# Investments

Effective	January	1,	2008,	we	adopted	Statement	of	Financial	Accounting	Standards	(SFAS)	No.	157,	Fair	Value	Measurement.	In	February	2008,	the	Financial	Accounting	Standards	Board (FASB)	issued	FASB	Staff	Position	(FSP)	No.	SFAS	157-2,	Effective	Date	of	FASB	Statement	No.	157,	which	provides	a	one-year	deferral	of	the	effective	date	of	SFAS	No.	157	for	non-financial	assets and	non-financial	liabilities,	except	those	that	are	recognized	or	disclosed	in	the	financial	statements	at	fair	value	at	least	annually.	In	October	2008,	the	FASB	issued	FASB	FSP	SFAS	157-3, Determining	the	Fair	Value	of	a	Financial	Asset	When	the	Market	for	That	Asset	Is	Not	Active.	The	FSP	clarifies	the	application	of	FASB	Statement	No.	157,	Fair	Value	Measurements,	in	a	market	that is	not	active	and	provides	an	example	to	illustrate	key	considerations	in	determining	the	fair	value	of	a	financial	asset	when	the	market	for	that	financial	asset	is	not	active.

We	determine	fair	value	of	our	financial	assets	and	liabilities	in	accordance	with	SFAS	No.	157	and	157-3.	Fair	value	is	defined	under	SFAS	No.	157	as	the	exchange	price	that	would	be received	for	an	asset	or	paid	to	transfer	a	liability	(an	exit	price)	in	the	principal	or	most	advantageous	market	for	the	asset	or	liability	in	an	orderly	transaction	between	market	participants	on	the measurement	date.	Valuation	techniques	used	to	measure	fair	value	under	SFAS	No.	157	must	maximize	the	use	of	observable	inputs	and	minimize	the	use	of	unobservable	inputs.	The	standard describes	a	fair	value	hierarchy	based	on	three	levels	of	inputs,	of	which	the	first	two	are	considered	observable	and	the	last	unobservable,	that	may	be	used	to	measure	fair	value:

•	Level	1	—	Quoted	prices	in	active	markets	for	identical	assets	or	liabilities.

•	Level	2	—	Inputs	other	than	Level	1	that	are	observable,	either	directly	or	indirectly,	such	as	quoted	prices	for	similar	assets	or	liabilities;	quoted	prices	in	markets	that	are	not	active;	or other	inputs	that	are	observable	or	can	be	corroborated	by	observable	market	data	for	substantially	the	full	term	of	the	assets	or	liabilities.

•	Level	3	—	Unobservable	inputs	that	are	supported	by	little	or	no	market	activity	and	that	are	significant	to	the	fair	value	of	the	assets	or	liabilities.

In	using	this	fair	value	hierarchy	and	the	framework	established	by	SFAS	No.	157,	management	may	be	required	to	make	assumptions	of	pricing	by	market	participants	and	assumptions	about risk,	specifically	when	using	unobservable	inputs	to	determine	fair	value.	These	assumptions	are	judgmental	in	nature	and	may	significantly	affect	our	results	of	operations.

# Allowance	for	Doubtful	Accounts

We	maintain	an	allowance	for	doubtful	accounts	for	estimated	losses	resulting	from	the	inability	of	our	customers	to	make	required	payments.	We	evaluate	the	collectibility	of	our	accounts receivable	based	on	a	combination	of	factors.	We	regularly	analyze	customer	accounts,	review	the	length	of	time	receivables	are	outstanding,	review	historical	loss	rates	and	assess	current	economic trends	that	may	impact	the	level	of	credit	losses	in	the	future.	Our	allowance	for	doubtful	accounts	has	generally	been	adequate	to	cover	our	actual	credit	losses.	However,	since	we	cannot	reliably predict	future	changes	in	the	financial	stability	of	our	customers,	we	cannot	guarantee	that	our	reserves	will	continue	to	be	adequate.

# Inventory	Valuation

We	record	adjustments	to	inventory	for	potentially	excess,	obsolete	or	impaired	goods	in	order	to	state	inventory	at	net	realizable	value.	We	must	make	assumptions	about	future	demand,	market conditions	and	the	release	of	new	products	that	will	supersede	old	ones.	We	regularly	review	inventory	for	excess	and	obsolete	products	and	components,	taking	into	account	product	life	cycle	and development	plans,	product	expiration	and	quality	issues,	historical	experience	and	our	current	inventory	levels.	If	actual	market	conditions	are	less	favorable	than	anticipated,	additional	inventory adjustments	could	be	required.

# Contingencies

We	are	subject	to	legal	proceedings	primarily	related	to	intellectual	property	matters.	Based	on	the	information	available	at	the	balance	sheet	dates	and	through	consultation	with	our	legal counsel,	we	assess	the	likelihood	of	any	adverse	judgments	or	outcomes	of	these	matters,	as	well	as	the	potential	ranges	of	probable	losses.	If	losses	are	probable	and	reasonably	estimable,	we	will record	a	liability	and	an	expense	for	the	estimated	loss.

# Goodwill	and	Intangible	Asset	Valuation

We	make	significant	judgments	in	relation	to	the	valuation	of	goodwill	and	intangible	assets	resulting	from	acquisitions	and	litigation	settlements.

In	determining	the	carrying	amounts	of	our	goodwill	and	intangible	assets	arising	from	acquisitions,	we	use	the	purchase	method	of	accounting.	The	purchase	method	of	accounting	requires extensive	use	of	accounting	estimates	and	judgments	to	allocate	the	purchase	price	to	the	fair	value	of	the	net	tangible	and	intangible	assets	acquired,	including	IPR&D.	Goodwill	and	intangible	assets deemed	to	have	indefinite	lives	are	not	amortized,	but	are	subject	to	at	least	annual	impairment	tests.	The	amounts	and	useful	lives	assigned	to	other	acquired	intangible	assets	impact	future amortization,	and	the	amount	assigned	to	IPR&D	is	expensed	immediately.

Determining	the	fair	values	and	useful	lives	of	intangible	assets	acquired	as	part	of	litigation	settlements	also	requires	the	exercise	of	judgment.	While	there	are	a	number	of	different	generally accepted	valuation	methods	to	estimate	the	value	of	intangible	assets,	one	method	used	by	management	is	the	discounted	cash	flow	method.	This	method	requires	significant	management	judgment	to forecast	the	future	operating	results	used	in	this	type	of	analysis.	In	addition,	other	significant	estimates	are	required	such	as	residual	growth	rates	and	discount	factors.	The	estimates	we	use	to	value	and amortize	intangible	assets	are	consistent	with	the	plans	and	estimates	that	we	use	to	manage	our	business	and	are	based	on	available	historical	information	and	industry	estimates	and	averages.	These judgments	can	significantly	affect	our	net	operating	results.	Our	judgments	can	also	change	with	respect	to	the	estimated	life	of	intangible	assets	which	could	increase	or	decrease	related	amortization expense.

SFAS	No.	142,	Goodwill	and	Other	Intangible	Assets,	requires	that	goodwill	and	certain	intangible	assets	be	assessed	for	impairment	using	fair	value	measurement	techniques.	If	the	carrying amount	of	a	reporting	unit	exceeds	its	fair	value,	then	a	goodwill	impairment	test	is	performed	to	measure	the	amount	of	the	impairment	loss,	if	any.	The	goodwill	impairment	test	compares	the	implied fair	value	of	the	reporting	unit's	goodwill	with	the	carrying	amount	of	that	goodwill.	The	implied	fair	value	of	goodwill	is	determined	in	the	same	manner	as	in	a	business	combination.	Determining	the fair	value	of	the	implied	goodwill	is	judgmental	in	nature	and	often	involves	the	use	of	significant	estimates	and	assumptions.	These	estimates	and	assumptions	could	have	a	significant	impact	on whether	or	not	an	impairment	charge	is	recognized	and	also	the	magnitude	of	any	such	charge.	Estimates	of	fair	value	are	primarily	determined	using	discounted	cash	flows	and	market	comparisons. These	approaches	use	significant	estimates	and	assumptions,	including	projection	and	timing	of	future	cash	flows,	discount	rates	reflecting	the	risk	inherent	in	future	cash	flows,	perpetual	growth	rates, determination	of	appropriate	market	comparables,	and	determination	of	whether	a	premium	or	discount	should	be	applied	to	comparables.	It	is	reasonably	possible	that	the	plans	and	estimates	used	to value	these	assets	may	be	incorrect.	If	our	actual	results,	or	the	plans	and	estimates	used	in	future	impairment	analyses,	are	lower	than	the	original	estimates	used	to	assess	the	recoverability	of	these assets,	we	could	incur	additional	impairment	charges.	We	have	performed	our	annual	test	of	goodwill	as	of	May	30,	2008	noting	no	impairment.	No	indicators	have	arisen	since	management's assessment	on	May	30,	2008	that	would	require	further	assessment.

# Impairment	of	Long-Lived	Assets

In	accordance	with	SFAS	No.	144,	Accounting	for	the	Impairment	or	Disposal	of	Long-Lived	Assets,	if	indicators	of	impairment	exist,	we	assess	the	recoverability	of	the	affected	long-lived assets	by	determining	whether	the	carrying	value	of	such	assets	can	be	recovered	through	undiscounted	future	operating	cash	flows.	If	impairment	is	indicated,	we	measure	the	future	discounted	cash flows	associated	with	the	use	of	the	asset	and	adjust	the	value	of	the	asset	accordingly.	Certain	estimates	and	assumptions	are	used	in	determining	the	fair	value	of	long-lived	assets.	These	estimates	and assumptions	are	judgmental	in	nature	and	could	have	a	significant	impact	on	the	determination	of	the	recognition	of	an	impairment	charge	and	the	magnitude	of	any	such	change.	If	our	actual	results,	or the	plans	and	estimates	used	in	future	impairment	analyses,	are	lower	than	the	original	estimates	used	to	assess	the	recoverability	of	these	assets,	we	could	incur	additional	impairment	charges.

# Stock-Based	Compensation

We	account	for	stock-based	compensation	in	accordance	with	SFAS	No.	123R,	Share-Based	Payment.	Under	the	provisions	of	SFAS	No.	123R,	stock-based	compensation	cost	is	estimated	at the	grant	date	based	on	the	award's	fair-value	as	calculated	by	the	Black-Scholes-Merton	(BSM)	option-pricing	model	and	is	recognized	as	expense	over	the	requisite	service	period.	The	BSM	model requires	various	highly	judgmental	assumptions	including	volatility,	forfeiture	rates,	and	expected	option	life.	If	any	of	these	assumptions	used	in	the	BSM	model	change	significantly,	stock-based compensation	expense	may	differ	materially	in	the	future	from	that	recorded	in	the	current	period.

# Income	Taxes

In	accordance	with	SFAS	No.	109,	Accounting	for	Income	Taxes,	the	provision	for	income	taxes	is	computed	using	the	asset	and	liability	method,	under	which	deferred	tax	assets	and	liabilities are	recognized	for	the	expected	future	tax	consequences	of	temporary	differences	between	the	financial	reporting	and	tax	bases	of	assets	and	liabilities,	and	for	the	expected	future	tax	benefit	to	be derived	from	tax	loss	and	credit	carryforwards.	Deferred	tax	assets	and	liabilities	are	determined	using	the	enacted	tax	rates	in	effect	for	the	years	in	which	those	tax	assets	are	expected	to	be	realized.	A valuation	allowance	is	established	when	it	is	more	likely	than	not	the	future	realization	of	all	or	some	of	the	deferred	tax	assets	will	not	be	achieved.	The	evaluation	of	the	need	for	a	valuation	allowance is	performed	on	a	jurisdiction-by-jurisdiction	basis,	and	includes	a	review	of	all	available	positive	and	negative	evidence.	Factors	reviewed	include	projections	of	pre-tax	book	income	over	the foreseeable	future,	determination	of	cumulative	pre-tax	book	income	after

permanent	differences,	history	of	earnings,	and	reliability	of	forecasting.	As	of	December	28,	2008,	we	have	maintained	a	valuation	allowance	only	against	certain	U.S.	and	foreign	deferred	tax	assets that	we	concluded	have	not	met	the	"more	likely	than	not"	threshold	required	under	SFAS	No.	109.

Due	to	the	adoption	of	SFAS	No.	123R,	we	recognize	excess	tax	benefits	associated	with	share-based	compensation	to	stockholders'	equity	only	when	realized.	When	assessing	whether	excess tax	benefits	relating	to	share-based	compensation	have	been	realized,	we	follow	the	with-and-without	approach,	excluding	any	indirect	effects	of	the	excess	tax	deductions.	Under	this	approach,	excess tax	benefits	related	to	share-based	compensation	are	not	deemed	to	be	realized	until	after	the	utilization	of	all	other	tax	benefits	available	to	us.

Effective	January	1,	2007,	we	adopted	FASB	Interpretation	(FIN)	No.	48,	Accounting	for	Uncertainty	in	Income	Taxes	—	an	interpretation	of	FASB	Statement	No.	109,	which	clarifies	the accounting	for	uncertainty	in	tax	positions.	FIN	No.	48	requires	that	we	recognize	the	impact	of	a	tax	position	in	our	financial	statements	only	if	that	position	is	more	likely	than	not	of	being	sustained upon	examination	by	taxing	authorities,	based	on	the	technical	merits	of	the	position.	Any	interest	and	penalties	related	to	uncertain	tax	positions	will	be	reflected	in	income	tax	expense.

# Results	of	Operations

To	enhance	comparability,	the	following	table	sets	forth	audited	consolidated	statement	of	operations	data	for	the	years	ended	December	28,	2008,	December	30,	2007	and	December	31, 2006	stated	as	a	percentage	of	total	revenue.

|  | Year	Ended<br>December	28,<br>2008 | Year	Ended<br>December	30,<br>2007 | Year	Ended<br>December	31,<br>2006 |
| :--- | :--- | :--- | :--- |
| Revenue: |  |  |  |
| Product\trevenue | 93% | 89% | 84% |
| Service\tand\tother\trevenue | 7 | 11 | 16 |
| Total\trevenue | 100 | 100 | 100 |
| Costs\tand\texpenses: |  |  |  |
| Cost\tof\tproduct\trevenue | 34 | 33 | 28 |
| Cost\tof\tservice\tand\tother\trevenue | 2 | 3 | 5 |
| Research\tand\tdevelopment | 17 | 20 | 18 |
| Selling,\tgeneral\tand\tadministrative | 26 | 27 | 29 |
| Impairment\tof\tmanufacturing\tequipment | 1 | — | — |
| Amortization\tof\tintangible\tassets | 2 | 1 | — |
| Acquired\tin-process\tresearch\tand\tdevelopment | 4 | 83 | — |
| Litigation\tsettlements | — | 15 | — |
| Total\tcosts\tand\texpenses | 86 | 182 | 80 |
| Income\t(loss)\tfrom\toperations | 14 | (82) | 20 |
| Interest\tincome | 2 | 4 | 3 |
| Interest\tand\tother\texpense,\tnet | — | (1) | — |
| Income\t(loss)\tbefore\tincome\ttaxes | 16 | (79) | 23 |
| Provision\t(benefit)\tfor\tincome\ttaxes | 7 | (3) | 1 |
| Net\tincome\t(loss) | 9% | (76)% | 22% |

Our	fiscal	year	is	the	52	or	53	weeks	ending	the	Sunday	closest	to	December	31,	with	quarters	of	13	or	14	weeks	ending	the	Sunday	closest	to	March	31,	June	30,	and	September	30.	The	years ended	December	28,	2008	and	December	30,	2007	were	both	52	weeks.

# Revenue

|  | Year	Ended<br>December	28,<br>2008 | Year	Ended<br>December	30,<br>2007 | Percentage<br>Change |
| :--- | :--- | :--- | :--- |
|  | (In\tthousands) |  |  |
| Product\trevenue | $532,390 | $326,699 | 63% |
| Service\tand\tother\trevenue | 40,835 | 40,100 | 2 |
| Total\trevenue | $573,225 | $366,799 | 56% |

Product	revenue	consists	of	revenue	from	the	sale	of	consumables,	instruments,	oligos	and	associated	freight	charges.	The	increase	in	product	revenue	was	driven	primarily	by	sales	of	our Infinium	BeadChips,	sequencing	systems	and	sequencing	consumables.	Consumables	and	instruments	constituted	63%	and	35%	of	product	revenue	for	the	year	ended	December	28,	2008,	respectively, compared	to	59%	and	37%	for	the	year	ended	December	30,	2007,	respectively.

Consumable	revenue	increased	by	$140.2	million	over	prior	year.	Growth	in	consumable	revenue	was	primarily	attributable	to	strong	demand	for	our	Infinium	and	sequencing	products,	which led	to	increased	sales	of	$104.8	million	and	$35.4	million,	respectively.	The	increase	in	revenue	associated	with	our	Infinium	products	can	be	mainly	attributed	to	the	strong	demand	for	our	Infinium High-Density	BeadChips,	particularly	the	Human610-Quad,	which	we	began	shipping	during	the	first	quarter	of	2008.	Of	the	overall	increase	in	Infinium	BeadChip	sales,	approximately	79%	is	due	to new	product	introductions	with	higher	average	selling	prices,	while	the	remaining	21%	can	be	attributed	to	increased	volume.	The	increase	in	sequencing	consumables	is	primarily	attributable	to	the growth	in	our	installed	base	of	instruments	and	the	progression	of	customer	labs	ramping	to	production	scale.

Instrument	revenue	increased	by	$64.8	million	over	prior	year,	of	which	$63.0	million	was	due	to	increased	sales	of	our	sequencing	systems.	This	increase	in	revenue	can	be	primarily	attributed to	shipments	of	our	second	generation	Genome	Analyzer,	the	Genome	Analyzer	II	(GAII).	Additionally,	during	the	second	quarter	of	2008,	we	launched	the	iScan	System,	our	next-generation BeadChip	scanner	to	replace	the	BeadArray	Reader.	Any	increase	in	revenue	resulting	from	shipments	of	this	new	system	was	offset	by	a	reduction	in	sales	of	our	BeadArray	Reader	as	we	stopped manufacturing	this	product	upon	the	launch	of	our	iScan	System.

We	expect	to	see	continued	growth	in	product	revenue,	which	can	be	mainly	attributed	to	the	anticipated	launch	of	several	new	products,	sales	of	existing	products	and	the	growth	of	our	installed base	of	instruments.

Service	and	other	revenue	includes	revenue	generated	from	genotyping	and	sequencing	service	contracts,	extended	warranty	contracts,	and	research	revenue.	The	increase	in	service	and	other revenue	is	primarily	due	to	an	increase	of	$3.1	million	in	extended	warranty	sales	coupled	with	an	increase	of	$2.0	million	in	sequencing	service	contracts.	This	increase	was	substantially	offset	by	a decline	of	$4.7	million	in	our	Fast	Track	genotyping	service	contracts	as	we	shift	more	towards	CSPro	certified	customers.	CSPro	is	a	collaborative	program	through	which	we	certify	third	party	service partners	using	our	products	to	ensure	delivery	of	performance	and	data	quality	equivalent	to	that	available	from	our	internal	service	offering.	The	decline	in	service	revenue	as	a	result	of	the	shift	to CSPro	certified	customers	has	been	offset	by	the	resulting	increase	in	our	consumable	sales	to	these	third	party	service	providers.	If	product	sales	increase,	we	expect	to	see	continued	increases	in	the sale	of	our	extended	warranty	contracts.	We	also	expect	sales	from	SNP	genotyping	and	sequencing	service	contracts	to	fluctuate	on	a	yearly	and	quarterly	basis,	depending	on	the	mix,	the	number	of contracts	completed	and	the	success	of	our	certified	service	providers.	The	timing	of

completion	of	SNP	genotyping	and	sequencing	service	contracts	is	highly	dependent	on	the	customers'	schedules	for	delivering	the	SNPs	and	samples	to	us.

# Cost	of	Product	and	Service	and	Other	Revenue

|  | Year	Ended<br>December	28,<br>2008 | Year	Ended<br>December	30,<br>2007 | Percentage<br>Change |
| :--- | :--- | :--- | :--- |
|  | (In\tthousands) |  |  |
| Cost\tof\tproduct\trevenue | $192,868 | $119,991 | 61% |
| Cost\tof\tservice\tand\tother\trevenue | 12,756 | 12,445 | 2 |
| Total\tcost\tof\tproduct\tand\tservice\tand\tother\trevenue | $205,624 | $132,436 | 55% |

Cost	of	revenue,	which	excludes	impairment	of	manufacturing	equipment	and	amortization	of	intangible	assets,	represents	manufacturing	costs	incurred	in	the	production	process,	including component	materials,	assembly	labor	and	overhead,	installation,	warranty,	packaging	and	delivery	costs,	as	well	as	costs	associated	with	performing	genotyping	and	sequencing	services	on	behalf	of our	customers.

The	increase	in	cost	of	product	revenue	was	primarily	driven	by	higher	instrument	and	consumable	sales.	Cost	of	product	revenue	as	a	percentage	of	related	revenue	was	36%	for	the	year	ended December	28,	2008	compared	to	37%	for	the	year	ended	December	30,	2007.	The	decrease	is	primarily	due	to	favorable	product	mix	driven	by	increased	sales	of	our	new	High-Density	Infinium Beadchips,	with	higher	average	selling	prices	as	compared	to	the	Infinium	Beadchips	sold	in	the	prior	year.	This	was	partially	offset	by	increased	provisions	for	inventory	obsolescence	of	$7.2	million for	the	year	ended	December	28,	2008	compared	to	$1.9	million	for	the	year	ended	December	30,	2007.	The	increase	in	the	inventory	reserve	is	primarily	associated	with	product	transitions.	During	the year,	we	recorded	reserves	for	product	obsolescence	associated	with	the	launch	of	our	new	Infinium	Beadchips	and	the	launch	of	a	new	sequencing	kit.	Instrument	cost	of	sales	as	a	percentage	of	related revenue	increased	slightly	over	the	prior	year	due	to	lower	average	selling	prices	mainly	associated	with	promotional	campaigns	as	we	launched	our	next	generation	Beadarray	Reader,	the	iScan	in	the first	half	of	2008.

Cost	of	service	and	other	revenue	increased	over	the	prior	year	primarily	due	to	higher	extended	warranty	contract	revenue.	Cost	of	service	and	other	revenue	as	a	percentage	of	related	revenue stayed	consistent	at	31%.

#    Research	and	Development	Expenses

| Research	and	Development	Expenses |  |  |  |
| :--- | :--- | :--- | :--- |
|  | Year\tEnded\nDecember\t28,\n2008 | Year\tEnded\nDecember\t30,\n2007 | Percentage\nChange |
|  | (In\tthousands) |  |  |
| Research\tand\tdevelopment | $99,963 | $73,943 | 35% |

Our	research	and	development	expenses	consist	primarily	of	salaries	and	other	personnel-related	expenses,	laboratory	supplies	and	other	expenses	related	to	the	design,	development,	testing	and enhancement	of	our	products.	We	expense	our	research	and	development	expenses	as	they	are	incurred.

Research	and	development	expenses	as	a	percentage	of	revenue	decreased	to	17%	for	the	year	ended	December	28,	2008	compared	to	20%	for	the	year	ended	December	30,	2007.	However, there	was	an	overall	increase	in	research	and	development	expenditures	compared	to	the	prior	year.	Costs	to	support	our	BeadArray	technology	research	activities	increased	$10.4	million	for	the	year ended	December	28,	2008	compared	to	the	year	ended	December	30,	2007,	primarily	due	to	an	overall	increase	in	personnel-related	expenses,	increased	lab	and	material	expenses	associated	with	the establishment	of	our	manufacturing	facility	in	Singapore	and	the	development	of	new	products.	The	continued	development	of	our	Sequencing	technology	resulted	in	increased	research	and development	expenditures	of	$9.1	million	for	the	year	ended	December	28,	2008	compared	to	the	year	ended	December	30,	2007.	In	addition,	non-cash	stock-based	compensation	expense	increased	by $4.1	million	compared	to	the	year	ended	December	30,	2007.	Accrued	compensation	expense	of	$1.5	million

associated	with	contingent	consideration	for	the	Avantome	acquisition	completed	on	August	1,	2008	and	expenses	related	to	the	development	of	our	newly	created	Diagnostics	Business	Unit	of $0.9	million	also	contributed	to	the	increase	in	research	and	development	expense	for	the	year	ended	December	28,	2008.

We	believe	a	substantial	investment	in	research	and	development	is	essential	to	remaining	competitive	and	expanding	into	additional	markets.	Accordingly,	we	expect	our	research	and development	expenses	to	increase	in	absolute	dollars	as	we	expand	our	product	base.

#     Selling,	General	and	Administrative	Expenses

| Selling,	General	and	Administrative	Expenses |  |  |  |
| :--- | :--- | :--- | :--- |
|  | Year\tEnded\nDecember\t28,\n2008 | Year\tEnded\nDecember\t30,\n2007 | Percentage\nChange |
|  | (In\tthousands) |  |  |
| Selling,\tgeneral\tand\tadministrative | $148,014 | $101,256 | 46% |

Our	selling,	general	and	administrative	expenses	consist	primarily	of	personnel	costs	for	sales	and	marketing,	finance,	human	resources,	business	development,	legal	and	general	management,	as well	as	professional	fees,	such	as	expenses	for	legal	and	accounting	services.	Selling,	general	and	administrative	expenses	as	a	percentage	of	revenue	were	26%	for	the	year	ended	December	28,	2008 compared	to	28%	for	the	year	ended	December	30,	2007.	Selling,	general	and	administrative	expenses	for	the	year	ended	December	28,	2008	and	December	30,	2007	included	stock-based	compensation expenses	totaling	$28.5	million	and	$19.4	million,	respectively.

Sales	and	marketing	expenses	increased	$34.1	million	for	the	year	ended	December	28,	2008	compared	to	the	year	ended	December	30,	2007.	The	increase	is	primarily	due	to	increases	of $29.3	million	attributable	to	personnel-related	expenses,	including	salaries,	benefits	and	commissions,	to	support	the	growth	of	our	business.	Included	as	part	of	these	personnel-	related	expenses	is	an increase	in	employee	travel	expenses	of	$4.5	million	due	to	increased	headcount	and	continued	international	expansion.	The	remaining	$4.8	million	variance	is	comprised	of	increases	to	non-personnel- related	costs	of	$2.9	million,	consisting	mainly	of	sales	and	marketing	activities	for	our	existing	and	new	products	and	an	increase	of	$1.9	million	of	non-cash	stock-based	compensation	expense.

General	and	administrative	expense	increased	$12.7	million	during	the	year	ended	December	28,	2008	compared	to	the	year	ended	December	30,	2007	due	to	increases	of	$10.4	million	in personnel-related	expenses	associated	with	the	growth	of	our	business,	$7.2	million	of	non-cash	stock-based	compensation	expense	and	$0.9	million	in	outside	consulting	services	offset	by	a	decrease	of $5.8	million	in	legal	costs	primarily	related	to	the	settlement	of	the	Affymetrix	litigation	during	the	first	quarter	of	2008.

We	expect	our	selling,	general	and	administrative	expenses	to	increase	in	absolute	dollars	as	we	expand	our	staff,	add	sales	and	marketing	infrastructure	and	incur	additional	costs	to	support	the expected	growth	in	our	business.

# Impairment	of	Manufacturing	Equipment

The	impairment	of	manufacturing	equipment	resulted	from	our	assessment	of	recoverability	on	a	portion	of	our	imaging	and	decoding	systems	that	were	no	longer	being	utilized	due	to	the development	of	our	next-generation	system	and	our	transition	to	the	Infinium	HD	product	line.

#     Amortization	of	Intangible	Assets

| Amortization	of	Intangible	Assets |  |  |  |
| :--- | :--- | :--- | :--- |
|  | Year\tEnded\nDecember\t28,\n2008 | Year\tEnded\nDecember\t30,\n2007 | Percentage\nChange |
|  | (In\tthousands) |  |  |
| Amortization\tof\tintangible\tassets | $10,438 | $2,429 | 330% |

Amortization	of	intangible	assets	as	a	percentage	of	revenue	was	2%	and	1%,	respectively,	for	the	year	ended	December	28,	2008	and	year	ended	December	30,	2007.	The	increase	in amortization	expense	is	primarily	due	to	the	settlement	of	our	lawsuit	with	Affymetrix	on	January	9,	2008,	resulting	in	the	recording	of	an	intangible	asset	of	$36.0	million.	See	Note	5	of	Notes	to Consolidated	Financial	Statements	for	further	information	regarding	this	settlement.

We	began	amortizing	this	asset	during	the	first	quarter	of	2008,	causing	an	increase	in	amortization	of	intangible	assets	of	$7.8	million	for	the	year	ended	December	28,	2008.	The	additional increase	of	$0.2	million	during	the	year	ended	December	28,	2008	as	compared	to	the	year	ended	December	30,	2007	represents	an	additional	month	of	amortization	associated	with	the	assets	acquired from	Solexa	that	we	began	amortizing	in	February	2007.

#    Acquired	In-Process	Research	and	Development

As	a	result	of	the	Avantome	acquisition	in	August	2008	and	the	Solexa	acquisition	in	January	2007,	we	recorded	acquired	IPR&D	charges	of	$24.7	million	and	$303.4	million,	respectively.	See Note	2	of	Notes	to	Consolidated	Financial	Statements	for	further	information	regarding	these	acquisitions.

#     Litigation	Settlements

| Litigation	Settlements |  |  |  |
| :--- | :--- | :--- | :--- |
|  | Year\tEnded | Year\tEnded |  |
|  | December\t28, | December\t30, | Percentage |
|  | 2008 | 2007 | Change |
|  | (In\tthousands) |  |  |
| Litigation\tsettlements | $— | $54,536 | (100%) |

During	the	year	ended	December	30,	2007,	we	recorded	a	charge	of	$54.5	million	associated	with	two	settlement	agreements.	The	total	charge	is	comprised	primarily	of	$54.0	million	related	to a	$90.0	million	settlement	with	Affymetrix	entered	into	on	January	9,	2008	for	certain	patent	litigation	between	the	parties.	See	Note	5	of	Notes	to	Consolidated	Financial	Statements	for	further information	regarding	the	Affymetrix	settlement.

#     Interest	Income

Interest	income	on	our	cash	and	cash	equivalents	and	investments	decreased	$3.5	million	during	the	year	ended	December	28,	2008	compared	to	the	year	ended	December	30,	2007.	The decrease	was	primarily	driven	by	the	overall	decline	in	interest	rates	due	to	current	market	conditions	coupled	with	a	change	in	our	cash	and	investment	portfolio	to	a	mix	of	shorter	duration	maturities and	an	increased	number	of	agency-rated	investments.

#     Interest	and	Other	Expense,	Net

| Interest	and	Other	Expense,	Net |  |  |  |
| :--- | :--- | :--- | :--- |
|  | Year\tEnded\nDecember\t28,\n2008 | Year\tEnded\nDecember\t30,\n2007 | Percentage\nChange |
|  | (In\tthousands) |  |  |
| Interest\tand\tother\texpense,\tnet | $(2,070) | $(3,610) | (43%) |

Interest	and	other	expense,	net,	consists	of	interest	expense	and	other	income	and	expenses	primarily	related	to	net	foreign	currency	exchange	transaction	gains	and	losses.	Interest	and	other expense,	net,	increased	$1.5	million	for	the	year	ended	December	28,	2008	compared	to	the	year	ended	December	30,	2007.

Interest	expense	related	to	our	convertible	debt	issued	in	February	2007	was	$4.0	million	and	$3.6	million,	respectively,	for	the	year	ended	December	28,	2008	and	the	year	ended	December	30, 2007.	The	increase	represents	an	additional	month	and	a	half	of	interest	expense	recorded	in	the	year	ended	December	28,	2008	compared	to	the	year	ended	December	30,	2007.

In	addition,	we	recorded	$1.9	million	in	net	foreign	currency	transaction	gains	for	the	year	ended	December	28,	2008	compared	to	immaterial	losses	recorded	in	the	year	ended	December	30, 2007.	The	gains	resulting	from	our	net	foreign	currency	transactions	for	the	year	ended	December	28,	2008	are	due	to	fluctuations	in	foreign	currency	exchange	rates	coupled	with	a	change	in	our foreign	entity	functional	currency	designation	from	the	local	currency	to	the	U.S.	dollar	beginning	the	third	quarter	of	2008.	As	a	result	of	this	change,	in	the	third	quarter	we	began	re-measuring	our foreign	subsidiaries'	nonmonetary	assets	and	liabilities	and	related	income	and	expense	accounts	to	the	U.S.	dollar	and	recording	the	resulting	net	gain	as	income.	Previously,	under	local	functional currency	designation,	the	effects	of	translation	were	recorded	within	stockholders'	equity	as	other	comprehensive	income	(loss).

#     Provision	(benefit)	for	Income	Taxes

The	provision	consists	of	federal,	state	and	foreign	income	tax	expense	for	the	years	ended	December	28,	2008	and	December	30,	2007,	respectively.	In	addition	for	the	year	ended December	30,	2007,	the	provision	was	reduced	by	$17.1	million	as	a	result	of	the	release	of	the	valuation	allowance	against	a	significant	portion	of	our	U.S.	deferred	tax	assets.

As	of	December	28,	2008,	we	had	net	operating	loss	carryforwards	for	federal	and	state	tax	purposes	of	$87.7	million	and	$148.3	million,	respectively,	which	begin	to	expire	in	2025	and	2013, respectively,	unless	previously	utilized.	In	addition,	we	also	had	U.S.	federal	and	state	research	and	development	tax	credit	carryforwards	of	$12.6	million	and	$13.9	million,	respectively,	which	begin	to expire	in	2018	and	2019,	respectively,	unless	previously	utilized.

Pursuant	to	Section	382	and	383	of	the	Internal	Revenue	Code,	utilization	of	our	net	operating	losses	and	credits	may	be	subject	to	annual	limitations	in	the	event	of	any	significant	future changes	in	our	ownership	structure.	These	annual	limitations	may	result	in	the	expiration	of	net	operating	losses	and	credits	prior	to	utilization.	Previous	limitations	due	to	Section	382	and	383	have been	reflected	in	the	deferred	tax	assets	as	of	December	28,	2008.

Based	on	the	available	evidence	as	of	December	28,	2008,	we	were	not	able	to	conclude	it	was	more	likely	than	not	certain	U.S.	and	foreign	deferred	tax	assets	will	be	realized.	Therefore,	we have	recorded	a	valuation	allowance	of	$2.8	million	and	$12.4	million	against	certain	U.S.	and	foreign	deferred	tax	assets,	respectively.	At	December	30,	2007,	we	concluded	that	it	was	more	likely than	not	that	a	significant	portion	of	our	deferred	tax	assets	will	be	realized	and,	accordingly,	we	released	a	portion	of	our	valuation	allowance,	$17.1	million,	of	which	was	recorded	as	a	reduction	to	the tax	provision.

As	of	December	28,	2008,	no	material	changes	have	been	made	to	our	uncertain	tax	positions	recorded	in	accordance	with	FIN	No.	48,	Accounting	for	Uncertainty	in	Income	Taxes	—	an Interpretation	of	FASB	Statement	No.	109.

Our	fiscal	year	is	52	or	53	weeks	ending	the	Sunday	closest	to	December	31,	with	quarters	of	13	or	14	weeks	ending	the	Sunday	closest	to	March	31,	June	30,	and	September	30.	The	years ended	December	30,	2007	and	December	31,	2006	were	both	52	weeks.

|  | Year	Ended<br>December	30,<br>2007 | Year	Ended<br>December	31,<br>2006 | Percentage<br>Change |
| :--- | :--- | :--- | :--- |
|  | (In\tthousands) |  |  |
| Product\trevenue | $326,699 | $155,811 | 110% |
| Service\tand\tother\trevenue | 40,100 | 28,775 | 39 |
| Total\trevenue | $366,799 | $184,586 | 99% |

Product	revenue	consists	of	revenue	from	the	sale	of	consumables,	instruments,	oligos	and	associated	freight	charges.	Consumables	and	instruments	constituted	59%	and	37%	of	product	revenue for	the	year	ended	December	30,	2007,	respectively,	compared	to	64%	and	28%	for	the	year	ended	December	31,	2006,	respectively.	The	change	in	sales	associated	with	our	product	mix	is	due	to increased	sales	in	instruments	primarily	attributable	to	the	Genome	Analyzer,	which	was	introduced	during	the	first	quarter	of	2007.	Growth	in	consumable	revenue	was	primarily	attributable	to	strong demand	for	our	Infinium	products.

Consumable	revenue	increased	by	$93.6	million	over	prior	year,	of	which	$81.1	million	primarily	represents	increased	sales	volume	of	our	Infinium	products.	The	increase	in	revenue	associated with	our	Infinium	products	can	be	mainly	attributed	to	our	HumanHap	family	of	BeadChips,	the	Human	1M	DNA	Analysis	BeadChip	and	our	iSelect	Infinium	BeadChips	for	more	focused	content applications.	Of	the	overall	increase	in	Infinium	BeadChip	sales,	approximately	82%	is	due	to	a	higher	volume	of	shipments,	while	the	remaining	18%	can	be	attributed	to	new	product	introductions	and slightly	higher	average	selling	prices.

Instrument	revenue	increased	by	$77.6	million	over	prior	year,	of	which	$68.7	million	was	due	to	increased	sales	of	our	sequencing	systems,	particularly	the	Genome	Analyzer	and	cluster stations.

Service	and	other	revenue	includes	revenue	generated	from	genotyping	and	sequencing	service	contracts,	extended	warranty	contracts	and	research	revenue.	Service	and	other	revenue	increased $11.3	million	over	prior	year	primarily	due	to	the	completion	of	several	significant	Infinium	and	iSelect	custom	SNP	genotyping	service	contracts	and	sequencing	services	contracts.	This	increase	in services	represented	$9.9	million	of	the	variance,	while	the	remainder	of	the	difference	was	generated	by	an	increase	in	extended	warranty	contracts	of	$2.2	million	offset	by	a	decrease	in	grant	revenue of	$0.8	million.	We	expect	sales	from	SNP	genotyping	and	sequencing	services	contracts	to	fluctuate	on	a	yearly	and	quarterly	basis,	depending	on	the	mix	and	number	of	contracts	that	are	completed. The	timing	of	completion	of	SNP	genotyping	and	sequencing	services	contracts	are	highly	dependent	on	the	customers'	schedules	for	delivering	the	SNPs	and	samples	to	us.

|  | Year	Ended<br>December	30,<br>2007 | Year	Ended<br>December	30,<br>2006 | Percentage<br>Change |
| :--- | :--- | :--- | :--- |
|  | (In\tthousands) |  |  |
| Cost\tof\tproduct\trevenue | $119,991 | $51,271 | 134% |
| Cost\tof\tservice\tand\tother\trevenue | 12,445 | 8,073 | 54 |
| Total\tcost\tof\tproduct\tand\tservice\tand\tother\trevenue | $132,436 | $59,344 | 123% |

Cost	of	revenue,	which	excludes	amortization	of	intangible	assets,	represents	manufacturing	costs	incurred	in	the	production	process,	including	component	materials,	assembly	labor	and overhead,	installation,	warranty,	packaging	and	delivery	costs,	as	well	as	costs	associated	with	performing	genotyping	and	sequencing	services	on	behalf	of	our	customers.

The	increase	in	cost	of	product	revenue	was	primarily	driven	by	higher	instrument	and	consumable	sales.	Cost	of	product	revenue	as	a	percentage	of	related	revenue	was	37%	for	the	year	ended December	30,	2007	compared	to	33%	for	the	year	ended	December	31,	2006.	The	increase	is	primarily	due	to	the	shift	in	product	mix	towards	instruments	mainly	attributable	to	sales	of	our	sequencing systems,	which	were	introduced	during	the	first	quarter	of	2007.	In	addition,	cost	of	product	revenue	as	a	percentage	of	related	revenue	was	adversely	impacted	by	the	increase	in	non-cash	stock-based compensation	expense	as	well	as	$0.7	million	associated	with	the	amortization	of	inventory	revaluation	costs	related	to	our	acquisition	of	Solexa	in	January	2007.	Non-cash	stock-based	compensation expense	was	$4.0	million	and	$1.3	million	for	the	periods	ended	December	30,	2007	and	December	31,	2006,	respectively.

Cost	of	service	revenue	increased	over	the	prior	year	primarily	due	to	higher	sequencing	and	genotyping	services	revenue.	Cost	of	service	revenue	as	a	percentage	of	related	revenue	was	31% for	the	year	ended	December	30,	2007	compared	to	28%	for	the	year	ended	December	31,	2006.	The	increase	in	cost	of	service	revenue	as	a	percentage	of	related	revenue	was	primarily	related	to unfavorable	product	mix	driven	by	higher	sales	of	our	sequencing	services,	which	were	introduced	during	2007.

Research	and	development	expenses	increased	to	$73.9	million	for	the	year	ended	December	30,	2007	compared	to	$33.4	million	for	the	year	ended	December	31,	2006.	Research	and development	expenses	as	a	percentage	of	total	revenue	were	20%	for	the	year	ended	December	30,	2007	compared	to	18%	for	the	year	ended	December	31,	2006.	Of	the	increase	for	the	year	ended December	30,	2007,	$27.0	million	was	due	to	higher	research	and	development	expenses	associated	with	our	acquisition	of	Solexa	in	January	2007.	Costs	to	support	our	BeadArray	technology	research activities	increased	$8.5	million	for	the	year	ended	December	30,	2007	compared	to	the	year	ended	December	31,	2006,	primarily	due	to	an	overall	increase	in	personnel-related	expenses	and	increased lab	and	material	expenses.	Several	new	Infinium	chip	products,	including	the	Human	1M	DNA	Analysis	BeadChip,	HumanCNV370-Duo	BeadChip	and	HumanHap550-Duo	BeadChip,	have	been introduced	to	the	market	in	2007.	In	addition,	non-cash	stock-based	compensation	expense	increased	$6.1	million	compared	to	the	year	ended	December	31,	2006.	These	increases	were	partially	offset by	a	$1.0	million	decrease	in	research	and	development	expenses	related	to	the	VeraCode	technology	compared	to	the	year	ended	December	31,	2006.	We	began	shipping	our	BeadXpress	System, which	is	based	on	our	VeraCode	technology,	during	the	first	quarter	of	2007.	As	a	result	of	completing	the	development	of	this	product,	the	related	research	and	development	expenses	have	decreased.

Our	selling,	general	and	administrative	expenses	consist	primarily	of	personnel	costs	for	sales	and	marketing,	finance,	human	resources,	business	development,	legal	and	general	management,	as well	as	professional	fees,	such	as	expenses	for	legal	and	accounting	services.	Selling,	general	and	administrative	expenses	increased	to	$101.3	million	for	the	year	ended	December	30,	2007	compared	to $54.1	million	for	the	year	December	31,	2006.

Sales	and	marketing	expense	increased	$24.5	million	during	the	year	ended	December	30,	2007	compared	to	the	year	ended	December	31,	2006.	The	increase	is	primarily	due	to	increases	of $18.6	million	attributable	to	personnel-related	expenses	to	support	the	growth	of	our	business,	$3.3	million	of	non-cash	stock-based	compensation	expense	and	$2.6	million	attributable	to	other non-personnel-related	expenses	consisting	mainly	of	sales	and	marketing	activities	for	our	existing	and	new	products.

General	and	administrative	expense	increased	$22.7	million	during	the	year	ended	December	30,	2007	compared	to	the	year	ended	December	30,	2006	due	to	increases	of	$8.7	million	in personnel-related	expenses	associated	with	the	growth	of	our	business,	$7.2	million	of	non-cash	stock-based	compensation	expense,	$3.4	million	in	outside	legal	fees	and	$3.3	million	in	other	outside service	expenses,	primarily	due	to	increases	in	consulting	fees	and	increased	tax,	audit,	and	other	public	company	costs.

Amortization	of	intangible	assets	totaled	$2.4	million	for	the	year	ended	December	30,	2007.	There	was	no	amortization	of	acquired	intangibles	for	the	year	ended	December	31,	2006.	The amount	amortized	in	2007	represents	the	amortization	of	our	intangible	assets	acquired	from	Solexa	in	January	2007.

During	the	year	ended	December	30,	2007,	we	recorded	$303.4	million	of	acquired	IPR&D	resulting	from	the	Solexa	acquisition.	At	the	acquisition	date,	Solexa's	ongoing	research	and development	initiatives	were	primarily	involved	with	the	development	of	its	genetic	analysis	platform	for	sequencing	and	expression	profiling.	These	in-process	research	and	development	projects	are comprised	of	Solexa's	reversible	terminating	nucleotide	biochemistry	platform,	referred	to	as	sequencing-by-synthesis	(SBS)	biochemistry,	as	well	as	Solexa's	reagent,	analyzer	and	sequencing	services related	technologies,	which	were	valued	at	$237.2	million,	$44.2	million,	$19.1	million	and	$2.9	million,	respectively,	at	the	acquisition	date.	Although	these	projects	were	approximately	95%	complete at	the	acquisition	date,	they	had	not	reached	technological	feasibility	and	had	no	alternative	future	use.	Accordingly,	the	amounts	allocated	to	those	projects	were	written	off	in	the	first	quarter	of	2007, the	period	the	acquisition	was	consummated.	Acquisitions	of	businesses,	products	or	technologies	by	us	in	the	future	may	result	in	substantial	charges	for	acquired	IPR&D	that	may	cause	fluctuations	in our	interim	or	annual	operating	results.	There	were	no	charges	resulting	from	any	acquisitions	during	the	same	period	in	fiscal	2006.

During	the	year	ended	December	30,	2007,	we	recorded	a	charge	of	$54.5	million	associated	with	two	settlement	agreements	entered	into	subsequent	to	year-end.	The	total	charge	is	comprised primarily	of	$54.0	million	related	to	a	$90.0	million	settlement	with	Affymetrix	entered	into	on	January	9,	2008	for	certain	patent	litigation	between	the	parties.	See	Note	5	of	Notes	to	Consolidated Financial	Statements	for	further	information	regarding	this	settlement.

Interest	income	on	our	cash	and	cash	equivalents	and	investments	was	$16.0	million	and	$5.4	million	for	the	years	ended	December	30,	2007	and	December	31,	2006,	respectively.	The	increase in	interest	income	over	the	prior	year	was	primarily	driven	by	higher	cash	balances	from	the	proceeds	of	our	February	2007	convertible	debt	offering,	cash	acquired	as	part	of	the	Solexa	acquisition,	and improved	operating	cash	flow.	In	addition,	we	experienced	higher	effective	interest	rates	on	our	cash	equivalents	and	short-term	investments.

Interest	and	other	expense,	net,	consists	of	interest	expense	and	other	income	and	expenses	related	to	net	foreign	currency	exchange	transaction	gains	and	losses.	Interest	and	other	expense,	net, increased	to	$3.6	million	for	the	year	ended	December	30,	2007,	compared	to	$0.6	million	for	the	year	ended	December	31,	2006.

Interest	expense	was	$3.6	million	for	the	year	ended	December	30,	2007,	compared	to	an	immaterial	amount	for	the	year	ended	December	31,	2006.	The	increase	is	primarily	related	to	our convertible	debt	offering	in	February	2007.	For	the	years	ended	December	30,	2007	and	December	31,	2006,	we	recorded	$0.5	million	and	$0.4	million,	respectively,	in	net	foreign	currency	transaction losses,	respectively.	In	2007,	these	foreign	currency	exchange	losses	were	offset	by	$0.5	million	of	foreign	currency	exchange	gains	associated	with	the	sale	of	our	secured	convertible	debentures	with Genizon	BioSciences,	Inc.	in	the	fourth	quarter	of	2007.

The	provision	(benefit)	for	income	taxes	was	($10.4)	million	and	$2.7	million	for	the	years	ended	December	30,	2007	and	December	31,	2006,	respectively.	The	provision	consists	of	federal, state,	and	foreign	income	tax	expense	offset	in	2007	by	the	release	of	the	valuation	allowance	against	a	significant	portion	of	our	U.S.	deferred	tax	assets.

During	the	year	ended	December	30,	2007,	we	utilized	$72.9	million	and	$10.8	million	of	our	federal	and	state	net	operating	loss	carryforwards,	respectively,	to	reduce	our	federal	and	state income	taxes.	As	of	December	30,	2007,	we	had	net	operating	loss	carryforwards	for	federal	and	state	tax	purposes	of	$28.7	million	and	$99.1	million,	respectively,	which	begin	to	expire	in	2025	and 2015,	respectively,	unless	previously	utilized.	In	addition,	we	also	had	U.S.	federal	and	state	research	and	development	tax	credit

carryforwards	of	$9.2	million	and	$9.3	million	respectively,	which	begin	to	expire	in	2018	and	2019	respectively,	unless	previously	utilized.

Pursuant	to	Section	382	and	383	of	the	Internal	Revenue	Code,	utilization	of	our	net	operating	losses	and	credits	may	be	subject	to	annual	limitations	in	the	event	of	any	significant	future changes	in	our	ownership	structure.	These	annual	limitations	may	result	in	the	expiration	of	net	operating	losses	and	credits	prior	to	utilization.	Previous	limitations	due	to	Section	382	and	383	have been	reflected	in	the	deferred	tax	assets	as	of	December	30,	2007.

As	of	December	30,	2007,	we	concluded	that	it	is	more	likely	than	not	that	a	significant	portion	of	our	deferred	tax	assets	will	be	realized	and,	accordingly	we	released	a	portion	of	our	valuation allowance,	$17.1	million	of	which	was	recorded	as	a	reduction	to	the	tax	provision.	In	addition,	we	established	current	and	long	term	deferred	tax	assets	on	the	consolidated	balance	sheets	of $26.8	million	and	$80.1	million,	respectively,	and	decreased	the	goodwill	balances	recorded	in	conjunction	with	the	CyVera	and	Solexa	acquisitions	by	$2.1	million	and	$18.4	million,	respectively. Based	upon	the	available	evidence	as	of	December	30,	2007,	we	are	not	able	to	conclude	it	is	more	likely	than	not	certain	U.S.	and	foreign	deferred	tax	assets	will	be	realized.	Therefore,	we	have recorded	a	valuation	allowance	of	$2.9	million	and	$25.4	million	against	certain	U.S.	and	foreign	deferred	tax	assets,	respectively.

# Liquidity	and	Capital	Resources

# Cashflow

|  | Year	Ended | Year	Ended | Year	Ended |
| :--- | :--- | :--- | :--- |
|  | December\t28, | December\t30, | December\t31, |
|  | 2008 | 2007 | 2006 |
|  |  | (In\tthousands) |  |
| Net\tcash\tprovided\tby\toperating\tactivities | $87,882 | $56,294 | $39,000 |
| Net\tcash\tused\tin\tinvesting\tactivities | (277,249) | (67,686) | (160,735) |
| Net\tcash\tprovided\tby\tfinancing\tactivities | 337,672 | 148,292 | 109,296 |
| Effect\tof\tforeign\tcurrency\ttranslation | 3,778 | (345) | 3 |
| Net\tincrease\t(decrease)\tin\tcash\tand\tcash\tequivalents | $152,083 | $136,555 | $(12,436) |

Historically,	our	sources	of	cash	have	included:

•	issuance	of	equity	and	debt	securities,	including	cash	generated	from	the	issuance	of	our	convertible	notes	in	February	2007,	our	public	offering	of	common	stock	in	August	2008	and	the exercise	of	stock	options	and	participation	in	our	Employee	Stock	Purchase	Plan	(ESPP);

•	cash	generated	from	operations;	and

Our	historical	cash	outflows	have	primarily	been	associated	with:

•	cash	used	for	operating	activities	such	as	the	purchase	and	growth	of	inventory,	expansion	of	our	sales	and	marketing	and	research	and	development	infrastructure	and	other	working	capital needs;

•	cash	paid	for	litigation	settlements;

•	cash	used	for	our	stock	repurchases;

•	expenditures	related	to	increasing	our	manufacturing	capacity	and	improving	our	manufacturing	efficiency;

•	cash	paid	for	acquisitions;	and

•	interest	payments	on	our	debt	obligations.

Other	factors	that	impact	our	cash	inflow	and	outflow	include:

•	significant	increases	in	our	product	and	services	revenue.	As	our	product	sales	have	increased	significantly	since	2001,	operating	income	has	increased	significantly	as	well,	providing	us with	an	increased	source	of	cash	to	finance	the	expansion	of	our	operations;	and

•	fluctuations	in	our	working	capital.

We	currently	invest	our	funds	in	treasury	notes,	commercial	paper,	auction	rate	securities,	corporate	bonds	and	U.S.	dollar-based	short	maturity	mutual	funds.	We	do	not	hold	securities	backed by	mortgages.

As	of	December	28,	2008,	we	had	cash,	cash	equivalents	and	investments	of	$696.0	million	compared	to	$386.1	million	as	of	December	30,	2007.	Included	in	the	investment	balance	as	of December	28,	2008	were	auction	rate	securities	of	$55.9	million	issued	primarily	by	municipalities	and	universities.	The	markets	for	auction	rate	securities	effectively	ceased	when	the	vast	majority	of auctions	failed	in	February	2008,	preventing	investors	from	selling	their	auction	rate	securities.	As	of	December	28,	2008,	the	securities	continued	to	fail	auction	and	remained	illiquid.	As	a	result,	we have	recorded	an	unrealized	loss	of	$8.7	million	for	the	year	ended	December	28,	2008,	resulting	in	a	reduction	to	the	fair	value	of	our	auction	rate	securities	to	$47.2	million	as	of	December	28,	2008. This	value	was	determined	in	accordance	with	SFAS	No.	157.	We	used	Level	3	hierarchical	inputs,	due	to	the	lack	of	actively	traded	market	data,	including	management's	assumptions	of	pricing	by market	participants	and	assumptions	about	risk.	We	based	our	fair	value	determination	on	estimated	discounted	future	cash	flows	of	interest	income	over	a	projected	period	reflective	of	the	length	of time	we	anticipate	it	will	take	the	securities	to	become	liquid.	Additionally,	we	classified	these	securities	as	long-term	investments	as	of	December	28,	2008	as	we	believe	we	may	not	be	able	to	liquidate our	investments	within	the	next	year.	As	of	December	30,	2007,	these	securities	were	classified	as	short-term	as	the	failures	of	these	auctions	did	not	occur	until	February	2008.

In	November	2008,	we	signed	a	settlement	agreement	allowing	us	to	sell	our	auction	rate	securities	at	par	value	to	UBS	at	our	discretion	during	the	period	of	June	30,	2010	through	July	2,	2012. To	account	for	this	settlement	agreement,	we	recorded	a	put	option	of	$8.7	million	and	recognized	a	corresponding	gain	in	earnings	during	the	fourth	quarter	of	2008.	The	fair	value	of	the	put	option	was determined	using	a	discounted	cash	flow	approach	including	estimates	of	interest	rates,	timing	and	amount	of	cash	flow,	with	consideration	given	to	UBS's	financial	ability	to	repurchase	the	auction	rate securities	beginning	June	30,	2010.	The	fair	value	of	the	put	option	approximates	the	difference	between	the	par	value	and	fair	value	of	the	auction	rate	securities.	The	auction	rate	securities	were previously	classified	as	available-for-sale,	and	unrealized	gains	and	losses	were	recognized	in	other	comprehensive	income.	By	signing	the	settlement	agreement,	we	no	longer	have	the	intent	of	holding the	auction	rate	securities	until	recovery	as	we	will	now	recover	any	unrealized	loss	through	the	settlement	agreement.	Accordingly,	we	elected	a	one-time	transfer	of	the	auction	rate	securities	from available-for-sale	to	trading	and	reclassified	previously	recorded	unrealized	losses	from	other	comprehensive	income	to	earnings.	We	will	continue	to	recognize	gains	and	losses	in	earnings approximately	equal	to	changes	in	the	fair	value	of	the	auction	rate	securities	at	each	balance	sheet	date.	These	gains	and	losses	will	likely	be	offset	by	changes	in	the	fair	value	of	the	put	option	as	we elect	the	fair	value	option	subject	to	our	assessment	of	the	counterparties	ability	to	perform.	See	Part	I	Item	1A:	"Risk	Factors	—	Negative	conditions	in	the	global	credit	markets	may	impair	the liquidity	of	a	portion	of	our	investment	portfolio."

The	primary	inflow	of	cash	during	the	year	ended	December	28,	2008	was	from	the	sale	of	8,050,000	shares	of	our	common	stock	to	the	public	in	August	2008	at	a	public	offering	price	of $43.75	per	share,	raising	net	proceeds	to	us	of	$342.6	million,	after	deducting	underwriting	discounts	and	commissions	and	offering	expenses.	Additional	cash	inflows	during	this	year	resulted	from	the sale	and	maturity	of	our	investments	in	available-for-sale	securities	of	$411.8	million	and	$44.3	million	from	the	exercise	of	our	stock	options.

The	primary	cash	outflows	during	the	year	ended	December	28,	2008	were	attributable	to	the	purchase	of	available-for-sale	securities	for	$568.7	million,	the	one-time	payment	of	$90.0	million made	to	Affymetrix	in	accordance	with	the	settlement	agreement,	the	repurchase	of	an	aggregate	of	3.1	million	shares	of	our

common	stock	for	$70.8	million	and	$59.7	million	in	capital	expenditures	primarily	for	construction-in-progress	associated	with	the	expansion	of	our	San	Diego	facilities,	additions	to	manufacturing equipment	as	well	as	the	development	of	our	manufacturing	facility	in	Singapore.	Additionally,	on	August	1,	2008,	we	completed	our	acquisition	of	Avantome,	Inc.	As	consideration	for	the	acquisition, we	paid	$25.8	million	in	cash,	including	transaction	costs,	and	may	pay	up	to	an	additional	$35.0	million	in	contingent	cash	consideration	based	on	the	achievement	of	certain	milestones.

Our	primary	short-term	needs	for	capital,	which	are	subject	to	change,	include	expenditures	related	to:

•	our	facilities	expansion	needs,	including	costs	of	leasing	additional	facilities;

•	the	acquisition	of	equipment	and	other	fixed	assets	for	use	in	our	current	and	future	manufacturing	and	research	and	development	facilities;

•	support	of	our	commercialization	efforts	related	to	our	current	and	future	products,	including	expansion	of	our	direct	sales	force	and	field	support	resources	both	in	the	United	States	and abroad;

•	potential	strategic	acquisitions	and	investments;

•	the	continued	advancement	of	research	and	development	efforts;	and

•	improvements	in	our	manufacturing	capacity	and	efficiency.

We	expect	that	our	product	revenue	and	the	resulting	operating	income,	as	well	as	the	status	of	each	of	our	new	product	development	programs,	will	significantly	impact	our	cash	management decisions.

Our	outstanding	convertible	notes	became	convertible	into	cash	and,	if	applicable,	shares	of	our	common	stock	as	of	April	1,	2008.	The	notes	continued	to	be	convertible	through	December	31, 2008.	Subsequent	to	year	end,	on	December	29,	2008,	a	noteholder	converted	notes	in	an	aggregate	principal	amount	of	$10.0	million.	Generally,	upon	conversion	of	a	note,	we	must	pay	the	conversion value	of	the	note	in	cash,	up	to	the	principal	amount	of	the	note.	Any	excess	of	the	conversion	value	over	the	principal	amount	is	payable	in	shares	of	our	common	stock.	To	reduce	the	potential	equity dilution	upon	conversion	of	the	notes,	we	entered	into	a	hedge	transaction.	See	Note	8	of	Notes	to	Consolidated	Financial	Statements	for	further	discussion	of	the	terms	of	the	Convertible	Senior	Notes. Beginning	January	1,	2009	the	notes	ceased	to	be	convertible	since	the	trigger	for	convertibility	was	not	met	during	the	last	calendar	quarter	of	2008.	Fluctuations	in	our	stock	price	could	cause	the conversion	feature	to	trigger	in	future	quarters,	resulting	in	an	impact	on	our	working	capital.

We	anticipate	that	our	current	cash	and	cash	equivalents	and	income	from	operations	will	be	sufficient	to	fund	our	operating	needs	for	at	least	the	next	twelve	months,	barring	unforeseen circumstances.	Operating	needs	include	the	planned	costs	to	operate	our	business,	including	amounts	required	to	fund	working	capital	and	capital	expenditures.	At	the	present	time,	we	have	no	material commitments	for	capital	expenditures	other	than	development	of	our	additional	facility	in	Little	Chesterford,	United	Kingdom.	The	development	of	this	facility	is	estimated	to	cost	$14.5	million	during 2009	although	actual	costs	may	vary	significantly	from	our	current	estimate.	Our	future	capital	requirements	and	the	adequacy	of	our	available	funds	will	depend	on	many	factors,	including:

•	our	ability	to	successfully	evolve	our	sequencing	and	Veracode	technologies	and	to	expand	our	sequencing	and	SNP	genotyping	product	lines;

•	scientific	progress	in	our	research	and	development	programs	and	the	magnitude	of	those	programs;

•	competing	technological	and	market	developments;	and

•	the	need	to	enter	into	collaborations	with	other	companies	or	acquire	other	companies	or	technologies	to	enhance	or	complement	our	product	and	service	offerings.

As	a	result	of	the	factors	listed	above,	we	may	require	additional	funding	in	the	future.	Our	failure	to	raise	capital	on	acceptable	terms,	when	needed,	could	have	a	material	adverse	effect	on	our business.

# Off-Balance	Sheet	Arrangements

We	do	not	participate	in	any	transactions	that	generate	relationships	with	unconsolidated	entities	or	financial	partnerships,	such	as	entities	often	referred	to	as	structured	finance	or	special purpose	entities	(SPEs),	which	would	have	been	established	for	the	purpose	of	facilitating	off-balance	sheet	arrangements	or	other	contractually	narrow	or	limited	purposes.	During	the	fiscal	year	ended December	28,	2008,	we	were	not	involved	in	any	"off	balance	sheet	arrangements"	within	the	meaning	of	the	rules	of	the	Securities	and	Exchange	Commission.

# Contractual	Obligations

Contractual	obligations	represent	future	cash	commitments	and	liabilities	under	agreements	with	third	parties,	and	exclude	orders	for	goods	and	services	entered	into	in	the	normal	course	of business	that	are	not	enforceable	or	legally	binding.	The	following	table	represents	our	contractual	obligations	as	of	December	28,	2008,	aggregated	by	type	(amounts	in	thousands):

|  |  | Less	Than |  |  | More	Than |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Contractual\tObligation | Total | 1\tYear | 1\t–\t3\tYears | 3\t–\t5\tYears | 5\tYears |
| Long-term\tdebt\tobligations(3) | $413,750 | $2,500 | $5,000 | $5,000 | $401,250 |
| Operating\tleases | 158,240 | 11,032 | 22,945 | 23,378 | 100,885 |
| Amounts\tdue\tunder\texecutive\tdeferred\tcompensation\tplan | 1,348 | — | — | — | — |
| Total | $573,338 | $13,532 | $27,945 | $28,378 | $502,135 |

(1) Excludes	$35.0	million	of	contingent	cash	consideration	we	may	be	required	to	pay	pursuant	to	our	purchase	agreement	with	Avantome	based	on	the	achievement	of	certain	milestones.	We	have not	included	this	amount	in	the	table	above	because	the	commitment	does	not	have	a	fixed	funding	date	and	is	subject	to	certain	conditions.	See	Note	2	of	Notes	to	the	Consolidated	Financial Statements	for	further	discussion	of	our	acquisition	of	Avantome.

(2) Excludes	$23.8	million	of	uncertain	tax	benefits	under	FIN	48.	We	have	not	included	this	amount	in	the	table	above	because	we	cannot	make	a	reasonably	reliable	estimate	regarding	the	timing of	settlements	with	taxing	authorities,	if	any.	See	Note	12	of	Notes	to	the	Consolidated	Financial	Statements	for	further	discussion	of	our	uncertain	tax	positions.

(3) The	"long-term	debt	obligations"	in	the	above	table	include	the	principal	amount	of	our	Convertible	Senior	Notes	and	interest	payments	totaling	0.625%	per	annum.	See	Note	8	of	Notes	to Consolidated	Financial	Statements	for	further	discussion	of	the	terms	of	the	Convertible	Senior	Notes.

# Recent	Accounting	Pronouncements

Information	with	respect	to	recent	accounting	pronouncements	is	included	in	Note	1	of	Notes	to	Consolidated	Financial	Statements.

# Item	7A. Quantitative	and	Qualitative	Disclosures	about	Market	Risk.

# Interest	Rate	Sensitivity

Our	exposure	to	market	risk	for	changes	in	interest	rates	relates	primarily	to	our	investment	portfolio.	The	fair	market	value	of	fixed	rate	securities	may	be	adversely	impacted	by	fluctuations	in interest	rates	while	income	earned	on	floating	rate	securities	may	decline	as	a	result	of	decreases	in	interest	rates.	Under	our	current	policies,	we	do	not	use	interest	rate	derivative	instruments	to	manage exposure	to	interest	rate	changes.	We	attempt	to	ensure	the	safety	and	preservation	of	our	invested	principal	funds	by	limiting	default	risk,	market	risk	and	reinvestment	risk.	We	mitigate	default	risk	by investing	in	investment	grade	securities.	We	have	historically	maintained	a	relatively	short	average	maturity	for	our	investment	portfolio,	and	we	believe	a	hypothetical	100	basis	point	adverse	move	in interest	rates	along	the	entire	interest	rate	yield	curve	would	not

materially	affect	the	fair	value	of	our	interest	sensitive	financial	instruments.	For	example,	if	a	100	basis	point	change	in	overall	interest	rates	were	to	occur	in	2009,	our	interest	income	would	change	by approximately	$6.4	million	in	relation	to	amounts	we	would	expect	to	earn,	based	on	our	cash,	cash	equivalents,	and	short-term	investments	as	of	December	28,	2008.

# Market	Price	Sensitive	Instruments

In	order	to	potentially	reduce	equity	dilution,	we	entered	into	convertible	note	hedge	transactions,	entitling	us	to	purchase	up	to	18,322,320	shares	of	our	common	stock	at	a	strike	price	of	$21.83 per	share,	subject	to	adjustment.	In	addition,	we	sold	to	the	counterparties	warrants	exercisable	on	a	net-share	basis,	for	up	to	18,322,320	shares	of	our	common	stock	at	a	strike	price	of	$31.435	per share,	subject	to	adjustment.	The	anti-dilutive	effect	of	the	note	hedge	transactions,	if	any,	could	be	partially	or	fully	offset	to	the	extent	the	trading	price	of	our	common	stock	exceeds	the	strike	price	of the	warrants	on	the	exercise	dates	of	the	warrants,	which	occur	during	2014,	assuming	the	warrants	are	exercised.

# Foreign	Currency	Exchange	Risk

We	have	operations	in	the	Americas,	Europe	and	Asia-Pacific.	As	a	result,	our	financial	position,	results	of	operations	and	cash	flows	can	be	affected	by	fluctuations	in	foreign	currency exchange	rates.	The	functional	currency	for	each	of	our	subsidiaries	is	the	U.S.	dollar.	Accordingly,	we	remeasure	the	monetary	assets	and	liabilities	of	our	foreign	subsidiaries	to	the	U.S.	dollar	at month-end	exchange	rates	and	remeasure	the	nonmonetary	assets	and	liabilities	to	the	U.S.	dollar	at	historical	rates.	Income	and	expense	amounts	related	to	monetary	assets	and	liabilities	are remeasured	to	the	U.S.	dollar	at	the	weighted	average	exchange	rates	in	effect	during	the	relevant	period,	and	income	and	expense	accounts	related	to	nonmonetary	assets	and	liabilities	are	remeasured to	the	U.S.	dollar	at	historical	exchange	rates.	Remeasurement	gains	and	losses	are	recognized	as	income,	or	expense,	in	the	period	of	occurrence.

In	addition,	many	of	our	reporting	entities	conduct	a	portion	of	their	business	in	currencies	other	than	the	entity's	U.S.	functional	currency.	These	transactions	give	rise	to	receivables	and payables	that	are	denominated	in	currencies	other	than	the	entity's	functional	currency.	The	value	of	these	receivables	and	payables	is	subject	to	changes	in	exchange	rates	because	they	may	become worth	more	or	less	than	they	were	worth	at	the	time	we	entered	into	the	transaction	due	to	changes	in	exchange	rates.	Both	realized	and	unrealized	gains	or	losses	on	the	value	of	these	receivables	and payables	are	included	in	the	determination	of	net	income.	The	net	currency	exchange	gain	recognized	on	business	transactions	was	$1.9	million	for	the	year	ended	December	28,	2008	and	is	included	in other	income	and	expense	in	the	consolidated	statements	of	operations.

# Item	8. Financial	Statements	and	Supplementary	Data.

The	Report	of	Independent	Registered	Public	Accounting	Firm,	Financial	Statements	and	Notes	to	Financial	Statements	begin	on	page	F-1	immediately	following	the	signature	page	and	are incorporated	herein	by	reference.

# Item	9. Changes	In	and	Disagreements	with	Accountants	on	Accounting	and	Financial	Disclosure.

# Item	9A. Controls	and	Procedures.

We	design	our	internal	controls	to	provide	reasonable	assurance	that	(1)	our	transactions	are	properly	authorized;	(2)	our	assets	are	safeguarded	against	unauthorized	or	improper	use;	and	(3)	our transactions	are	properly	recorded	and	reported	in	conformity	with	U.S.	generally	accepted	accounting	principles.	We	also	maintain	internal	controls	and	procedures	to	ensure	that	we	comply	with applicable	laws	and	our	established	financial	policies.

We	have	carried	out	an	evaluation,	under	the	supervision	and	with	the	participation	of	our	management,	including	our	principal	executive	officer	and	principal	financial	officer,	of	the effectiveness	of	the	design	and

operation	of	our	disclosure	controls	and	procedures	(as	defined	in	Rules	13a-15(e)	and	15d-15(e)	under	the	Securities	Exchange	Act	of	1934,	as	amended,	or	the	Securities	Exchange	Act),	as	of December	28,	2008.	Based	upon	that	evaluation,	our	principal	executive	officer	and	principal	financial	officer	concluded	that,	as	of	December	28,	2008,	our	disclosure	controls	and	procedures	were effective	to	ensure	that	(a)	the	information	required	to	be	disclosed	by	us	in	the	reports	that	we	file	or	submit	under	the	Securities	Exchange	Act	is	recorded,	processed,	summarized	and	reported	within the	time	periods	specified	in	the	SEC's	rules	and	forms,	and	(b)	such	information	is	accumulated	and	communicated	to	our	management,	including	our	principal	executive	officer	and	principal	financial officers,	or	persons	performing	similar	functions,	as	appropriate	to	allow	timely	decisions	regarding	required	disclosure.	In	designing	and	evaluating	our	disclosure	controls	and	procedures,	our management	recognized	that	any	controls	and	procedures,	no	matter	how	well	designed	and	operated,	can	provide	only	reasonable	assurance	of	achieving	the	desired	control	objectives,	and	our management	have	concluded	that	the	disclosure	controls	and	procedures	are	effective	at	the	reasonable	assurance	level.	Because	of	inherent	limitations	in	all	control	systems,	no	evaluation	of	controls can	provide	absolute	assurance	that	all	control	issues,	if	any,	within	a	company	have	been	detected.

An	evaluation	was	also	performed	under	the	supervision	and	with	the	participation	of	our	management,	including	our	chief	executive	officer	and	chief	financial	officer,	of	any	change	in	our internal	control	over	financial	reporting	that	occurred	during	the	fourth	quarter	of	2008	and	that	has	materially	affected,	or	is	reasonably	likely	to	materially	affect,	our	internal	control	over	financial reporting.	The	evaluation	did	not	identify	any	such	change.

# MANAGEMENT'S	REPORT	ON	INTERNAL	CONTROL	OVER	FINANCIAL	REPORTING

Our	management	is	responsible	for	establishing	and	maintaining	adequate	internal	control	over	financial	reporting,	as	such	term	is	defined	in	Exchange	Act	Rules	13a-15(f).	Because	of	its inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	all	misstatements.	Therefore,	even	those	systems	determined	to	be	effective	can	provide	only	reasonable	assurance with	respect	to	financial	statement	preparation	and	presentation.

We	conducted	an	evaluation	of	the	effectiveness	of	our	internal	control	over	financial	reporting	based	on	the	framework	in	Internal	Control	—	Integrated	Framework	issued	by	the	Committee	of Sponsoring	Organizations	of	the	Treadway	Commission.	Based	on	our	evaluation	under	the	framework	in	Internal	Control	—	Integrated	Framework,	our	management	concluded	that	our	internal	control over	financial	reporting	was	effective	as	of	December	28,	2008.	The	effectiveness	of	our	internal	control	over	financial	reporting	as	of	December	28,	2008	has	been	audited	by	Ernst	&	Young	LLP,	an independent	registered	accounting	firm,	as	stated	in	their	report	which	is	included	herein.

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM

The	Board	of	Directors	and	Stockholders	of Illumina,	Inc.

We	have	audited	Illumina,	Inc.'s	internal	control	over	financial	reporting	as	of	December	28,	2008,	based	on	criteria	established	in	Internal	Control	—	Integrated	Framework	issued	by	the Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(the	COSO	criteria).	Illumina,	Inc.'s	management	is	responsible	for	maintaining	effective	internal	control	over	financial	reporting, and	for	its	assessment	of	the	effectiveness	of	internal	control	over	financial	reporting	included	in	the	accompanying	Management's	Report	on	Internal	Control	over	Financial	Reporting.	Our responsibility	is	to	express	an	opinion	on	the	company's	internal	control	over	financial	reporting	based	on	our	audit.

We	conducted	our	audit	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan	and	perform	the	audit	to obtain	reasonable	assurance	about	whether	effective	internal	control	over	financial	reporting	was	maintained	in	all	material	respects.	Our	audit	included	obtaining	an	understanding	of	internal	control over	financial	reporting,	assessing	the	risk	that	a	material	weakness	exists,	testing	and	evaluating	the	design	and	operating	effectiveness	of	internal	control	based	on	the	assessed	risk,	and	performing such	other	procedures	as	we	considered	necessary	in	the	circumstances.	We	believe	that	our	audit	provides	a	reasonable	basis	for	our	opinion.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the	preparation	of	financial statements	for	external	purposes	in	accordance	with	generally	accepted	accounting	principles.	A	company's	internal	control	over	financial	reporting	includes	those	policies	and	procedures	that (1)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and	dispositions	of	the	assets	of	the	company;	(2)	provide	reasonable	assurance	that transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in	accordance	with	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are being	made	only	in	accordance	with	authorizations	of	management	and	directors	of	the	company;	and	(3)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized acquisition,	use,	or	disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Also,	projections	of	any	evaluation	of	effectiveness	to	future	periods	are subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the	policies	or	procedures	may	deteriorate.

In	our	opinion,	Illumina,	Inc.	maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of	December	28,	2008,	based	on	the	COSO	criteria.

We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	accompanying	consolidated	balance	sheets	of	Illumina,	Inc.	as of	December	28,	2008	and	December	30,	2007,	and	the	related	consolidated	statements	of	operations,	stockholders'	equity,	and	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	28, 2008	of	Illumina,	Inc.	and	our	report	dated	February	24,	2009	expressed	an	unqualified	opinion	thereon.

# Item	9B. Other	Information.

# Item	10. Directors,	Executive	Officers	and	Corporate	Governance.

(a)	Identification	of	Directors.	Information	concerning	our	directors	is	incorporated	by	reference	from	the	section	entitled	"Proposal	One:	Election	of	Directors"	to	be	contained	in	our	definitive Proxy	Statement	with	respect	to	our	2009	Annual	Meeting	of	Stockholders	to	be	filed	with	the	SEC	no	later	than	April	27,	2009.

(b)	Identification	of	Executive	Officers.	Information	concerning	our	executive	officers	is	set	forth	under	"Executive	Officers"	in	Part	I	of	this	Annual	Report	on	Form	10-K	and	is	incorporated herein	by	reference.

(c)	Compliance	with	Section	16(a)	of	the	Exchange	Act.	Information	concerning	compliance	with	Section	16(a)	of	the	Securities	Exchange	Act	of	1934	is	incorporated	by	reference	from	the section	entitled	"Compliance	with	Section	16(a)	of	the	Securities	Exchange	Act"	to	be	contained	in	our	definitive	Proxy	Statement	with	respect	to	our	2009	Annual	Meeting	of	Stockholders	to	be	filed with	the	SEC	no	later	than	April	27,	2009.

(d)	Information	concerning	the	audit	committee	financial	expert	as	defined	by	the	SEC	rules	adopted	pursuant	to	the	Sarbanes-Oxley	Act	of	2002	is	incorporated	by	reference	from	our	definitive Proxy	Statement	with	respect	to	our	2009	Annual	Meeting	of	Stockholders	to	be	filed	with	the	SEC	no	later	than	April	27,	2009.

# Code	of	Ethics

We	have	adopted	a	code	of	ethics	for	our	directors,	officers	and	employees,	which	is	available	on	our	website	at	www.illumina.com	in	the	Investor	Information	section	under	"Corporate."	The information	on,	or	that	can	be	accessed	from,	our	website	is	not	incorporated	by	reference	into	this	report.

# Item	11. Executive	Compensation.

Information	concerning	executive	compensation	is	incorporated	by	reference	from	the	sections	entitled	"Executive	Compensation	and	Other	Information"	to	be	contained	in	our	definitive	Proxy Statement	with	respect	to	our	2009	Annual	Meeting	of	Stockholders	to	be	filed	with	the	SEC	no	later	than	April	27,	2009.

Information	concerning	the	security	ownership	of	certain	beneficial	owners	and	management	and	information	covering	securities	authorized	for	issuance	under	equity	compensation	plans	is incorporated	by	reference	from	the	sections	entitled	"Ownership	of	Securities"	and	"Equity	Compensation	Plan	Information"	to	be	contained	in	our	definitive	Proxy	Statement	with	respect	to	our	2009 Annual	Meeting	of	Stockholders	to	be	filed	with	the	SEC	no	later	than	April	27,	2009.

# Item	13. Certain	Relationships	and	Related	Transactions,	and	Director	Independence.

Information	concerning	certain	relationships	and	related	transactions,	and	director	independence	is	incorporated	by	reference	from	the	sections	entitled	"Proposal	One:	Election	of	Directors," "Executive	Compensation	and	Other	Information"	and	"Certain	Transactions"	to	be	contained	in	our	definitive	Proxy	Statement	with	respect	to	our	2009	Annual	Meeting	of	Stockholders	to	be	filed	with the	SEC	no	later	than	April	27,	2009.

# Item	14. Principal	Accountant	Fees	and	Services.

Information	concerning	principal	accountant	fees	and	services	is	incorporated	by	reference	from	the	sections	entitled	"Proposal	Two:	Ratification	of	Independent	Registered	Public	Accounting Firm"	to	be	contained	in	our	definitive	Proxy	Statement	with	respect	to	our	2009	Annual	Meeting	of	Stockholders	to	be	filed	with	the	SEC	no	later	than	April	27,	2009.

# PART	IV

# Item	15. Exhibits,	Financial	Statement	Schedules.

(a)	The	following	documents	are	filed	as	a	part	of	this	report:

(1)	Consolidated	Financial	Statements:

# Exhibit

3.1(2) Amended	and	Restated	Certificate	of	Incorporation.

3.2 Amended	Bylaws.

3.3(5) Certificate	of	Designation	for	Series	A	Junior	Participating	Preferred	Stock	(included	as	an	exhibit	to	exhibit	4.3).

4.1(1) Specimen	Common	Stock	Certificate.

4.2(1) Second	Amended	and	Restated	Stockholders	Rights	Agreement,	dated	November	5,	1999,	by	and	among	the	Registrant	and	certain	stockholders	of	the	Registrant.

4.3(5) Rights	Agreement,	dated	as	of	May	3,	2001,	between	the	Registrant	and	Equiserve	Trust	Company,	N.A.

4.4(35) Indenture	related	to	the	0.625%	Convertible	Senior	Notes	due	2014,	dated	as	of	February	16,	2007,	between	the	Registrant	and	the	Bank	of	New	York,	as	trustee.

4.5(36) Registration	Rights	Agreement,	dated	as	of	February	16,	2007,	between	the	Registrant	and	the	Purchasers	named	therein.

	+10.1(1) Form	of	Indemnification	Agreement	between	the	Registrant	and	each	of	its	directors	and	officers.

10.4(1) Sublease	Agreement	dated	August	1998	between	Registrant	and	Gensia	Sicor	Inc.	for	the	Registrant's	principal	offices.

10.5(37) License	Agreement	dated	May	1998	between	Tufts	and	Registrant.

10.6(10) Master	Loan	and	Security	Agreement,	dated	March	6,	2000,	by	and	between	Registrant	and	FINOVA	Capital	Corporation.

# Number

# Description	of	Document

10.8(12) Eastgate	Pointe	Lease,	dated	July	6,	2000,	between	Diversified	Eastgate	Venture	and	Registrant.

10.9(19) Option	Agreement	and	Joint	Escrow	Instructions,	dated	July	6,	2000,	between	Diversified	Eastgate	Venture	and	Registrant.

10.10(4) First	Amendment	to	Joint	Development	Agreement	dated	March	27,	2001	between	Registrant	and	PE	Corporation,	now	known	as	Applied	Biosystems	Group	(with	certain	confidential	portions omitted).

10.11(6) First	Amendment	to	Option	Agreement	and	Escrow	Instructions	dated	May	25,	2001	between	Diversified	Eastgate	Venture	and	Registrant.

10.12(13) Second	Amendment	to	Option	Agreement	and	Escrow	Instructions	dated	July	18,	2001	between	Diversified	Eastgate	Venture	and	Registrant.

10.13(14) Third	Amendment	to	Option	Agreement	and	Escrow	Instructions	dated	September	27,	2001	between	Diversified	Eastgate	Venture	and	Registrant.

10.14(15) First	Amendment	to	Eastgate	Pointe	Lease	dated	September	27,	2001	between	Diversified	Eastgate	Venture	and	Registrant.

10.15(8) Replacement	Reserve	Agreement,	dated	as	of	January	10,	2002,	between	the	Registrant	and	BNY	Western	Trust	Company	as	Trustee	for	Washington	Capital	Joint	Master	Trust	Mortgage Income	Fund.

10.16(17) Loan	Assumption	and	Modification	Agreement,	dated	as	of	January	10,	2002,	between	the	Registrant,	Diversified	Eastgate	Venture	and	BNY	Western	Trust	Company	as	Trustee	for Washington	Capital	Joint	Master	Trust	Mortgage	Income	Fund.

10.17(18) Tenant	Improvement	and	Leasing	Commission	Reserve	Agreement,	dated	as	of	January	10,	2002,	between	the	Registrant	and	BNY	Western	Trust	Company	as	Trustee	for	Washington	Capital Joint	Master	Trust	Mortgage	Income	Fund.

	+10.18(42) Solexa	Share	Option	Plan	for	Consultants.

	+10.19(43) Solexa	Enterprise	Management	Incentive	Plan.

10.20(21) Non-exclusive	License	Agreement	dated	January	2002	between	Amersham	Biosciences	Corp.	and	Registrant	(with	certain	confidential	portions	omitted).

10.21(22) License	Agreement	dated	June	2002	between	Dade	Behring	Marburg	GmbH	and	Registrant	(with	certain	confidential	portions	omitted).

10.22(23) Purchase	and	Sale	Agreement	and	Escrow	Instructions	dated	June	18,	2004	between	Bernardo	Property	Advisors,	Inc.	and	Registrant.

10.23(24) Single	Tenant	Lease	dated	August	18,	2004	between	BMR-9885	Towne	Centre	Drive	LLC	and	Registrant.

10.24(25) Settlement	and	Cross	License	Agreement	dated	August	18,	2004	between	Applera	Corporation	and	Registrant	(with	certain	confidential	portions	omitted).

10.25 Amended	Solexa	2005	Equity	Incentive	Plan

10.26 Amended	Solexa	1992	Stock	Option	Plan

10.27(41) Solexa	Unapproved	Company	Share	Option	Plan

10.28(26) Collaboration	Agreement	dated	December	17,	2004	between	Invitrogen	Corporation	and	Registrant	(with	certain	confidential	portions	omitted).

10.31(29) Secured	Convertible	Debenture	Indenture	between	Genizon	BioSciences	Inc.,	Computershare	Trust	Company	of	Canada	and	the	Registrant,	dated	March	24,	2006.

10.32(30) Joint	Development	and	Licensing	Agreement	dated	May	15,	2006	between	deCODE	genetics,	ehf.	and	Registrant	(with	certain	confidential	portions	omitted).

10.33 Amended	and	Restated	Change	in	Control	Severance	Agreement	between	the	Registrant	and	Jay	T	Flatly.

10.34 Form	of	Change	in	Control	Severance	Agreement	between	the	Registrant	and	its	executive	officers.

10.35 Form	of	Restricted	Stock	Unit	Agreement	for	Non-Employee	Directors	under	2005	Stock	and	Incentive	Plan.

10.39(34) Securities	Purchase	Agreement,	dated	as	of	November	12,	2006,	between	Solexa,	Inc.	and	the	Registrant.

10.40(50) Lease	between	The	Irvine	Company	LLC	and	the	Registrant,	dated	September	29,	2006.

10.41(37) Amended	and	Restated	Lease	between	BMR-9885	Towne	Centre	Drive	LLC	and	the	Registrant	for	the	9885	Towne	Centre	Drive	property,	dated	January	26,	2007.

10.42(37) Lease	between	BMR-9885	Towne	Centre	Drive	LLC	and	the	Registrant	for	the	9865	Towne	Centre	Drive	property,	dated	January	26,	2007.

	10.43 Amended	and	Restated	2005	Stock	and	Incentive	Plan.

	10.44(9) Settlement	and	Release	Agreement	between	Affymetrix,	Inc.	and	the	Registrant,	dated	January	9,	2008.

	10.45(44) Confirmation	of	Convertible	Bond	Hedge	Transaction,	dated	February	12,	2007,	by	and	between	the	Registrant	and	Goldman,	Sachs	&	Co.

	10.46(45) Confirmation	of	Convertible	Bond	Hedge	Transaction,	dated	February	12,	2007,	by	and	between	the	Registrant	and	Deutsche	Bank	AG	London.

	10.47(46) Confirmation	Issuer	Warrant	Transaction,	dated	February	12,	2007,	by	and	between	the	Registrant	and	Goldman,	Sachs	&	Co.

	10.48(47) Confirmation	Issuer	Warrant	Transaction,	dated	February	12,	2007,	by	and	between	the	Registrant	and	Deutsche	Bank	AG	London.

	10.49(48) Amendment	to	the	Confirmation	of	Issuer	Warrant	Transaction,	dated	February	13,	2007,	by	and	between	the	Registrant	and	Goldman,	Sachs	&	Co.

	10.50(49) Amendment	to	the	Confirmation	of	Issuer	Warrant	Transaction,	dated	February	13,	2007,	by	and	between	the	Registrant	and	Deutsche	Bank	AG	London.

	10.52(11) Executive	Transition	Agreement	between	the	Registrant	and	John	R.	Stuelpnagel,	dated	March	21,	2008.

	10.55(3) Indemnification	Agreement	between	the	Registrant	and	Gregory	F.	Heath.

	10.56(3) Indemnification	Agreement	between	the	Registrant	and	Joel	McComb.

	21.1 Subsidiaries	of	the	Registrant.

	23.1 Consent	of	Independent	Registered	Public	Accounting	Firm.

	24.1 Power	of	Attorney	(included	on	the	signature	page).

	31.1 Certification	of	Jay	T.	Flatley	pursuant	to	Section	302	of	the	Sarbanes-Oxley	Act	of	2002.

	31.2 Certification	of	Christian	O.	Henry	pursuant	to	Section	302	of	the	Sarbanes-Oxley	Act	of	2002.

	32.1 Certification	of	Jay	T.	Flatley	pursuant	to	18	U.S.C.	Section	1350,	as	adopted	pursuant	to	Section	906	of	the	Sarbanes-Oxley	Act	of	2002.

	32.2 Certification	of	Christian	O.	Henry	pursuant	to	18	U.S.C.	Section	1350,	as	adopted	pursuant	to	Section	906	of	the	Sarbanes-Oxley	Act	of	2002.

+ Management	contract	or	corporate	plan	or	arrangement

(1) Incorporated	by	reference	to	the	same	numbered	exhibit	filed	with	our	Registration	Statement	on	Form	S-1	(File	No.	333-33922)	filed	April	3,	2000,	as	amended.

(5) Incorporated	by	reference	to	the	same	numbered	exhibit	filed	with	our	Registration	Statement	on	Form	8-A	(File	No.	000-30361)	filed	May	14,	2001.

(50) Incorporated	by	reference	to	the	same	numbered	exhibit	filed	with	our	Annual	Report	on	Form	10-K	(File	No.	000-30361)	for	the	year	ended	December	31,	2006	filed	February	28,	2007.

# Supplemental	Information

No	Annual	Report	to	stockholders	or	proxy	materials	has	been	sent	to	stockholders	as	of	the	date	of	this	report.	The	Annual	Report	to	stockholders	and	proxy	material	will	be	furnished	to	our stockholders	subsequent	to	the	filing	of	this	Annual	Report	on	Form	10-K	and	we	will	furnish	such	material	to	the	SEC	at	that	time.

# SIGNATURES

Pursuant	to	the	requirements	of	the	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	Registrant	has	duly	caused	this	Report	to	be	signed	on	its	behalf	by	the	undersigned,	thereunto duly	authorized,	on	February	25,	2009.

Jay	T.	Flatley

President	and	Chief	Executive	Officer

# POWER	OF	ATTORNEY

KNOW	ALL	PERSONS	BY	THESE	PRESENT,	that	each	person	whose	signature	appears	below	constitutes	and	appoints	Jay	T.	Flatley	and	Christian	O.	Henry,	and	each	or	any	one	of	them, his	true	and	lawful	attorney-in-fact	and	agent,	with	full	power	of	substitution	and	resubstitution,	for	him	and	in	his	name,	place	and	stead,	in	any	and	all	capacities,	to	sign	any	and	all	amendments	to	this Annual	Report	on	Form	10-K,	and	to	file	the	same,	with	all	exhibits	thereto,	and	other	documents	in	connection	therewith,	with	the	Securities	and	Exchange	Commission,	granting	unto	said	attorneys-in- fact	and	agents,	and	each	of	them,	full	power	and	authority	to	do	and	perform	each	and	every	act	and	thing	requisite	and	necessary	to	be	done	in	connection	therewith,	as	fully	to	all	intents	and	purposes as	he	might	or	could	do	in	person,	hereby	ratifying	and	confirming	all	that	said	attorneys-in-fact	and	agents,	or	any	of	them,	or	their	or	his	substitutes	or	substitute,	may	lawfully	do	or	cause	to	be	done by	virtue	hereof.

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	Annual	Report	on	Form	10-K	has	been	signed	below	by	the	following	persons	on	behalf	of	the	registrant	and	in	the capacities	and	on	the	dates	indicated.

# INDEX	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# The	Board	of	Directors	and	Stockholders	of

We	have	audited	the	accompanying	consolidated	balance	sheets	of	Illumina,	Inc.	as	of	December	28,	2008	and	December	30,	2007,	and	the	related	consolidated	statements	of	operations, stockholders'	equity,	and	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	28,	2008.	Our	audits	also	included	the	financial	statement	schedule	listed	in	the	Index	at	Item	15(a)(2). These	financial	statements	and	schedule	are	the	responsibility	of	the	Company's	management.	Our	responsibility	is	to	express	an	opinion	on	these	financial	statements	and	schedule	based	on	our	audits.

We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan	and	perform	the	audit	to obtain	reasonable	assurance	about	whether	the	financial	statements	are	free	of	material	misstatement.	An	audit	includes	examining,	on	a	test	basis,	evidence	supporting	the	amounts	and	disclosures	in	the financial	statements.	An	audit	also	includes	assessing	the	accounting	principles	used	and	significant	estimates	made	by	management,	as	well	as	evaluating	the	overall	financial	statement	presentation. We	believe	that	our	audits	provide	a	reasonable	basis	for	our	opinion.

In	our	opinion,	the	financial	statements	referred	to	above	present	fairly,	in	all	material	respects,	the	consolidated	financial	position	of	Illumina,	Inc.,	at	December	28,	2008	and	December	30, 2007,	and	the	consolidated	results	of	its	operations	and	its	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	28,	2008,	in	conformity	with	U.S.	generally	accepted	accounting principles.	Also,	in	our	opinion,	the	related	financial	statement	schedule,	when	considered	in	relation	to	the	basic	financial	statements	taken	as	a	whole,	presents	fairly,	in	all	material	respects,	the information	set	forth	therein.

We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	Illumina,	Inc.'s	internal	control	over	financial	reporting	as	of December	28,	2008,	based	on	criteria	established	in	Internal	Control-Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	and	our	report	dated February	24,	2009	expressed	an	unqualified	opinion	thereon.

# CONSOLIDATED	BALANCE	SHEETS

|  | December	28,<br>2008 | December	30,<br>2007 |
| :--- | :--- | :--- |
|  | (In\tthousands) |  |
| ASSETS |  |  |
| Current\tassets: |  |  |
| Cash\tand\tcash\tequivalents | $327,024 | $174,941 |
| Short-term\tinvestments | 313,051 | 211,141 |
| Accounts\treceivable,\tnet | 133,266 | 83,119 |
| Inventory,\tnet | 73,431 | 53,980 |
| Deferred\ttax\tassets\t—\tcurrent\tportion | 8,635 | 26,934 |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | 9,530 | 12,640 |
| Total\tcurrent\tassets | 864,937 | 562,755 |
| Property\tand\tequipment,\tnet | 89,436 | 46,274 |
| Long-term\tinvestments | 55,900 | — |
| Goodwill | 228,734 | 228,734 |
| Intangible\tassets,\tnet | 47,755 | 58,116 |
| Deferred\ttax\tassets\t—\tlong\tterm\tportion | 78,321 | 80,245 |
| Other\tassets,\tnet | 12,017 | 11,608 |
| Total\tassets | $1,377,100 | $987,732 |
| LIABILITIES\tAND\tSTOCKHOLDERS'\tEQUITY |  |  |
| Current\tliabilities: |  |  |
| Accounts\tpayable | $29,204 | $24,311 |
| Litigation\tsettlements\tpayable | — | 90,536 |
| Accrued\tliabilities | 80,355 | 50,852 |
| Current\tportion\tof\tlong-term\tdebt | 399,999 | 16 |
| Total\tcurrent\tliabilities | 509,558 | 165,715 |
| Long-term\tdebt,\tless\tcurrent\tportion | — | 400,000 |
| Deferred\tgain\ton\tsale\tof\tland\tand\tbuilding | 2,314 | 2,485 |
| Other\tlong-term\tliabilities | 16,632 | 7,854 |
| Commitments\tand\tcontingencies |  |  |
| Stockholders'\tequity: |  |  |
|  | — | — |
| 125,607,354\tshares\tissued\tand\toutstanding\tat\tDecember\t30,\t2007 | 1,389 | 1,256 |
| Additional\tpaid-in\tcapital | 1,499,708 | 1,043,674 |
| Accumulated\tother\tcomprehensive\tincome | 2,406 | 1,347 |
| Accumulated\tdeficit | (332,500) | (382,977) |
| Treasury\tstock,\tat\tcost\t(17,927,983\tshares\tat\tDecember\t28,\t2008\tand\t14,819,090\tshares\tat\tDecember\t30,\t2007) | (322,407) | (251,622) |
| Total\tstockholders'\tequity | 848,596 | 411,678 |
| Total\tliabilities\tand\tstockholders'\tequity | $1,377,100 | $987,732 |

See	accompanying	notes	to	consolidated	financial	statements

# CONSOLIDATED	STATEMENTS	OF	OPERATIONS

|  | Year	Ended | Year	Ended | Year	Ended |
| :--- | :--- | :--- | :--- |
|  | December\t28, | December\t30, | December\t31, |
|  | 2008 | 2007 | 2006 |
|  |  | (In\tthousands,\texcept\tper\tshare\tamounts) |  |
| Revenue |  |  |  |
| Product\trevenue | $532,390 | $326,699 | $155,811 |
| Service\tand\tother\trevenue | 40,835 | 40,100 | 28,775 |
| Total\trevenue | 573,225 | 366,799 | 184,586 |
| Costs\tand\texpenses: |  |  |  |
| Cost\tof\tproduct\trevenue\t(excluding\timpairment\tof\tmanufacturing\tequipment\tand\tamortization\tof\tintangible\tassets) | 192,868 | 119,991 | 51,271 |
| Cost\tof\tservice\tand\tother\trevenue | 12,756 | 12,445 | 8,073 |
| Research\tand\tdevelopment | 99,963 | 73,943 | 33,373 |
| Selling,\tgeneral\tand\tadministrative | 148,014 | 101,256 | 54,057 |
| Impairment\tof\tmanufacturing\tequipment | 4,069 | — | — |
| Amortization\tof\tintangible\tassets | 10,438 | 2,429 | — |
| Acquired\tin-process\tresearch\tand\tdevelopment | 24,660 | 303,400 | — |
| Litigation\tsettlements | — | 54,536 | — |
| Total\tcosts\tand\texpenses | 492,768 | 668,000 | 146,774 |
| Income\t(loss)\tfrom\toperations | 80,457 | (301,201) | 37,812 |
| Interest\tincome | 12,519 | 16,026 | 5,368 |
| Interest\tand\tother\texpense,\tnet | (2,070) | (3,610) | (560) |
| Income\t(loss)\tbefore\tincome\ttaxes | 90,906 | (288,785) | 42,620 |
| Provision\t(benefit)\tfor\tincome\ttaxes | 40,429 | (10,426) | 2,652 |
| Net\tincome\t(loss) | $50,477 | $(278,359) | $39,968 |
| Net\tincome\t(loss)\tper\tbasic\tshare | $0.43 | $(2.57) | $0.45 |
| Net\tincome\t(loss)\tper\tdiluted\tshare | $0.38 | $(2.57) | $0.41 |
| Shares\tused\tin\tcalculating\tbasic\tnet\tincome\t(loss)\tper\tshare | 116,855 | 108,308 | 89,002 |
| Shares\tused\tin\tcalculating\tdiluted\tnet\tincome\t(loss)\tper\tshare | 133,607 | 108,308 | 97,508 |

# CONSOLIDATED	STATEMENTS	OF	STOCKHOLDERS'	EQUITY

|  |  |  | Additional |  | Other |  |  |  | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Common\tStock | Common\tStock | Paid-In | Deferred | Comprehensive | Accumulated | Treasury\tStock | Treasury\tStock | Stockholders' |
|  | Shares | Amount | Capital | \t Compensation | Income | Deficit | Shares | Amount | Equity |
|  |  |  |  |  | (In\tthousands) |  |  |  |  |
| Balance\tas\tof\tJanuary\t1,\t2006 | 82,588 | $826 | $216,353 | $(354) | $258 | $(144,586) | — | $— | $72,497 |
| Issuance\tof\tcommon\tstock | 11,126 | 112 | 114,384 | — | — | — | — | — | 114,496 |
| May\t2006\toffering\tcosts | — | — | (6,530) | — | — | — | — | — | (6,530) |
| Stock-based\tcompensation | — | — | 14,082 | 354 | — | — | — | — | 14,436 |
| Incremental\ttax\tbenefit\trelated\tto\tstock\toptions\texercised | — | — | 1,439 | — | — | — | — | — | 1,439 |
| Comprehensive\tincome: |  |  |  |  |  |  |  |  |  |
| Unrealized\tgain\ton\tavailable-for-sale\tsecurities,\tnet\tof\tdeferred\ttax | — | — | — | — | 10,693 | — | — | — | 10,693 |
| Unrealized\tloss\ton\thedging\tcontracts | — | — | — | — | (10) | — | — | — | (10) |
| Foreign\tcurrency\ttranslation\tadjustment | — | — | — | — | 353 | — | — | — | 353 |
| Net\tincome | — | — | — | — | — | 39,968 | — | — | 39,968 |
| Comprehensive\tincome |  |  |  |  |  |  |  |  | 51,004 |
| Balance\tas\tof\tDecember\t31,\t2006 | 93,714 | $938 | $339,728 | $— | $11,294 | $(104,618) | — | $— | $247,342 |
| Issuance\tof\tcommon\tstock | 4,654 | 46 | 30,044 | — | — | — | — | — | 30,090 |
| Issuance\tof\tcommon\tstock\tfor\tthe\tacquisition\tof\tSolexa,\tInc. | 26,442 | 264 | 530,460 | — | — | — | — | — | 530,724 |
| Fair\tvalue\tof\toptions\tassumed\tfrom\tSolexa,\tInc. | — | — | 75,334 | — | — | — | — | — | 75,334 |
| Convertible\tnote\thedge | — | — | (139,040) | — | — | — | — | — | (139,040) |
| Warrants\tissued\tin\tconnection\twith\tthe\tconvertible\tdebt\tissuance | — | — | 92,440 | — | — | — | — | — | 92,440 |
| Warrants\texercised | 798 | 8 | 6,067 | — | — | — | — | — | 6,075 |
| Stock-based\tcompensation | — | — | 33,926 | — | — | — | — | — | 33,926 |
| Incremental\ttax\tbenefit\trelated\tto\tstock\toptions\texercised | — | — | 20,086 | — | — | — | — | — | 20,086 |
| Incremental\ttax\tbenefit\trelated\tto\tconvertible\tdebt\tissuance | — | — | 54,629 | — | — | — | — | — | 54,629 |
| Repurchases\tof\tcommon\tstock | — | — | — | — | — | — | (14,819) | (251,622) | (251,622) |
| Comprehensive\tloss: |  |  |  |  |  |  |  |  |  |
| Unrealized\tloss\ton\tavailable-for-sale\tsecurities,\tnet\tof\tdeferred\ttax | — | — | — | — | (10,529) | — | — | — | (10,529) |
| Foreign\tcurrency\ttranslation\tadjustment | — | — | — | — | 582 | — | — | — | 582 |
| Net\tloss | — | — | — | — | — | (278,359) | — | — | (278,359) |
| Comprehensive\tloss |  |  |  |  |  |  |  |  | (288,306) |
| Balance\tas\tof\tDecember\t30,\t2007 | 125,608 | $1,256 | $1,043,674 | $— | $1,347 | $(382,977) | (14,819) | $(251,622) | $411,678 |
| Issuance\tof\tcommon\tstock\tin\tconjunction\twith\tsecondary\toffering,\tnet\tof\tissuance\tcosts | 8,050 | 80 | 342,570 | — | — | — | — | — | 342,650 |
| Issuance\tof\tcommon\tstock\tunder\temployee\tstock\tplans | 4,923 | 49 | 44,281 | — | — | — | — | — | 44,330 |
| Warrants\texercised | 356 | 4 | 2,987 | — | — | — | — | — | 2,991 |
| Stock-based\tcompensation | — | — | 47,695 | — | — | — | — | — | 47,695 |
| Incremental\ttax\tbenefit\trelated\tto\tstock\toptions\texercised | — | — | 18,501 | — | — | — | — | — | 18,501 |
| Repurchases\tof\tcommon\tstock | — | — | — | — | — | — | (3,109) | (70,785) | (70,785) |
| Comprehensive\tincome: |  |  |  |  |  |  |  |  |  |
| Unrealized\tgain\ton\tavailable-for-sale\tsecurities,\tnet\tof\tdeferred\ttax | — | — | — | — | 920 | — | — | — | 920 |
| Foreign\tcurrency\ttranslation\tadjustment | — | — | — | — | 139 | — | — | — | 139 |
| Net\tincome | — | — | — | — | — | 50,477 | — | — | 50,477 |
| Comprehensive\tincome |  |  |  |  |  |  |  |  | 51,552 |
| Balance\tas\tof\tDecember\t28,\t2008 | 138,937 | $1,389 | $1,499,708 | $— | $2,406 | $(332,500) | (17,928) | $(322,407) | $848,596 |

# CONSOLIDATED	STATEMENTS	OF	CASH	FLOWS

|  | Year	Ended | Year	Ended | Year	Ended |
| :--- | :--- | :--- | :--- |
|  | December\t28, | December\t30, | December\t31, |
|  | 2008 | 2007 | 2006 |
|  |  | (In\tthousands) |  |
| Cash\tflows\tfrom\toperating\tactivities: |  |  |  |
| Net\tincome\t(loss) | $50,477 | $(278,359) | $39,968 |
| Adjustments\tto\treconcile\tnet\tincome\t(loss)\tto\tnet\tcash\tprovided\tby\toperating\tactivities: |  |  |  |
| Acquired\tin-process\tresearch\tand\tdevelopment | 24,660 | 303,400 | — |
| Amortization\tof\tincrease\tin\tinventory\tvaluation | — | 942 | — |
| Amortization\tof\tintangible\tassets | 10,438 | 2,429 | — |
| Amortization\tof\tdebt\tissuance\tcosts | 1,374 | 1,176 | — |
| Depreciation\texpense | 17,285 | 11,464 | 6,032 |
| Loss\ton\tdisposal\tof\tproperty\tand\tequipment | 262 | 15 | 116 |
| Impairment\tof\tmanufacturing\tequipment | 4,069 | — | — |
| Stock-based\tcompensation\texpense | 47,688 | 33,746 | 14,304 |
| Incremental\ttax\tbenefit\trelated\tto\tstock\toptions\texercised | (18,501) | (20,086) | (1,439) |
| Amortization\tof\tgain\ton\tsale\tof\tland\tand\tbuilding | (170) | (187) | (375) |
| Changes\tin\toperating\tassets\tand\tliabilities: |  |  |  |
| Accounts\treceivable | (57,672) | (37,060) | (21,733) |
| Inventory | (19,560) | (27,130) | (9,728) |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | 2,322 | (6,127) | (1,591) |
| Deferred\tincome\ttaxes | 38,692 | (11,408) | (548) |
| Other\tassets | (1,815) | 2,612 | (5,212) |
| Accounts\tpayable | 4,840 | 12,262 | 2,438 |
| Litigation\tsettlements\tpayable | (54,536) | 54,536 | — |
| Accrued\tincome\ttaxes | 2,377 | 1,586 | 1,809 |
| Accrued\tliabilities | 29,339 | 15,901 | 9,066 |
| Other\tlong-term\tliabilities | 6,313 | (3,418) | 5,893 |
| Net\tcash\tprovided\tby\toperating\tactivities | 87,882 | 56,294 | 39,000 |
| Cash\tflows\tfrom\tinvesting\tactivities: |  |  |  |
| Cash\t(paid\tfor)\tobtained\tin\tacquisition,\tincluding\tcash\tpaid\tfor\ttransaction\tcosts | (24,666) | 72,075 | — |
| Investment\tin\tsecured\tconvertible\tdebentures | — | — | (3,036) |
| Sale\tof\tsecured\tconvertible\tdebentures | — | 3,593 | — |
| Investment\tin\tSolexa | — | — | (50,000) |
| Purchases\tof\tavailable-for-sale\tsecurities | (568,707) | (598,383) | (236,331) |
| Sales\tand\tmaturities\tof\tavailable-for-sale\tsecurities | 411,817 | 479,415 | 143,846 |
| Purchase\tof\tproperty\tand\tequipment | (59,693) | (24,301) | (15,114) |
| Cash\tpaid\tfor\tintangible\tassets | (36,000) | (85) | (100) |
| Net\tcash\tused\tin\tinvesting\tactivities | (277,249) | (67,686) | (160,735) |
| Cash\tflows\tfrom\tfinancing\tactivities: |  |  |  |
| Payments\ton\tlong-term\tdebt | (15) | (95) | (109) |
| Proceeds\tfrom\tissuance\tof\tconvertible\tdebt,\tnet\tof\tissuance\tcosts | — | 390,269 | — |
| Purchase\tof\tconvertible\tnote\thedges | — | (139,040) | — |
| Proceeds\tfrom\twarrant\texercises | 2,991 | 98,515 | — |
| Common\tstock\trepurchases | (70,785) | (251,622) | — |
| Proceeds\tfrom\tsecondary\toffering,\tnet\tof\tissuance\tcost | 342,650 | — | — |
| Proceeds\tfrom\tissuance\tof\tcommon\tstock | 44,330 | 30,179 | 107,966 |
| Incremental\ttax\tbenefit\trelated\tto\tstock\toptions\texercised | 18,501 | 20,086 | 1,439 |
| Net\tcash\tprovided\tby\tfinancing\tactivities | 337,672 | 148,292 | 109,296 |
| Effect\tof\tforeign\tcurrency\ttranslation\ton\tcash\tand\tcash\tequivalents | 3,778 | (345) | 3 |
| Net\tincrease\t(decrease)\tin\tcash\tand\tcash\tequivalents | 152,083 | 136,555 | (12,436) |
| Cash\tand\tcash\tequivalents\tat\tbeginning\tof\tthe\tyear | 174,941 | 38,386 | 50,822 |
| Cash\tand\tcash\tequivalents\tat\tend\tof\tthe\tyear | $327,024 | $174,941 | $38,386 |
| Supplemental\tdisclosures\tof\tcash\tflow\tinformation:\nCash\tpaid\tfor\tinterest | $2,553 | $1,378 | $11 |
| Cash\t(refunded)\tpaid\tfor\tincome\ttaxes | $(1,653) | $2,581 | $1,392 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# 1. Organization	and	Summary	of	Significant	Accounting	Policies

# Organization	and	Business

Illumina,	Inc.	(the	Company)	was	incorporated	on	April	28,	1998.	The	Company	is	a	leading	developer,	manufacturer	and	marketer	of	integrated	systems	for	the	large-scale	analysis	of	genetic variation	and	biological	function.	Using	the	Company's	proprietary	technologies,	the	Company	provides	a	comprehensive	line	of	products	and	services	that	currently	serve	the	sequencing,	genotyping and	gene	expression	markets.	The	Company	also	expects	to	enter	the	market	for	molecular	diagnostics.	The	Company's	customers	include	leading	genomic	research	centers,	pharmaceutical	companies, academic	institutions,	clinical	research	organizations	and	biotechnology	companies.	The	Company's	tools	provide	researchers	around	the	world	with	the	performance,	throughput,	cost	effectiveness	and flexibility	necessary	to	perform	the	billions	of	genetic	tests	needed	to	extract	valuable	medical	information	from	advances	in	genomics	and	proteomics.	The	Company	believes	this	information	will enable	researchers	to	correlate	genetic	variation	and	biological	function,	which	will	enhance	drug	discovery	and	clinical	research,	allow	diseases	to	be	detected	earlier	and	permit	better	choices	of	drugs for	individual	patients.

# Basis	of	Presentation

The	consolidated	financial	statements	of	the	Company	have	been	prepared	in	conformity	with	U.S.	generally	accepted	accounting	principles	(GAAP)	and	include	the	accounts	of	the	Company and	its	wholly-owned	subsidiaries.	All	intercompany	transactions	and	balances	have	been	eliminated	in	consolidation.

# Fiscal	Year

# Use	of	Estimates

The	preparation	of	financial	statements	requires	that	management	make	estimates	and	assumptions	that	affect	the	reported	amounts	of	assets,	liabilities,	revenue	and	expenses	and	related disclosure	of	contingent	assets	and	liabilities.	Actual	results	could	differ	from	those	estimates.

# Cash	Equivalents	and	Investments

Cash	equivalents	are	comprised	of	short-term,	highly	liquid	investments	with	maturities	of	90	days	or	less	from	the	date	of	purchase.

Short-term	investments	consist	of	U.S.	Treasury	and	U.S.	government	agency	securities,	municipal	notes,	corporate	notes	and	bonds	and	commercial	paper.	All	short-term	investments	have	been designated	as	available-for-sale	securities	recorded	at	estimated	fair	value	with	the	related	unrealized	gains	and	losses	included	in	accumulated	other	comprehensive	income,	a	component	of stockholders'	equity.	The	Company	accounts	for	investments	in	debt	and	equity	instruments	in	accordance	with	SFAS,	No.	115,	Accounting	for	Certain	Investments	in	Debt	and	Equity	Securities	and FASB	Staff	Position,	or	FSP,	No.	115-1,	The	Meaning	of	Other-Than-Temporary	Impairment	and	Its	Application	to	Certain	Investments,	or	FSP	115-1.	Management	determines	the	appropriate classification	of	such	securities	at	the	time	of	purchase	and	reevaluates	such	classification	as	of	each	balance	sheet	date.	The	Company	follows	the	guidance	provided	by	FSP	115-1,	to	assess	whether investments	with	unrealized	loss	positions	are	other	than	temporarily	impaired.	Realized	gains	and	losses	and	declines	in	value	judged	to	be	other	than	temporary	are	determined	based	on	the	specific identification	method	and	are	reported	in	Interest	and	other	expense,	net	in	the	consolidated	statements	of	operations.

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS	—	(Continued)

Long-term	investments	are	comprised	of	the	Company's	auction	rate	securities	and	a	put	option	related	to	the	Company's	settlement	agreement	with	UBS	that	gives	the	Company	the	right	to	sell its	auction	rate	securities	to	UBS	at	par	value	at	a	future	date.	Both	the	auction	rate	securities	and	the	put	option	are	recorded	at	estimated	fair	value	and	unrealized	gains	and	losses,	if	any,	are recognized	in	Interest	income	on	the	consolidated	statements	of	operations.	Historically,	the	Company's	auction	rate	securities	were	classified	as	available-for-sale	securities,	however,	during	the	fourth quarter	of	fiscal	2008,	the	Company	reclassified	the	auction	rate	securities	from	available-for-sale	to	trading	securities.	See	Note	4	for	further	detailed	discussion.

# Fair	Value	of	Financial	Instruments

The	carrying	amounts	of	financial	instruments	such	as	cash	equivalents,	foreign	cash	accounts,	accounts	receivable,	prepaid	expenses	and	other	current	assets,	accounts	payable,	accrued expenses	and	other	current	liabilities	approximate	the	related	fair	values	due	to	the	short-term	maturities	of	these	instruments.	The	estimated	fair	value	of	the	convertible	senior	notes	is	determined	by using	available	market	information	as	of	the	latest	trading	date	prior	to	the	Company's	fiscal	year-end	provided	by	a	third	party	financial	institution.	The	fair	value	of	the	Company's	convertible	notes	at December	28,	2008	and	December	30,	2007	are	$473.0	million	and	$596.3	million,	respectively.

# Accounts	Receivable

Trade	accounts	receivable	are	recorded	at	the	net	invoice	value	and	are	not	interest	bearing.	The	Company	considers	receivables	past	due	based	on	the	contractual	payment	terms.	The	Company reviews	its	exposure	to	amounts	receivable	and	reserves	specific	amounts	if	collectibility	is	no	longer	reasonably	assured.	The	Company	also	reserves	a	percentage	of	its	trade	receivable	balance	based on	collection	history	and	current	economic	trends	that	might	impact	the	level	of	future	credit	losses.	The	Company	re-evaluates	such	reserves	on	a	regular	basis	and	adjusts	its	reserves	as	needed.

# Concentrations	of	Risk

The	Company	operates	in	markets	that	are	highly	competitive	and	rapidly	changing.	Significant	technological	changes,	shifting	customer	needs,	the	emergence	of	competitive	products	or services	with	new	capabilities	and	other	factors	could	negatively	impact	the	Company's	operating	results.

The	Company	is	also	subject	to	risks	related	to	its	financial	instruments	including	its	cash	and	cash	equivalents,	investments	and	accounts	receivable.	Most	of	the	Company's	cash	and	cash equivalents	as	of	December	28,	2008	were	deposited	with	financial	institutions	in	the	United	States	and	the	Company's	investment	policy	restricts	the	amount	of	credit	exposure	to	any	one	issuer	to	5% of	the	portfolio	at	the	time	of	purchase	and	to	any	one	industry	sector,	as	defined	by	Bloomberg	classifications,	to	25%	of	the	portfolio	at	the	time	of	purchase.	There	is	no	limit	to	the	percentage	of	the portfolio	that	may	be	maintained	in	securities	issued	by	the	U.S	government	and	money	market	funds.	The	Company	has	historically	not	experienced	significant	credit	losses	from	investments	and accounts	receivable.	The	Company	performs	a	regular	review	of	customer	activity	and	associated	credit	risks.

The	Company's	products	require	customized	components	that	currently	are	available	from	a	limited	number	of	sources.	The	Company	obtains	certain	key	components	included	in	its	products from	single	vendors.

Shipments	to	customers	outside	the	United	States	comprised	51%,	43%	and	44%	of	the	Company's	revenue	for	the	years	ended	December	28,	2008,	December	30,	2007	and	December	31,	2006, respectively.	Customers	outside	the	United	States	represented	61%	and	46%	of	the	Company's	net	accounts	receivable	balance	as	of	December	28,	2008	and	December	30,	2007,	respectively.	Sales	to territories	outside	of	the	United	States	are	generally	denominated	in	U.S.	dollars.	International	sales	entail	a	variety	of	risks,	including

currency	exchange	fluctuations,	longer	payment	cycles	and	greater	difficulty	in	accounts	receivable	collection.	The	Company	is	also	subject	to	general	geopolitical	risks,	such	as	political,	social	and economic	instability	and	changes	in	diplomatic	and	trade	relations.	The	risks	of	international	sales	are	mitigated	in	part	by	the	extent	to	which	sales	are	geographically	distributed.

# Inventories

Inventories	are	stated	at	the	lower	of	cost	(on	a	first	in,	first	out	basis)	or	market.	Inventory	includes	raw	materials	and	finished	goods	that	may	be	used	in	the	research	and	development	process and	such	items	are	expensed	as	consumed	or	expired.	Provisions	for	slow	moving,	excess	and	obsolete	inventories	are	provided	based	on	product	life	cycle	and	development	plans,	product	expiration and	quality	issues,	historical	experience	and	inventory	levels.

# Property	and	Equipment

Property	and	equipment	are	stated	at	cost,	subject	to	review	of	impairment,	and	depreciated	over	the	estimated	useful	lives	of	the	assets	(generally	three	to	seven	years)	using	the	straight-line method.	Amortization	of	leasehold	improvements	is	computed	over	the	shorter	of	the	lease	term	or	the	estimated	useful	life	of	the	related	assets.	Maintenance	and	repairs	are	charged	to	operations	as incurred.	When	assets	are	sold,	or	otherwise	disposed	of,	the	cost	and	related	accumulated	depreciation	are	removed	from	the	accounts	and	any	gain	or	loss	is	included	in	operating	expense.

# Goodwill,	Intangible	Assets	and	Other	Long-Lived	Assets

Goodwill	represents	the	excess	of	cost	over	fair	value	of	net	assets	acquired.	Intangible	assets	include	acquired	technology,	customer	relationships,	other	license	agreements	and	licensed technology	(capitalized	as	part	of	the	Affymetrix	litigation).	The	cost	of	identified	intangible	assets	is	amortized	on	a	straight-line	basis	over	periods	ranging	from	three	to	ten	years	unless	the	expected benefit	pattern	is	declining,	in	which	case	an	accelerated	method	is	used.

The	Company	regularly	performs	reviews	to	determine	if	the	carrying	values	of	the	long-lived	assets	are	impaired.	In	accordance	with	SFAS	142,	Goodwill	and	Other	Intangible	Assets,	goodwill and	other	intangible	assets	that	have	indefinite	useful	lives	are	reviewed	for	impairment	at	least	annually	during	the	second	fiscal	quarter,	or	more	frequently	if	an	event	occurs	indicating	the	potential	for impairment.	The	Company	performed	its	annual	impairment	test	of	goodwill	as	of	May	30,	2008,	utilizing	a	test	that	begins	with	an	estimate	of	the	fair	value	of	the	reporting	unit	or	intangible	asset, noting	no	impairment	and	has	determined	there	has	been	no	impairment	indicators	for	goodwill	through	December	28,	2008.	A	review	of	intangible	assets	that	have	finite	useful	lives	and	other	long- lived	assets	is	performed	when	an	event	occurs	indicating	the	potential	for	impairment	in	accordance	with	SFAS	144,	Accounting	for	the	Impairment	or	Disposal	of	Long-Lived	Assets.	If	indicators	of impairment	exist,	the	Company	assesses	the	recoverability	of	the	affected	long-lived	assets	by	determining	whether	the	carrying	value	of	such	assets	can	be	recovered	through	undiscounted	future operating	cash	flows.	If	impairment	is	indicated,	the	Company	measures	the	future	discounted	cash	flows	associated	with	the	use	of	the	asset	and	adjusts	the	value	of	the	asset	accordingly.	Factors	that would	necessitate	an	impairment	assessment	include	a	significant	decline	in	the	Company's	stock	price	and	market	capitalization	compared	to	its	net	book	value,	significant	changes	in	the	ability	of	a particular	asset	to	generate	positive	cash	flows	and	significant	changes	in	the	Company's	strategic	business	objectives	and	utilization	of	the	asset.

# Reserve	for	Product	Warranties

The	Company	generally	provides	a	one-year	warranty	on	instrumentation.	At	the	time	revenue	is	recognized,	the	Company	establishes	an	accrual	for	estimated	warranty	expenses	associated	with system	sales.	This	expense	is	recorded	as	a	component	of	cost	of	revenue.

The	Company's	revenue	is	generated	primarily	from	the	sale	of	products	and	services.	Product	revenue	consists	of	sales	of	arrays,	reagents,	flow	cells,	instrumentation,	oligonucleotides	(oligos) and	associated	freight	charges.	Service	and	other	revenue	consists	of	revenue	received	for	performing	genotyping	and	sequencing	services,	extended	warranty	sales	and	amounts	earned	under	research agreements	with	government	grants,	which	are	recognized	in	the	period	during	which	the	related	costs	are	incurred.

The	Company	recognizes	revenue	when	persuasive	evidence	of	an	arrangement	exists,	delivery	has	occurred	or	services	have	been	rendered,	the	seller's	price	to	the	buyer	is	fixed	or determinable	and	collectibility	is	reasonably	assured.	In	instances	where	final	acceptance	of	the	product	or	system	is	required,	revenue	is	deferred	until	all	the	acceptance	criteria	have	been	met.	All revenue	is	recorded	net	of	any	applicable	allowances	for	returns	or	discounts.

In	order	to	assess	whether	the	price	is	fixed	and	determinable,	the	Company	ensures	there	are	no	refund	rights.	If	payment	terms	are	based	on	future	performance,	the	Company	defers	revenue recognition	until	the	price	becomes	fixed	and	determinable.	The	Company	assesses	collectibility	based	on	a	number	of	factors,	including	past	transaction	history	with	the	customer	and	the creditworthiness	of	the	customer.	If	the	Company	determines	that	collection	of	a	payment	is	not	reasonably	assured,	revenue	recognition	is	deferred	until	the	time	collection	becomes	reasonably	assured, which	is	generally	upon	receipt	of	payment.

Sales	of	instrumentation	generally	include	a	standard	one-year	warranty.	The	Company	also	sells	separately	priced	maintenance	(extended	warranty)	contracts,	which	are	generally	for	one	or	two years,	upon	the	expiration	of	the	initial	warranty.	Revenue	for	extended	warranty	sales	is	recognized	ratably	over	the	term	of	the	extended	warranty	period.	Reserves	are	provided	for	estimated	product warranty	expenses	at	the	time	the	associated	revenue	is	recognized.	If	the	Company	were	to	experience	an	increase	in	warranty	claims	or	if	costs	of	servicing	its	warrantied	products	were	greater	than	its estimates,	gross	margins	could	be	adversely	affected.

While	the	majority	of	its	sales	agreements	contain	standard	terms	and	conditions,	the	Company	does	enter	into	agreements	that	contain	multiple	elements	or	non-standard	terms	and	conditions. Emerging	Issues	Task	Force	(EITF)	No.	00-21,	Revenue	Arrangements	with	Multiple	Deliverables,	provides	guidance	on	accounting	for	arrangements	that	involve	the	delivery	or	performance	of multiple	products,	services,	or	rights	to	use	assets	within	contractually	binding	arrangements.	For	arrangements	with	multiple	elements,	revenue	recognition	is	based	on	the	individual	units	of	accounting determined	to	exist	in	the	arrangement.	A	delivered	item	is	considered	a	separate	unit	of	accounting	when	the	delivered	item	has	value	to	the	customer	on	a	stand-alone	basis	and	there	is	objective	and reliable	evidence	of	the	fair	value	of	the	undelivered	items.	Items	are	considered	to	have	stand-alone	value	when	they	are	sold	separately	by	any	vendor	or	when	the	customer	could	resell	the	item	on	a stand-alone	basis.	The	fair	value	of	an	item	is	generally	the	price	charged	for	the	product,	if	the	item	is	regularly	sold	on	a	stand-alone	basis.	When	objective	and	reliable	evidence	of	fair	value	exists	for all	units	of	accounting	in	an	arrangement,	the	arrangement	consideration	is	generally	allocated	to	each	unit

of	accounting	based	upon	its	relative	fair	value.	In	those	instances	when	objective	and	reliable	evidence	of	fair	value	exists	for	the	undelivered	items	but	not	for	the	delivered	items,	the	residual	method is	used	to	allocate	the	arrangement	consideration.	Under	the	residual	method,	the	amount	of	arrangement	consideration	allocated	to	the	delivered	items	equals	the	total	arrangement	consideration	less	the aggregate	fair	value	of	the	undelivered	items.	When	the	Company	is	unable	to	establish	stand-alone	value	for	delivered	items	or	when	fair	value	of	undelivered	items	has	not	been	established,	revenue	is deferred	until	all	elements	are	delivered	and	services	have	been	performed,	or	until	fair	value	can	objectively	be	determined	for	any	remaining	undelivered	elements.	The	Company	recognizes	revenue for	delivered	elements	only	when	it	determines	that	the	fair	values	of	undelivered	elements	are	known	and	there	are	no	uncertainties	regarding	customer	acceptance.

# Shipping	and	Handling	Expenses

Shipping	and	handling	expenses	are	included	in	cost	of	product	revenue	and	totaled	$3.7	million,	$2.2	million	and	$1.8	million	for	the	years	ended	December	28,	2008,	December	30,	2007	and December	31,	2006,	respectively.

Research	and	development	expenses	consist	of	costs	incurred	for	internal	and	grant-sponsored	research	and	development.	Research	and	development	expenses	include	salaries,	contractor	fees, facilities	costs,	utilities	and	allocations	of	benefits.	Expenditures	relating	to	research	and	development	are	expensed	in	the	period	incurred.

# Advertising	Costs

The	Company	expenses	advertising	costs	as	incurred.		Advertising	costs	were	$3.4	million,	$2.8	million	and	$1.9	million	for	the	years	ended	December	28,	2008,	December	30,	2007	and December	31,	2006,	respectively.

In	accordance	with	SFAS	No.	109,	Accounting	for	Income	Taxes,	the	provision	for	income	taxes	is	computed	using	the	asset	and	liability	method,	under	which	deferred	tax	assets	and	liabilities are	recognized	for	the	expected	future	tax	consequences	of	temporary	differences	between	the	financial	reporting	and	tax	bases	of	assets	and	liabilities,	and	for	the	expected	future	tax	benefit	to	be derived	from	tax	loss	and	credit	carryforwards.	Deferred	tax	assets	and	liabilities	are	determined	using	the	enacted	tax	rates	in	effect	for	the	years	in	which	those	tax	assets	are	expected	to	be	realized.	A valuation	allowance	is	established	when	it	is	more	likely	than	not	the	future	realization	of	all	or	some	of	the	deferred	tax	assets	will	not	be	achieved.	The	evaluation	of	the	need	for	a	valuation	allowance is	performed	on	a	jurisdiction-by-jurisdiction	basis,	and	includes	a	review	of	all	available	positive	and	negative	evidence.	Factors	reviewed	include	projections	of	pre-tax	book	income	over	the foreseeable	future,	determination	of	cumulative	pre-tax	book	income	after	permanent	differences,	history	of	earnings,	and	reliability	of	forecasting.	As	of	December	28,	2008,	the	Company	maintained	a valuation	allowance	only	against	certain	U.S.	and	foreign	deferred	tax	assets	that	the	Company	concluded	did	not	meet	the	"more	likely	than	not"	threshold	required	under	SFAS	No.	109.

Due	to	the	adoption	of	SFAS	No.	123R,	the	Company	recognizes	excess	tax	benefits	associated	with	share-based	compensation	to	stockholders'	equity	only	when	realized.	When	assessing whether	excess	tax	benefits	relating	to	share-based	compensation	have	been	realized,	the	Company	follows	the	with-and-without	approach	excluding	any	indirect	effects	of	the	excess	tax	deductions. Under	this	approach,	excess	tax	benefits	related	to	share-based	compensation	are	not	deemed	to	be	realized	until	after	the	utilization	of	all	other	tax	benefits	available	to	the	Company.

Effective	January	1,	2007,	the	Company	adopted	FASB	Interpretation	(FIN)	No.	48,	Accounting	for	Uncertainty	in	Income	Taxes	—	an	interpretation	of	FASB	Statement	No.	109,	which	clarifies the	accounting	for	uncertainty	in	tax	positions.	FIN	No.	48	requires	recognition	of	the	impact	of	a	tax	position	in	the	Company's	financial	statements	only	if	that	position	is	more	likely	than	not	of	being sustained	upon	examination	by	taxing	authorities,	based	on	the	technical	merits	of	the	position.	Any	interest	and	penalties	related	to	uncertain	tax	positions	will	be	reflected	in	income	tax	expense.

# Functional	Currency

Historically,	the	Company	identified	the	local	currency	as	the	functional	currency	in	each	of	its	foreign	subsidiaries,	and	the	effects	of	translation	were	recorded	as	other	comprehensive	income (loss).	During	the	third	quarter	of	2008,	the	Company	reorganized	its	international	structure	to	execute	a	more	efficient	relationship	between	product	development,	product	manufacturing	and	sales.	The reorganization	increased	the	foreign	subsidiaries'	anticipated	dependence	on	the	U.S.	entity	for	management	decisions,	financial	support,	production	assets	and	inventory,	thereby	making	the	foreign subsidiaries	more	of	a	direct	and	integral	component	of	the	U.S.	entity's	operations.	As	a	result,	the	Company	reassessed	the	primary	economic	environment	of	its	foreign	subsidiaries	and	determined the	subsidiaries	are	more	U.S.	dollar	based,	resulting	in	a	U.S.	dollar	functional	currency	determination.	As	a	result	of	this	change,	beginning	in	the	third	quarter	of	2008,	the	Company	remeasures	its foreign	subsidiaries'	assets	and	liabilities	and	income	and	expense	accounts	related	to	nonmonetary	assets	and	liabilities	to	the	U.S.	dollar	and	records	the	net	gains	or	losses	resulting	from remeasurement	in	its	consolidated	statements	of	operations	within	interest	and	other	expense,	net.

The	Company	accounts	for	share-based	compensation	using	the	fair	value	recognition	provisions	of	SFAS	123(R),	Share-Based	Payment	using	the	Black-Scholes-Merton	option-pricing	model to	estimate	the	fair	value	of	stock	options	granted	and	stock	purchases	under	the	Employee	Stock	Purchase	Plan	(ESPP).	This	model	incorporates	various	assumptions	including	volatility,	expected	life, and	interest	rates.	Historically,	the	Company	used	an	expected	stock-price	volatility	assumption	that	was	primarily	based	on	historical	realized	volatility	of	the	underlying	stock	during	a	period	of	time. Beginning	the	third	quarter	of	2007,	volatility	was	determined	by	equally	weighing	the	historical	and	implied	volatility	of	the	Company's	common	stock.	The	historical	volatility	of	the	Company's common	stock	over	the	most	recent	period	is	generally	commensurate	with	the	estimated	expected	life	of	the	Company's	stock	options,	adjusted	for	the	impact	of	unusual	fluctuations	not	reasonably expected	to	recur	and	other	relevant	factors.	The	implied	volatility	is	calculated	from	the	implied	market	volatility	of	exchange-traded	call	options	on	the	Company's	common	stock.	The	expected	life	of an	award	is	based	on	historical	experience	and	on	the	terms	and	conditions	of	the	stock	awards	granted	to	employees.

The	assumptions	used	for	the	specified	reporting	periods	and	the	resulting	estimates	of	weighted-average	fair	value	per	share	of	options	granted	and	for	stock	purchases	under	the	ESPP	during those	periods	are	as	follows:

|  | Year	Ended<br>December	28,<br>2008 | Year	Ended<br>December	30,<br>2007 | Year	Ended<br>December	31,<br>2006 |
| :--- | :--- | :--- | :--- |
| Interest\trate\t—\tstock\toptions | 2.31\t-\t3.52% | 3.68\t-\t4.90% | 4.73% |
| Interest\trate\t—\tstock\tpurchases | 1.88\t-\t4.71% | 4.71\t-\t4.86% | 4.08\t-4.85% |
| Volatility\t—\tstock\toptions | 51\t-\t65% | 55\t-\t70% | 76% |
| Volatility\t—\tstock\tpurchases | 53\t-\t69% | 69\t-\t76% | 76\t-\t90% |
| Expected\tlife\t—\tstock\toptions | 5\t-\t6\tyears | 6\tyears | 6\tyears |
| Expected\tlife\t—\tstock\tpurchases | 6\t-\t12\tmonths | 6\t-\t12\tmonths | 6\t-\t12\tmonths |
| Expected\tdividend\tyield | 0% | 0% | 0% |
| Weighted\taverage\tfair\tvalue\tper\tshare\tof\toptions\tgranted | $18.31 | $12.86 | $9.44 |
| Weighted\taverage\tfair\tvalue\tper\tshare\tof\temployee\tstock\tpurchases | $11.45 | $7.33 | $2.38 |

The	fair	value	of	restricted	stock	units	granted	during	the	years	ended	December	28,	2008	and	December	30,	2007	was	based	on	the	market	price	of	our	common	stock	on	the	date	of	grant.	No restricted	stock	units	were	granted	during	the	year	ended	December	31,	2006.

As	of	December	28,	2008,	$152.8	million	of	total	unrecognized	compensation	cost	related	to	stock	options,	restricted	stock	and	ESPP	shares	issued	to	date	is	expected	to	be	recognized	over	a weighted-average	period	of	approximately	1.9	years.

Total	share-based	compensation	expense	for	employee	stock	options	and	stock	purchases	consists	of	the	following	(in	thousands,	except	per	share	data):

|  | Year	Ended<br>December	28,<br>2008 | Year	Ended<br>December	30,<br>2007 | Year	Ended<br>December	31,<br>2006 |
| :--- | :--- | :--- | :--- |
| Cost\tof\tproduct\trevenue | $4,710 | $4,045 | $1,289 |
| Cost\tof\tservice\tand\tother\trevenue | 400 | 279 | 235 |
| Research\tand\tdevelopment | 14,086 | 10,016 | 3,891 |
| Selling,\tgeneral\tand\tadministrative | 28,492 | 19,406 | 8,889 |
| Share-based\tcompensation\texpense\tbefore\ttaxes | 47,688 | 33,746 | 14,304 |
| Related\tincome\ttax\tbenefits | (15,844) | (11,005) | — |
| Share-based\tcompensation\texpense,\tnet\tof\ttaxes | $31,844 | $22,741 | $14,304 |
| Net\tshare-based\tcompensation\texpense\tper\tshare\tof\tcommon\tstock:\nBasic | $0.27 | $0.21 | $0.16 |
| Diluted | $0.24 | $0.21 | $0.15 |

# Net	Income	(	Loss)	per	Share

On	July	22,	2008,	the	Company	announced	a	two-for-one	stock	split	in	the	form	of	a	100%	stock	dividend	with	a	record	date	of	September	10,	2008	and	a	distribution	date	of	September	22, 2008.	Share	and	per	share	amounts	have	been	restated	to	reflect	the	stock	split	for	all	periods	presented.

Basic	and	diluted	net	income	(loss)	per	share	of	common	stock	is	presented	in	conformity	with	SFAS	No.	128,	Earnings	per	Share,	for	all	periods	presented.	In	accordance	with	SFAS	No.	128, basic	net	income	(loss)	per	share	is	computed	using	the	weighted-average	number	of	shares	of	common	stock	outstanding	during	the	period,	less	shares	held	in	treasury	and	shares	subject	to	repurchase. Diluted	net	income	(loss)	per	share	is	computed	using	the	weighted	average	number	of	common	and	dilutive	common	equivalent	shares	from	the	Company's	Convertible	Senior	Notes,	equity	awards, warrants	sold	in	connection	with	the	Convertible	Senior	Notes	and	warrants	assumed	in	the	acquisition	of	Solexa,	Inc.	(Solexa)	using	the	treasury	stock	method.	The	following	table	presents	the calculation	of	weighted-average	shares	used	to	calculate	basic	and	diluted	net	income	(loss)	per	share	(in	thousands):

|  | Year	Ended<br>December	28,<br>2008 | Year	Ended<br>December	30,<br>2007 | Year	Ended<br>December	31,<br>2006 |
| :--- | :--- | :--- | :--- |
| Weighted-average\tshares\toutstanding | 116,855 | 108,328 | 89,074 |
| Less:\tWeighted-average\tshares\tof\tcommon\tstock\tsubject\tto\trepurchase | — | (20) | (72) |
| Weighted-average\tshares\tused\tin\tcalculating\tbasic\tnet\tincome\t(loss)\tper\tshare | 116,855 | 108,308 | 89,002 |
| Plus:\tEffect\tof\tdilutive\tConvertible\tSenior\tNotes | 6,653 | — | — |
| Plus:\tEffect\tof\tdilutive\tequity\tawards | 5,373 | — | 8,506 |
| Plus:\tEffect\tof\tdilutive\twarrants\tsold\tin\tconnection\twith\tthe\tConvertible\tSenior\tNotes | 2,487 | — | — |
| Plus:\tEffect\tof\tdilutive\twarrants\tassumed\tin\tthe\tacquisition\tof\tSolexa | 2,239 | — | — |
| Weighted-average\tshares\tused\tin\tcalculating\tdiluted\tnet\tincome\t(loss)\tper\tshare | 133,607 | 108,308 | 97,508 |
| Weighted\taverage\tshares\texcluded\tfrom\tcalculation\tdue\tto\tanti-dilutive\teffect | 370 | 42,882 | 401 |

# Comprehensive	Income

Comprehensive	income	(loss)	is	comprised	of	net	income	(loss)	and	other	comprehensive	income	(loss).	Other	comprehensive	income	(loss)	includes	unrealized	gains	and	losses	on	the Company's	available-for-sale	securities	and	foreign	currency	translation	adjustments.	The	Company	has	disclosed	comprehensive	income	as	a	component	of	stockholders'	equity.

The	components	of	accumulated	other	comprehensive	income	are	as	follows	(in	thousands):

|  | December	28,<br>2008 | December	30,<br>2007 |
| :--- | :--- | :--- |
| Foreign\tcurrency\ttranslation\tadjustments | $2,103 | $1,183 |
| Unrealized\tgain\ton\tavailable-for-sale\tsecurities,\tnet\tof\tdeferred\ttax | 303 | 164 |
| Total\tother\tcomprehensive\tincome | $2,406 | $1,347 |

# Adopted	Accounting	Pronouncements

During	fiscal	2008,	the	Company	adopted	SFAS	No.	157,	"Fair	Value	Measurements".	In	February	2008,	the	FASB	issued	Staff	Position	No.	FSP	157-2,	"Effective	Date	of	FASB	Statement No.	157"	(FSP	157-2),	which	provides	a	one	year	deferral	of	the	effective	date	of	SFAS	No.	157	for	non-financial	assets	and	non-financial	liabilities,	except	those	that	are	recognized	or	disclosed	in	the financial	statements	at	fair	value	at	least	annually.	Therefore,	the	Company	has	adopted	the	provisions	of	SFAS	No.	157	with	respect	to	its	financial	assets	and	liabilities	only.	The	adoption	of	this statement	did	not	have	a	material	impact	on	the	Company's	consolidated	statements	of	operations	or	financial	condition.	On	October	10,	2008,	the	FASB	issued	FSP	No.	157-3,	"Determining	the	Fair Value	of	a	Financial	Asset	When	the	Market	for	That	Asset	is	Not	Active"	(FSP	157-3)	that	clarifies	the	application	of	SFAS	No.	157	in	a	market	that	is	not	active	and	provides	an	example	to	illustrate key	considerations	in	determining	the	fair	value	of	a	financial	asset	when	the	market	for	that	financial	assets	is	not	active.	FSP	157-3	is	effective	for	all	periods	presented	in	accordance	with SFAS	No.	157.	The	Company	considered	the	additional	guidance	with	respect	to	the	valuation	of	its	financial	assets	and	liabilities	and	their	corresponding	designation	within	the	fair	value	hierarchy. All	short-term	investments	were	valued	using	quoted	prices	in	active	markets	or	Level	1	hierarchical	inputs.	Long-term	investments	were	valued	using	Level	3	hierarchical	inputs	due	to	the	lack	of trading	in	the	secondary	market	of	these	instruments.	Refer	to	Notes	3	and	4.

During	fiscal	2008,	the	Company	adopted	SFAS	No.	159	"The	Fair	Value	Option	for	Financial	Assets	and	Financial	Liabilities".	SFAS	No.	159	allows	an	entity	the	irrevocable	option	to	elect fair	value	for	the	initial	and	subsequent	measurement	for	specified	financial	assets	and	liabilities	on	a	contract-by-contract	basis.	The	objective	of	the	guidance	is	to	improve	financial	reporting	by providing	entities	with	the	opportunity	to	mitigate	volatility	in	reported	earnings	caused	by	measuring	related	assets	and	liabilities	differently	without	having	to	apply	complex	hedge	accounting provisions.	The	adoption	of	SFAS	No.	159	impacted	the	accounting	for	the	put	option	recorded	as	a	result	of	the	signed	settlement	agreement	with	UBS	AG	(UBS)	in	November	2008.	Refer	to	Note	4.

# New	Accounting	Pronouncements

SFAS	No.	141(R),	Business	Combinations,	was	issued	in	December	of	2007.	SFAS	No.	141(R)	establishes	principles	and	requirements	for	how	the	acquirer	of	a	business	recognizes	and measures	in	its	financial	statements	the	identifiable	assets	acquired,	the	liabilities	assumed	and	any	non-controlling	interest	in	the	acquiree.	SFAS	No.	141(R)	also	provides	guidance	for	recognizing	and measuring	the	goodwill	acquired	in	the	business	combination	and	sets	forth	what	information	to	disclose	to	enable	users	of	the	financial	statements	to	evaluate	the	nature	and	financial	effects	of	the business	combination.	The	guidance	will	become	effective	for	fiscal	years	beginning	after	December	15,	2008.	The	Company	is	currently	evaluating	the	impact	the	adoption	of	this	pronouncement	will have	on	the	Company's	consolidated	financial	statements.

SFAS	No.	160,	Interests	in	Consolidated	Financial	Statements	—	an	amendment	of	ARB	No.	51,	which	impacts	the	accounting	for	minority	interest	in	the	consolidated	financial	statements	of filers,	was	also	issued	in	December	2007.	The	statement	requires	the	reclassification	of	minority	interest	to	the	equity	section	of	the	balance	sheet	and	the	results	from	operations	attributed	to	minority interest	to	be	included	in	net	income.	The	related	minority	interest	impact	on	earnings	would	then	be	disclosed	in	the	summary	of	other	comprehensive	income.	The	statement	is	applicable	for	all	fiscal years	beginning	on	or	after	December	15,	2008	and	earlier	adoption	is	prohibited.	The	adoption	of	this	standard	will	require	prospective	treatment.	The	Company	is	currently	evaluating	the	impact,	if any,	the	adoption	of	this	pronouncement	will	have	on	the	Company's	consolidated	financial	statements.

In	December	2007	the	Financial	Accounting	Standards	Board	(FASB)	ratified	EITF	Issue	07-1,	Accounting	for	Collaborative	Arrangements.	EITF	Issue	07-1	focuses	on	defining	a	collaborative arrangement	as	well	as	the	accounting	for	transactions	between	participants	in	a	collaborative	arrangement	and	between	the	participants	in	the	arrangement	and	third	parties.	The	EITF	concluded	that both	types	of	transactions	should	be	reported	in	each	participant's	respective	income	statement.	EITF	Issue	07-1	is	effective	for	financial	statements	issued	for	fiscal	years	beginning	after	December	15, 2008,	and	interim	periods	within	those	fiscal	years	and	should	be	applied	retrospectively	to	all	prior	periods	presented	for	all	collaborative	arrangements	existing	as	of	the	effective	date.	The	Company	is currently	evaluating	the	impact,	if	any,	the	adoption	of	this	pronouncement	will	have	on	the	Company's	consolidated	financial	statements.

In	May	2008,	the	FASB	issued	FASB	Staff	Position	(FSP)	Accounting	Principles	Board	Opinions	(APB)	14-1,	Accounting	for	Convertible	Debt	Instruments	that	May	be	Settled	in	Cash	upon Conversion	(Including	Partial	Cash	Settlement)	(FSP	APB	14-1	or	the	FSP)	that	significantly	impacts	the	accounting	for	convertible	debt.	The	FSP	requires	issuers	of	convertible	debt	that	may	be settled	fully	or	partially	in	cash	upon	conversion	to	account	separately	for	the	liability	and	equity	components	of	the	convertible	debt.	The	liability	component	is	measured	so	that	the	effective	interest expense	associated	with	the	convertible	debt	reflects	the	issuer's	borrowing	rate	at	the	date	of	issuance	for	similar	debt	instruments	without	the	conversion	feature.	This	FSP	applies	to	our	Convertible Senior	Notes	and	will	be	effective	for	us	beginning	on	December	29,	2009.	This	FSP	will	be	applied	retrospectively	to	all	periods	that	will	be	presented	in	our	consolidated	financial	statements beginning	after	December	29,	2009.	Upon	adoption,	we	will	retrospectively	record	a	decrease	in	the	book	value	of	our	0.625%	Convertible	Senior	Notes	of	approximately	$150.0	million	as	of December	28,	2008,	an	increase	in	additional	paid-in	capital	and	a	cumulative	effect	of	a	change	in	accounting	principles	in	our	consolidated	financial	statements,	and	we	will	begin	recording	an additional	non-cash	interest	expense	ranging	from	approximately	$20.0	million	to	30.0	million	per	year.	The	additional	interest	expense,	net	of	taxes,	will	reduce	net	income	by	a	range	of	approximately $13.0	million	to	$20.0	million	per	year.	We	will	continue	to	record	this	additional	interest	expense	over	the	expected	life	of	the	debt.	These	amounts	represent	management's	best	estimates	of	the	effects the	adoption	of	this	pronouncement	will	have	on	the	Company's	consolidated	financial	statements,	however	actual	amounts	may	vary	significantly	from	our	current	estimate.

In	October	2008,	the	FASB	issued	FASB	FSP	SFAS	157-3,	Determining	the	Fair	Value	of	a	Financial	Asset	When	the	Market	for	That	Asset	Is	Not	Active.	The	FSP	clarifies	the	application	of FASB	Statement	No.	157,	Fair	Value	Measurements,	in	a	market	that	is	not	active	and	provides	an	example	to	illustrate	key	considerations	in	determining	the	fair	value	of	a	financial	asset	when	the market	for	that	financial	asset	is	not	active.	The	FSP	is	effective	upon	issuance,	including	for	prior	periods	for	which	financial	statements	have	not	been	issued.	Revisions	resulting	from	a	change	in	the valuation	technique	or	its	application	should	be	accounted	for	as	a	change	in	accounting	estimate	following	the	guidance	in	FASB	Statement	No.	154,	Accounting	Changes	and	Error	Corrections. However,	the	disclosure	provisions	in	Statement	154	for	a	change	in	accounting	estimate	are	not	required	for	revisions	resulting	from	a	change	in	valuation	technique	or	its	application.	The	Company believes	the	impact	of	this	pronouncement	on	the	Company's	consolidated	financial	statements	to	be	immaterial.

# 2. Acquisitions

# Avantome,	Inc.

On	August	1,	2008,	the	Company	completed	its	acquisition	of	Avantome,	Inc.	(Avantome),	a	privately-held	Delaware	corporation.	As	consideration	for	the	acquisition,	the	Company	paid $25.8	million	in	cash,	including	transaction	costs,	and	may	pay	up	to	an	additional	$35.0	million	in	contingent	cash	consideration	based	on	the	achievement	of	certain	milestones.	The	Company	assumed $1.1	million	in	net	assets,	and	recorded	a	charge	of	$24.7	million	for	purchased	in-process	research	and	development	(IPR&D)	primarily	associated	with	the	development	of	Avantome's	low-cost,	long read-length	sequencing	technology.	The	amount

allocated	to	IPR&D	was	expensed	upon	acquisition	as	it	was	determined	that	the	underlying	project	had	not	reached	technological	feasibility	and	had	no	alternative	future	use.	The	Company	has assessed	the	contingent	consideration	payable	in	accordance	with	the	provisions	of	SFAS	No.	141,	Business	Combinations,	and	EITF	95-8,	Accounting	for	Contingent	Consideration	Paid	to	the Shareholders	of	an	Acquired	Enterprise	in	a	Purchase	Business	Combination.	Contingent	consideration	of	$11.0	million	will	be	recorded	as	compensation	expense	over	a	three-year	period	as	this consideration	is	earned	by	the	former	primary	shareholders	of	Avantome	contingent	upon	their	employment	with	the	Company	for	three	years.	The	remaining	contingent	consideration	of	$24.0	million will	be	recorded	as	additional	purchase	price	if	and	when	certain	milestones	are	achieved	or	the	amount	due	is	determinable	beyond	a	reasonable	doubt.

The	results	of	Avantome's	operations	have	been	included	in	the	Company's	consolidated	financial	statements	since	the	acquisition	date	of	August	1,	2008.	Pro	forma	results	of	operations	have not	been	presented	because	the	effects	of	the	acquisition	were	not	material.

# Solexa,	Inc.

On	January	26,	2007,	the	Company	completed	its	acquisition	of	Solexa,	a	Delaware	corporation,	in	a	stock-for-stock	merger	transaction.	The	Company	issued	26.2	million	shares	of	its	common stock	as	consideration	for	this	merger.

        The	purchase	price	of	the	acquisition	is	as	follows	(in	thousands):

Based	on	the	estimated	fair	values	at	the	acquisition	date,	the	Company	allocated	$303.4	million	to	IPR&D,	$62.2	million	to	tangible	assets	acquired	and	liabilities	assumed	and	$24.4	million	to intangible	assets.	The	remaining	excess	of	the	purchase	price	over	the	fair	value	of	net	assets	acquired	of	$228.7	million	was	allocated	to	goodwill.

The	results	of	Solexa's	operations	have	been	included	in	the	Company's	consolidated	financial	statements	since	the	acquisition	date	of	January	26,	2007.	The	following	unaudited	pro	forma information	shows	the	results	of	the	Company's	operations	for	the	specified	reporting	periods	as	though	the	acquisition	had	occurred	as	of	the	beginning	of	that	period	(in	thousands,	except	per	share data):

|  | Year	Ended<br>December	30,<br>2007 | Year	Ended<br>December	31,<br>2006 |
| :--- | :--- | :--- |
| Revenue | $366,854 | $187,103 |
| Net\tincome\t(loss) | $17,388 | $(38,957) |
| Net\tincome\t(loss)\tper\tshare,\tbasic | $0.16 | $(0.34) |
| Net\tincome\t(loss)\tper\tshare,\tdiluted | $0.15 | $(0.34) |

The	pro	forma	results	have	been	prepared	for	comparative	purposes	only	and	are	not	necessarily	indicative	of	the	actual	results	of	operations	had	the	acquisition	taken	place	as	of	the	beginning	of the	period	presented,	or	the	results	that	may	occur	in	the	future.	The	pro	forma	results	exclude	the	$303.4	million	non-cash	acquired	IPR&D	charge	recorded	upon	the	closing	of	the	acquisition	during the	first	quarter	of	2007.

# 3. Balance	Sheet	Account	Details

The	following	is	a	summary	of	short-term	investments	(in	thousands):

|  | Amortized<br>Cost | Gross<br>Unrealized<br>Gains | Gross<br>Unrealized<br>Losses | Estimated<br>Fair	Value |
| :--- | :--- | :--- | :--- | :--- |
| U.S.\tTreasury\tsecurities\tand\tobligations\tof\tU.S.\tgovernment\tagencies | $218,964 | $1,544 | $— | $220,508 |
| Corporate\tdebt\tsecurities | 92,301 | 547 | (305) | 92,543 |
| Total | $311,265 | $2,091 | $(305) | $313,051 |

|  | Amortized<br>Cost | Gross<br>Unrealized<br>Gains | Gross<br>Unrealized<br>Losses | Estimated<br>Fair	Value |
| :--- | :--- | :--- | :--- | :--- |
| U.S.\tTreasury\tsecurities\tand\tobligations\tof\tU.S.\tgovernment\tagencies | $42,648 | $108 | $— | $42,756 |
| Debt\tsecurities\tissued\tby\tthe\tstates\tof\tthe\tUnited\tStates\tand\tpolitical\tsubdivisions\tof\tthe\tstates | 14,675 | — | — | 14,675 |
| Corporate\tdebt\tsecurities | 153,547 | 252 | (89) | 153,710 |
| Total | $210,870 | $360 | $(89) | $211,141 |

Gross	realized	losses	on	sales	of	available-for-sale	securities	were	immaterial	for	the	years	ended	December	28,	2008,	December	30,	2007	and	December	31,	2006.	Gross	realized	gains	on	sales of	available-for-sale	securities	totaled	$0.6	million	for	the	year	ended	December	28,	2008	and	were	immaterial	for	the	years	ended	December	30,	2007	and	December	31,	2006.	As	of	December	28, 2008,	all	of	the	Company's	investments	in	a	gross	unrealized	loss	position	had	been	in	such	position	for	less	than	twelve	months.	Impairments	are	not	considered	other	than	temporary	as	the	Company has	the	intent	and	ability	to	hold	these	investments	until	maturity.

        Contractual	maturities	of	short-term	investments	at	December	28,	2008	were	as	follows	(in	thousands):

Accounts	receivable	consist	of	the	following	(in	thousands):

|  | December	28,<br>2008 | December	30,<br>2007 |
| :--- | :--- | :--- |
| Accounts\treceivable\tfrom\tproduct\tand\tservice\tsales | $132,564 | $82,144 |
| Other\treceivables | 1,840 | 1,515 |
|  | 134,404 | 83,659 |
| Allowance\tfor\tdoubtful\taccounts | (1,138) | (540) |
| Total | $133,266 | $83,119 |

Inventory,	net,	consists	of	the	following	(in	thousands):

|  | December	28,<br>2008 | December	30,<br>2007 |
| :--- | :--- | :--- |
| Raw\tmaterials | $32,501 | $27,098 |
| Work\tin\tprocess | 34,063 | 20,321 |
| Finished\tgoods | 6,867 | 6,561 |
| Total | $73,431 | $53,980 |

Property	and	equipment	consist	of	the	following	(in	thousands):

|  | December	28,<br>2008 | December	30,<br>2007 |
| :--- | :--- | :--- |
| Leasehold\timprovements | $26,637 | $4,531 |
| Manufacturing\tand\tlaboratory\tequipment | 83,317 | 50,384 |
| Computer\tequipment\tand\tsoftware | 27,490 | 18,772 |
| Furniture\tand\tfixtures | 4,167 | 3,691 |
|  | 141,611 | 77,378 |
| Accumulated\tdepreciation\tand\tamortization | (52,175) | (31,104) |
| Total | $89,436 | $46,274 |

Accrued	liabilities	consist	of	the	following	(in	thousands):

|  | December	28,<br>2008 | December	30,<br>2007 |
| :--- | :--- | :--- |
| Compensation | $30,330 | $17,410 |
| Short-term\tdeferred\trevenue | 15,862 | 7,541 |
| Taxes | 9,456 | 8,298 |
| Reserve\tfor\tproduct\twarranties | 8,203 | 3,716 |
| Customer\tdeposits | 6,583 | 5,266 |
| Accrued\troyalties | 2,695 | 1,867 |
| Legal\tand\tother\tprofessional\tfees | 1,708 | 4,276 |
| Other | 5,518 | 2,478 |
| Total | $80,355 | $50,852 |

# 4. Long-term	Investments

The	Company	has	$55.9	million	(at	cost)	in	auction	rate	securities	issued	primarily	by	municipalities	and	universities.	The	auction	rate	securities	are	held	in	a	brokerage	account	with	UBS. These	securities	are	debt	instruments	with	a	long-term	maturity	and	with	an	interest	rate	that	is	reset	in	short	intervals	through	auctions.	The	Company's	entire	auction	rate	portfolio	is	currently	rated AAA	or	AA	by	a	rating	agency.

The	markets	for	auction	rate	securities	effectively	ceased	when	the	vast	majority	of	auctions	failed	in	February	2008,	preventing	investors	from	selling	their	auction	rate	securities.	As	of December	28,	2008,	the	securities	continued	to	fail	auction	and	remained	illiquid.	As	a	result,	the	Company	recorded	an	unrealized	loss	of	$8.7	million	for	the	year	ended	December	28,	2008,	resulting in	a	reduction	to	the	fair	value	of	the

Company's	auction	rate	securities	to	$47.2	million.	This	unrealized	loss	was	determined	in	accordance	with	SFAS	No.	157,	Fair	Value	Measurements.

As	a	basis	for	considering	market	participant	assumptions	in	fair	value	measurements,	SFAS	No.	157	establishes	a	fair	value	hierarchy	that	prioritizes	the	inputs	to	valuation	techniques	used	to measure	fair	value	into	three	broad	levels	including	the	following:

The	fair	value	hierarchy	gives	the	highest	priority	to	Level	1	and	the	lowest	priority	to	Level	3.	In	determining	the	fair	value	of	the	Company's	auction	rate	securities,	the	Company	considered trades	in	the	secondary	market.	However,	due	to	the	recent	auction	failures	of	the	auction	rate	securities	in	the	marketplace	and	the	lack	of	trading	in	the	secondary	market	of	these	instruments,	there	was insufficient	observable	auction	rate	security	market	information	available	to	directly	determine	the	fair	value	of	the	Company's	investments.	As	a	result,	the	value	of	these	auction	rate	securities	and resulting	unrealized	loss	was	determined	using	Level	3	hierarchical	inputs.	These	inputs	include	management's	assumptions	of	pricing	by	market	participants,	including	assumptions	about	risk.	In accordance	with	SFAS	No.	157,	the	Company	used	the	concepts	of	fair	value	based	on	estimated	discounted	future	cash	flows	of	interest	income	over	a	projected	five	year	period	reflective	of	the	length of	time	until	the	Company's	securities	are	expected	to	become	liquid	or	potentially	get	repurchased.	In	preparing	this	model,	the	Company	used	historical	data	of	the	rates	upon	which	a	majority	of	the auction	rate	securities'	contractual	rates	were	based,	such	as	the	LIBOR	and	average	trailing	twelve-month	90-day	Treasury	interest	rate	spreads,	to	estimate	future	interest	rates.	The	Company	also considered	the	discount	factors,	taking	into	account	the	credit	ratings	of	the	auction	rate	securities,	using	a	discount	rate	of	5%.	The	Company	obtained	information	from	multiple	sources,	including UBS,	to	determine	a	reasonable	range	of	assumptions	to	use	in	valuing	the	auction	rate	securities.	The	Company's	model	was	corroborated	by	a	separate	comparable	cash	flow	analysis	prepared	by UBS.	To	understand	the	sensitivity	of	the	Company's	valuation,	the	liquidity	factor	and	estimated	remaining	life	was	varied.	Variations	in	those	results	were	evaluated	and	it	was	determined	the	factors and	valuation	method	chosen	were	reasonable	and	representative	of	the	Company's	auction	rate	security	portfolio.

The	Company	classified	these	securities	as	long-term	assets	since	the	Company	believes	it	may	not	be	able	to	liquidate	its	investments	without	significant	loss	within	the	next	year.	As	of December	30,	2007,	these	securities	were	classified	as	short-term	since	the	failures	of	these	auctions	did	not	occur	until	February	2008.

As	a	result	of	the	auction	rate	failures,	various	regulatory	agencies	initiated	investigations	into	the	sales	and	marketing	practices	of	several	banks	and	broker-dealers,	including	UBS,	which	sold auction	rate	securities,	alleging	violations	of	federal	and	state	laws.	Along	with	several	other	broker-dealers,	UBS	subsequently	reached	a	settlement	with	the	federal	and	state	regulators	that	required them	to	repurchase	auction	rate	securities	from	certain	investors	at	par	at	some	future	date.	In	November	2008	the	Company	signed	a	settlement	agreement	to	sell	its	auction	rate	securities	at	par	value to	UBS	during	the	period	of	June	30,	2010	through	July	2,	2012	(the	Settlement).	In	accepting	the	Settlement,	the	Company	released	UBS	from	any	claims	relating	to	the	marketing	and	sale	of	auction rate	securities.	Although	the	Company	expects	to	sell	its	auction	rates	securities	under	the	Settlement,	if	the	Settlement	is	not	exercised	before	July	2,	2012,	it	will	expire	and	UBS	will	have	no	further rights	or	obligation	to	buy	the	Company's	auction	rate	securities.	In	lieu	of	the	acceptance	of	the	Settlement,	the	auction	rate	securities	will	continue	to	accrue	interest	as

determined	by	the	auction	process	or	the	terms	outlined	in	the	prospectus	of	the	auction	rate	securities	if	the	auction	process	fails.	In	addition	to	offering	to	repurchase	the	Company's	auction	rate securities,	as	part	of	the	Settlement,	UBS	has	agreed	to	provide	the	Company	with	a	"no	net	cost"	loan	up	to	75%	of	the	par	value	of	the	auction	rate	securities	until	June	30,	2010.	Per	the	terms	of	the Settlement,	the	interest	rate	on	the	loan	will	approximate	the	weighted	average	interest	or	dividend	rate	payable	to	the	Company	by	the	issuer	of	any	auction	rate	securities	pledged	as	collateral.

UBS's	obligations	under	the	Settlement	are	not	secured	by	its	assets	and	do	not	require	UBS	to	obtain	any	financing	to	support	its	performance	obligations	under	the	Settlement.	UBS	has disclaimed	any	assurance	that	it	will	have	sufficient	financial	resources	to	satisfy	its	obligations	under	the	Settlement.

To	account	for	the	Settlement,	the	Company	recorded	a	separate	freestanding	asset	(put	option)	of	$8.7	million	and	recognized	a	corresponding	gain	in	earnings	during	the	fourth	quarter	of	2008. The	fair	value	of	the	put	option	is	included	in	long-term	investments	on	the	balance	sheet	as	of	December	28,	2008	with	the	corresponding	gain	classified	as	interest	income	in	the	consolidated	statement of	operations	for	the	year	ended	December	28,	2008.	The	put	option	does	not	meet	the	definition	of	a	derivative	instrument	under	SFAS	No.	133,	therefore,	the	Company	elected	to	measure	the	put option	at	fair	value	under	SFAS	No.	159.	The	Company	valued	the	put	option	using	a	discounted	cash	flow	approach	including	estimates	of	interest	rates,	timing	and	amount	of	cash	flow,	with consideration	given	to	UBS's	financial	ability	to	repurchase	the	auction	rate	securities	beginning	June	30,	2010.	These	assumptions	are	volatile	and	subject	to	change	as	the	underlying	sources	of	these assumptions	and	market	conditions	change.

Prior	to	accepting	the	UBS	offer,	the	Company	recorded	its	auction	rate	securities	as	available-for-sale	investments,	and	therefore	recorded	resulting	unrealized	gains	or	losses	in	accumulated other	comprehensive	income	in	its	statements	of	stockholders'	equity.	By	signing	the	settlement	agreement,	the	Company	no	longer	had	the	intent	of	holding	the	auction	rate	securities	until	recovery	as management	now	has	the	intent	to	exercise	its	put	option	during	the	period	June	30,	2010	to	July	3,	2012.	As	a	result,	the	Company	elected	a	one-time	transfer	of	the	auction	rate	securities	from available-for-sale	to	trading	in	accordance	with	SFAS	No.	115.	Prior	to	its	agreement	with	UBS,	management's	intent	was	to	hold	the	auction	rate	securities	until	the	earlier	of	anticipated	recovery	in market	value	or	maturity.	Upon	transfer	to	trading	securities,	the	Company	immediately	recognized	a	loss	of	$8.7	million,	included	in	interest	income	for	the	amount	of	the	unrealized	loss	not	previously recognized	in	earnings.	The	Company	will	continue	to	recognize	gains	and	losses	in	earnings	approximating	the	changes	in	the	fair	value	of	the	auction	rate	securities	at	each	balance	sheet	date.	These gains	and	losses	are	expected	to	be	approximately	offset	by	changes	in	the	fair	value	of	the	put	option.

# 5. Intangible	Assets

The	Company's	intangible	assets	are	comprised	primarily	of	acquired	core	technology	and	customer	relationships	from	the	acquisition	of	Solexa	and	licensed	technology	from	the	Affymetrix settlement	entered	into	on	January	9,	2008.	As	a	result	of	this	settlement,	the	Company	agreed,	without	admitting	liability,	to	make	a	one-time	payment	to	Affymetrix	of	$90.0	million.	In	return, Affymetrix	agreed	to	dismiss	with	prejudice	all	lawsuits	it	had	brought	against	the	Company,	and	the	Company	agreed	to	dismiss	with	prejudice	its	counterclaims	in	the	relevant	lawsuits.	Affymetrix also	agreed	not	to	sue	the	Company	or	its	affiliates	or	customers	for	making,	using	or	selling	any	of	the	Company's	current	products,	evolutions	of	those	products	or	services	related	to	those	products.	In addition,	Affymetrix	agreed	that,	for	four	years,	it	will	not	sue	the	Company	for	making,	using	or	selling	the	Company's	products	or	services	that	are	based	on	future	technology	developments.	The covenant	not	to	sue	covers	all	fields	other	than	photolithography,	the	process	by	which	Affymetrix	manufactures	its	arrays	and	a	field	in	which	the	Company	does	not	operate.

Of	the	total	$90.0	million	payment	made	on	January	25,	2008,	$36.0	million	was	recorded	as	licensed	technology	and	classified	as	an	intangible	asset.	The	remaining	$54.0	million	was	charged to	expense	during

the	fourth	quarter	of	2007.	This	allocation	was	determined	in	accordance	with	SFAS	No.	5,	Accounting	for	Contingencies,	and	EITF	00-21	using	the	concepts	of	fair	value	based	on	the	past	and estimated	future	revenue	streams	related	to	the	products	covered	by	the	patents	previously	under	dispute.	The	value	of	the	licensed	technology	is	the	benefit	derived,	calculated	using	estimated discounted	cash	flows	and	future	revenue	projections,	from	the	perpetual	covenant	not	to	sue	for	damages	related	to	the	sale	of	the	Company's	current	products.	The	Company	utilized	an	annual	discount rate	of	9.25%	when	preparing	this	model.	The	effective	life	of	the	licensed	technology	extends	through	2015,	the	final	expiry	date	of	all	patents	considered	in	valuing	the	intangible	asset.	The	related amortization	is	based	on	the	higher	of	the	percentage	of	usage	or	the	straight-line	method.	The	percentage	of	usage	was	determined	using	actual	and	projected	revenues	generated	from	products	covered by	the	patents	previously	under	dispute.

Acquired	core	technology	and	customer	relationships	are	being	amortized	on	a	straight-line	basis	over	their	effective	useful	lives	of	ten	and	three	years,	respectively.	The	amortization	of	the Company's	intangible	assets	is	excluded	from	cost	of	product	revenue	and	is	separately	classified	as	amortization	of	intangible	assets	on	the	Company's	consolidated	statements	of	operations.

The	following	is	a	summary	of	the	Company's	amortizable	intangible	assets	as	of	the	respective	balance	sheet	dates	(in	thousands):

|  | December	28,	2008 | December	28,	2008 | December	28,	2008 | December	30,	2007 | December	30,	2007 | December	30,	2007 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Gross\tCarrying\nAmount | Accumulated\nAmortization | Intangibles,\nNet | Gross\tCarrying\nAmount | Accumulated\nAmortization | Intangibles,\nNet |
| Licensed\ttechnology | $36,000 | $(7,788) | $28,212 | $36,000 | $— | $36,000 |
| Core\ttechnology | 23,500 | (4,504) | 18,996 | 23,500 | (2,154) | 21,346 |
| Customer\trelationships | 900 | (575) | 325 | 900 | (275) | 625 |
| License\tagreements | 1,154 | (932) | 222 | 1,029 | (884) | 145 |
| Total\tintangible\tassets,\tnet | $61,554 | $(13,799) | $47,755 | $61,429 | $(3,313) | $58,116 |

Amortization	expense	associated	with	the	intangible	assets	was	$10.4	million	and	$2.4	million	for	the	years	ended	December	28,	2008	and	December	30,	2007,	respectively.	There	was	no amortization	of	intangibles	for	the	year	ended	January	1,	2006.

The	estimated	annual	amortization	of	intangible	assets	for	the	next	five	years	is	shown	in	the	following	table	(in	thousands).	Actual	amortization	expense	to	be	reported	in	future	periods	could differ	from	these	estimates	as	a	result	of	acquisitions,	divestitures,	asset	impairments	and	other	factors.

During	fiscal	2008,	the	Company	implemented	next-generation	imaging	and	decoding	systems	to	be	used	in	manufacturing.	These	systems	were	developed	to	increase	existing	capacity	and allow	the	Company	to	transition	to	the	Infinium	High-Density	(HD)	product	line.	As	a	result	of	this	transition,	the	demand	for	products	manufactured	on	the	previous	infrastructure	was	reduced	and certain	systems	were	no	longer	being

utilized.	In	accordance	with	SFAS	No.	144,	Accounting	for	the	Impairment	or	Disposal	of	Long-Lived	Assets,	a	non-cash	impairment	charge	of	$4.1	million	was	recorded	in	the	second	quarter	of	fiscal 2008	for	the	excess	machinery.	This	charge	is	included	as	a	separate	line	item	in	the	Company's	consolidated	statement	of	operations.	There	was	no	change	to	useful	lives	and	related	depreciation expense	of	the	remaining	assets	as	the	Company	believes	these	estimates	are	currently	reflective	of	the	period	the	assets	will	be	used	in	operations.

# 7. Warranties

The	Company	generally	provides	a	one-year	warranty	on	sequencing,	genotyping	and	gene	expression	systems.	At	the	time	revenue	is	recognized,	the	Company	establishes	an	accrual	for estimated	warranty	expenses	associated	with	system	sales.	This	expense	is	recorded	as	a	component	of	cost	of	product	revenue.	Estimated	warranty	expenses	associated	with	extended	maintenance contracts	are	recorded	as	cost	of	revenue	ratably	over	the	term	of	the	maintenance	contract.

Changes	in	the	Company's	reserve	for	product	warranties	from	January	1,	2006	through	December	28,	2008	are	as	follows	(in	thousands):

| Balance	as	of	January	1,	2006 | $751 |
| :--- | :--- |
| Additions\tcharged\tto\tcost\tof\trevenue | 1,379 |
| Repairs\tand\treplacements | (1,134) |
| Balance\tas\tof\tDecember\t31,\t2006 | 996 |
| Additions\tcharged\tto\tcost\tof\trevenue | 4,939 |
| Repairs\tand\treplacements | (2,219) |
| Balance\tas\tof\tDecember\t30,\t2007 | 3,716 |
| Additions\tcharged\tto\tcost\tof\trevenue | 13,044 |
| Repairs\tand\treplacements | (8,557) |
| Balance\tas\tof\tDecember\t28,\t2008 | $8,203 |

# 8. Convertible	Senior	Notes

On	February	16,	2007,	the	Company	issued	$400.0	million	principal	amount	of	0.625%	Convertible	Senior	Notes	due	2014	(the	Notes),	which	included	the	exercise	of	the	initial	purchasers' option	to	purchase	up	to	an	additional	$50.0	million	aggregate	principal	amount	of	Notes.	The	net	proceeds	from	the	offering,	after	deducting	the	initial	purchasers'	discount	and	offering	expenses,	were $390.3	million.	The	Company	will	pay	0.625%	interest	per	annum	on	the	principal	amount	of	the	Notes,	payable	semi-annually	in	arrears	in	cash	on	February	15	and	August	15	of	each	year.	The Company	made	interest	payments	of	$1.3	million	and	$1.2	million	on	February	15,	2008	and	August	15,	2008,	respectively.	The	Notes	mature	on	February	15,	2014.

The	Notes	will	be	convertible	into	cash	and,	if	applicable,	shares	of	the	Company's	common	stock,	$0.01	par	value	per	share,	based	on	a	conversion	rate,	subject	to	adjustment,	of	45.8058	shares per	$1,000	principal	amount	of	Notes	(which	represents	a	conversion	price	of	$21.83	per	share),	only	in	the	following	circumstances	and	to	the	following	extent:	(1)	during	the	five	business-day	period after	any	five	consecutive	trading	period	(the	measurement	period)	in	which	the	trading	price	per	Note	for	each	day	of	such	measurement	period	was	less	than	97%	of	the	product	of	the	last	reported	sale price	of	the	Company's	common	stock	and	the	conversion	rate	on	each	such	day;	(2)	during	any	calendar	quarter	after	the	calendar	quarter	ending	March	30,	2007,	if	the	last	reported	sale	price	of	the Company's	common	stock	for	20	or	more	trading	days	in	a	period	of	30	consecutive	trading	days	ending	on	the	last	trading	day	of	the	immediately

preceding	calendar	quarter	exceeds	130%	of	the	applicable	conversion	price	in	effect	on	the	last	trading	day	of	the	immediately	preceding	calendar	quarter;	(3)	upon	the	occurrence	of	specified	events; and	(4)	the	Notes	will	be	convertible	at	any	time	on	or	after	November	15,	2013	through	the	third	scheduled	trading	day	immediately	preceding	the	maturity	date.	The	requirements	of	the	second condition	above	were	satisfied	during	the	first,	second	and	third	quarters	of	2008.	Accordingly,	the	Company's	outstanding	convertible	notes	became	convertible	into	cash	and,	if	applicable,	shares	of common	stock,	during	the	period	from,	and	including	April	1,	2008	through,	and	including,	December	31,	2008.	During	the	fourth	quarter	of	2008,	the	requirements	of	this	same	condition	were	no longer	satisfied,	accordingly,	the	Notes	will	no	longer	be	convertible	during	the	period	from,	and	including	January	1,	2009	through,	and	including	March	31,	2009	unless	another	conversion	condition	is satisfied	during	this	period.	Generally,	upon	conversion	of	a	Note,	the	Company	will	pay	the	conversion	value	of	the	Note	in	cash,	up	to	the	principal	amount	of	the	Note.	Any	excess	of	the	conversion value	over	the	principal	amount	is	payable	in	shares	of	the	Company's	common	stock.	As	of	December	28,	2008,	the	principal	amount	of	these	Notes	was	classified	as	current	liabilities	as	the	Notes were	still	convertible	through	December	31,	2008.

In	connection	with	the	offering	of	the	Notes	in	February	2007,	the	Company	entered	into	convertible	note	hedge	transactions	(the	hedge)	with	the	initial	purchasers	and/or	their	affiliates	(the counterparties)	entitling	the	Company	to	purchase	up	to	18,322,320	shares	of	the	Company's	common	stock	at	a	strike	price	of	$21.83	per	share,	subject	to	adjustment.	In	addition,	the	Company	sold	to these	counterparties	warrants	(the	warrants)	exercisable,	on	a	cashless	basis,	for	up	to	18,322,320	shares	of	the	Company's	common	stock	at	a	strike	price	of	$31.435	per	share,	subject	to	adjustment. The	cost	of	the	hedge	that	was	not	covered	by	the	proceeds	from	the	sale	of	the	warrants	was	$46.6	million	and	was	reflected	as	a	reduction	of	additional	paid-in	capital.	The	hedge	is	expected	to	reduce the	potential	equity	dilution	upon	conversion	of	the	Notes	to	the	extent	the	Company	exercises	the	note	hedges	to	purchase	shares	from	the	counterparties	to	deliver	to	converting	noteholders.	However, the	warrants	could	have	a	dilutive	effect	on	the	Company's	earnings	per	share	to	the	extent	that	the	price	of	the	Company's	common	stock	exceeds	the	strike	price	of	the	warrants	on	the	exercise	dates	of the	warrants,	which	occur	during	2014,	and	the	warrants	are	exercised.

# 9. Commitments

# Operating	Leases

The	Company	leases	office	and	manufacturing	facilities	under	various	noncancellable	operating	lease	agreements.	Facilities	leases	generally	provide	for	periodic	rent	increases,	and	many contain	escalation	clauses	and	renewal	options.	Certain	leases	require	the	Company	to	pay	property	taxes	and	routine	maintenance.	The	Company	is	headquartered	in	San	Diego,	California	and	leases facilities	in	Hayward,	California,	the	United	Kingdom,	The	Netherlands,	Japan,	Singapore,	Australia	and	China.

        Annual	future	minimum	payments	under	these	operating	leases	as	of	December	28,	2008	were	as	follows	(in	thousands):

Rent	expense,	net	of	amortization	of	the	deferred	gain	on	sale	of	property,	was	$10.7	million,	$7.7	million	and	$4.7	million	for	the	years	ended	December	28,	2008,	December	30,	2007	and December	31,	2006,	respectively.

# 10. Stockholders'	Equity

# Common	Stock

On	August	12,	2008,	a	total	of	8,050,000	shares	were	sold	to	the	public	at	a	public	offering	price	of	$43.75	per	share,	raising	net	proceeds	to	the	Company	of	$342.6	million,	after	deducting underwriting	discounts	and	commissions	and	offering	expenses.

# Stock	Options

In	June	2005,	the	stockholders	of	the	Company	approved	the	2005	Stock	and	Incentive	Plan	(the	2005	Stock	Plan).	Upon	adoption	of	the	2005	Stock	Plan,	issuance	of	options	under	the Company's	existing	2000	Stock	Plan	ceased.	Additionally,	in	connection	with	the	acquisition	of	Solexa,	the	Company	assumed	stock	options	granted	under	the	2005	Solexa	Equity	Incentive	Plan	(the 2005	Solexa	Equity	Plan).	The	2005	Stock	Plan	and	the	2005	Solexa	Equity	Plan	initially	provided	that	an	aggregate	of	up	to	24,571,238	shares	of	the	Company's	common	stock	be	reserved	and available	to	be	issued.	The	2005	Stock	Plan	provides	for	an	automatic	annual	increase	in	the	shares	reserved	for	issuance	by	the	lesser	of	5%	of	the	outstanding	shares	of	the	Company's	common	stock on	the	last	day	of	the	immediately	preceding	fiscal	year,	2,400,000	shares	or	such	lesser	amount	as	determined	by	the	Company's	board	of	directors.	Additionally,	during	the	Company's	Annual	Meeting of	Stockholders	held	on	May	16,	2008,	the	stockholders	ratified	an	amendment	to	increase	the	maximum	number	of	shares	of	common	stock	authorized	for	issuance	under	the	2005	Stock	Plan	by 2,400,000	shares.	As	of	December	28,	2008,	options	to	purchase	6,777,903	shares	remained	available	for	future	grant	under	the	2005	Stock	Plan	and	2005	Solexa	Equity	Plan.

On	January	29,	2008,	the	Company's	board	of	directors	approved	the	New	Hire	Stock	and	Incentive	Plan,	which	provides	for	the	issuance	of	options	and	shares	of	restricted	stock	to	newly	hired employees.	There	is	no	set	number	of	shares	reserved	for	issuance	under	this	Plan.

The	Company's	stock	option	activity	under	all	stock	option	plans	from	January	1,	2006	through	December	28,	2008	is	as	follows:

|  | Options | Average<br>Exercise	Price |
| :--- | :--- | :--- |
| Outstanding\tat\tJanuary\t1,\t2006 | 14,650,862 | $3.98 |
| Granted | 5,242,100 | $13.62 |
| Exercised | (2,546,238) | $3.64 |
| Cancelled | (628,484) | $6.22 |
| Outstanding\tat\tDecember\t31,\t2006 | 16,718,240 | $6.97 |
| Options\tassumed\tthrough\tbusiness\tcombination | 2,848,664 | $10.69 |
| Granted | 7,569,016 | $20.32 |
| Exercised | (4,358,572) | $6.03 |
| Cancelled | (1,929,480) | $11.19 |
| Outstanding\tat\tDecember\t30,\t2007 | 20,847,868 | $12.13 |
| Granted | 3,091,108 | $34.23 |
| Exercised | (4,571,855) | $8.52 |
| Cancelled | (1,232,917) | $19.93 |
| Outstanding\tat\tDecember\t28,\t2008 | 18,134,204 | $16.26 |

The	following	is	a	further	breakdown	of	the	options	outstanding	as	of	December	28,	2008:

| Range	of<br>Exercise	Prices | Options<br>Outstanding | Weighted<br>Average<br>Remaining	Life<br>in	Years | Weighted<br>Average<br>Exercise	Price | Options<br>Exercisable | Average<br>Exercise	Price<br>of	Options<br>Exercisable |
| :--- | :--- | :--- | :--- | :--- | :--- |
| $0.05-3.95 | 2,195,626 | 4.14 | $2.94 | 1,706,512 | $2.91 |
| $3.97-4.85 | 1,813,554 | 5.38 | $4.34 | 1,023,641 | $4.37 |
| $4.94-10.49 | 2,907,761 | 6.27 | $8.44 | 1,496,162 | $8.28 |
| $10.66-16.19 | 1,890,491 | 7.35 | $13.79 | 787,957 | $13.50 |
| $16.27-19.61 | 2,619,364 | 7.81 | $18.24 | 893,047 | $18.24 |
| $19.71-20.04 | 2,227,638 | 7.22 | $20.03 | 701,138 | $20.04 |
| $20.12-29.78 | 1,819,970 | 8.80 | $24.51 | 336,421 | $24.62 |
| $30.09-33.80 | 1,840,600 | 9.12 | $32.61 | 218,044 | $32.51 |
| $34.43-42.02 | 589,200 | 9.33 | $38.51 | 5,000 | $41.75 |
| $44.38 | 230,000 | 9.60 | $44.38 |  | —\t $— |
| $0.05-44.38 | 18,134,204 | 7.06 | $16.26 | 7,167,922 | $10.94 |

The	weighted	average	remaining	life	in	years	of	options	exercisable	is	6.37	years	as	of	December	28,	2008.

The	aggregate	intrinsic	value	of	options	outstanding	and	options	exercisable	as	of	December	28,	2008	was	$192.4	million	and	$105.4	million,	respectively.	Aggregate	intrinsic	value	represents the	difference	between	the	Company's	closing	stock	price	per	share	on	the	last	trading	day	of	the	fiscal	period,	which	was	$25.36	as	of	December	26,	2008,	and	the	exercise	price	multiplied	by	the number	of	options	outstanding.	Total	intrinsic	value	of	options	exercised	was	$136.6	million,	$72.1	million	and	$34.0	million	for	the	years	ended	December	28,	2008,	December	30,	2007	and December	31,	2006,	respectively.

# Employee	Stock	Purchase	Plan

In	February	2000,	the	board	of	directors	and	stockholders	adopted	the	2000	ESPP.	A	total	of	15,467,426	shares	of	the	Company's	common	stock	have	been	reserved	for	issuance	under	the ESPP.	The	ESPP	permits	eligible	employees	to	purchase	common	stock	at	a	discount,	but	only	through	payroll	deductions,	during	defined	offering	periods.

The	price	at	which	stock	is	purchased	under	the	ESPP	is	equal	to	85%	of	the	fair	market	value	of	the	common	stock	on	the	first	or	last	day	of	the	offering	period,	whichever	is	lower.	The	initial offering	period	commenced	in	July	2000.	In	addition,	beginning	with	fiscal	2001,	the	ESPP	provides	for	annual	increases	of	shares	available	for	issuance	by	the	lesser	of	3%	of	the	number	of outstanding	shares	of	the	Company's	common	stock	on	the	last	day	of	the	immediately	preceding	fiscal	year,	3,000,000	shares	or	such	lesser	amount	as	determined	by	the	Company's	board	of	directors. Shares	totaling	276,198,	266,962	and	532,788	were	issued	under	the	ESPP	during	fiscal	2008,	2007	and	2006,	respectively.	As	of	December	28,	2008,	there	were	10,794,162	shares	available	for issuance	under	the	ESPP.

# Restricted	Stock	Units

In	2007	the	Company	began	granting	restricted	stock	units	pursuant	to	its	2005	Stock	and	Incentive	Plan	as	part	of	its	periodic	employee	equity	compensation	review	program.	Restricted	stock units	are	share	awards	that,	upon	vesting,	will	deliver	to	the	holder	shares	of	the	Company's	common	stock.	Restricted	stock	units	granted	during	2007	vest	over	four	years	as	follows:	15%	vest	on	the first	and	second	anniversaries	of	the	grant	date,	30%	vest	on	the	third	anniversary	of	the	grant	date	and	40%	vest	on	the	fourth	anniversary	of	the	grant	date.	Effective	January	2008,	the	Company changed	the	vesting	schedule	for	grants	of	new	restricted	stock	units.	Currently,	restricted	stock	units	vest	15%	on	the	first	anniversary	of	the	grant	date,	20%	on	the	second	anniversary	of	the	grant	date, 30%	on	the	third	anniversary	of	the	grant	date	and	35%	on	the	fourth	anniversary	of	the	grant	date.

A	summary	of	the	Company's	restricted	stock	unit	activity	and	related	information	in	the	fiscal	year	ended	December	28,	2008	is	as	follows:

| Outstanding	at	December	31,	2006 | — |
| :--- | :--- |
| Awarded | 395,500 |
| Vested | — |
| Cancelled | (1,000) |
| Outstanding\tat\tDecember\t30,\t2007 | 394,500 |
| Awarded | 1,287,504 |
| Vested | (55,638) |
| Cancelled | (47,090) |
| Outstanding\tat\tDecember\t28,\t2008 | 1,579,276 |

(1) Each	stock	unit	represents	the	fair	market	value	of	one	share	of	common	stock.

The	weighted	average	grant-date	fair	value	per	share	for	the	restricted	stock	units	was	$34.53	and	$25.69	for	the	years	ended	December	28,	2008	and	December	30,	2007,	respectively.	No restricted	stock	units	were	outstanding	as	of	December	31,	2006.

Based	on	the	closing	price	per	share	of	the	Company's	common	stock	of	$25.36	on	December	26,	2008,	the	total	pretax	intrinsic	value	of	all	outstanding	restricted	stock	units	on	that	date	was $40.0	million.

# Warrants

In	conjunction	with	its	acquisition	of	Solexa,	Inc.	on	January	26,	2007,	the	Company	assumed	4,489,686	warrants	issued	by	Solexa	prior	to	the	acquisition.	During	the	year	ended	December	28, 2008,	there	were	401,362	warrants	exercised,	resulting	in	cash	proceeds	to	the	Company	of	$3.0	million.	As	of	December	28,	2008,	252,164	of	the	assumed	warrants	had	expired.

A	summary	of	all	warrants	outstanding	as	of	December	28,	2008	is	as	follows:

(1) Represents	warrants	sold	in	connection	with	the	offering	of	the	Company's	Convertible	Senior	Notes	(See	Note	8).

# Treasury	Stock

In	connection	with	its	issuance	of	$400.0	million	principal	amount	of	0.625%	Convertible	Senior	Notes	due	2014	on	February	16,	2007,	the	Company	repurchased	11.6	million	shares	of	its outstanding	common	stock	for	$201.6	million	in	privately	negotiated	transactions	concurrently	with	the	offering.

On	February	20,	2007,	the	Company	executed	a	Rule	10b5-1	trading	plan	to	repurchase	up	to	$75.0	million	of	its	outstanding	common	stock	over	a	period	of	six	months.	The	Company repurchased	3.2	million	shares	of	its	common	stock	under	this	plan	for	$50.0	million.	As	of	December	30,	2007,	this	plan	had	expired.

On	October	23,	2008,	the	board	of	directors	authorized	a	$120.0	million	stock	repurchase	program.	As	of	December	28,	2008	the	Company	had	repurchased	3.1	million	shares	for	$70.8	million under	the	plan	in	open-market	transactions	or	through	privately	negotiated	transactions	in	compliance	with	Rule	10b-18	under	the	Securities	Exchange	Act	of	1934.	As	of	December	28,	2008, $49.2	million	remains	authorized	for	future	repurchases	under	the	program.

# Stockholder	Rights	Plan

On	May	3,	2001,	the	board	of	directors	of	the	Company	declared	a	dividend	of	one	preferred	share	purchase	right	(a	Right)	for	each	outstanding	share	of	common	stock	of	the	Company.	The dividend	was	payable	on	May	14,	2001	(the	Record	Date)	to	the	stockholders	of	record	on	that	date.	Each	Right	entitles	the	registered	holder	to	purchase	from	the	Company	one	unit	consisting	of	one- thousandth	of	a	share	of	its	Series	A	Junior	Participating	Preferred	Stock	at	a	price	of	$100	per	unit.	The	Rights	will	be	exercisable	if	a	person	or	group	hereafter	acquires	beneficial	ownership	of	15%	or more	of	the	outstanding	common	stock	of	the	Company	or	announces	an	offer	for	15%	or	more	of	the	outstanding	common	stock.	If	a	person	or	group	acquires	15%	or	more	of	the	outstanding	common stock	of	the	Company,	each	Right	will	entitle	its	holder	to	purchase,	at	the	exercise	price	of	the	right,	a	number	of	shares	of	common	stock	having	a	market	value	of	two	times	the	exercise	price	of	the right.	If	the	Company	is	acquired	in	a	merger	or	other	business	combination	transaction	after	a	person	acquires	15%	or	more	of	the	Company's	common	stock,	each	Right	will	entitle	its	holder	to purchase,	at	the	Right's	then-current	exercise	price,	a	number	of	common	shares	of	the	acquiring

company	which	at	the	time	of	such	transaction	have	a	market	value	of	two	times	the	exercise	price	of	the	right.	The	board	of	directors	will	be	entitled	to	redeem	the	Rights	at	a	price	of	$0.01	per	Right	at any	time	before	any	such	person	acquires	beneficial	ownership	of	15%	or	more	of	the	outstanding	common	stock.	The	rights	expire	on	May	14,	2011	unless	such	date	is	extended	or	the	rights	are	earlier redeemed	or	exchanged	by	the	Company.

In	the	recent	past,	the	Company	incurred	substantial	costs	in	defending	against	patent	infringement	claims	and	expects,	going	forward,	to	devote	substantial	financial	and	managerial	resources	to protect	the	Company's	intellectual	property	and	to	defend	against	any	future	claims	asserted	against	the	Company.	From	time	to	time,	the	Company	may	also	be	parties	to	other	litigation	in	the	ordinary course	of	business.	While	the	results	of	any	litigation	are	uncertain,	management	does	not	believe	the	ultimate	resolution	of	its	legal	matters	will	result	in	a	material	adverse	impact	to	the	Company.

On	December	26,	2006,	Applied	Biosystems	Inc.	(Applied	Biosystems),	formerly	known	as	Applera	Corporation	(currently	known	as	Applied	Biosystems	LLC,	a	wholly	owned	subsidiary	of Life	Technologies	Corporation),	filed	suit	in	California	Superior	Court,	Santa	Clara	County,	against	Solexa	(which	was	acquired	by	the	Company	on	January	26,	2007).	This	State	Court	action	related	to the	ownership	of	several	patents	assigned	in	1995	to	Solexa's	predecessor	company	(Lynx	Therapeutics)	by	a	former	employee	(Dr.	Stephen	Macevicz),	who	is	the	inventor	of	these	patents	and	is named	as	a	co-defendant	in	the	suit.	The	Macevicz	patents	are	directed	to	methods	for	sequencing	DNA	(US	Pat.	Nos.	5,750,341	and	6,306,597)	using	successive	rounds	of	oligonucleotide	probe ligation	(sequencing-by-ligation),	and	to	a	probe	(5,969,119)	used	in	connection	with	these	sequencing	methods.	Lynx	was	originally	a	unit	of	Applied	Biosystems	but	was	spun	out	in	1992.	On	May	31, 2007,	Applied	Biosystems	filed	a	second	suit,	this	time	against	the	Company,	in	the	U.S.	District	Court	for	the	Northern	District	of	California.	This	second	suit	sought	a	declaratory	judgment	of	non- infringement	of	the	Macevicz	patents	that	were	the	subject	of	the	State	Court	action	mentioned	above.	Both	suits	were	later	consolidated	in	the	U.S.	District	Court	for	the	Northern	District	of	California, San	Francisco	Division.	By	these	consolidated	actions,	Applied	Biosystems	was	seeking	ownership	of	the	three	Macevicz	patents,	unspecified	costs	and	damages,	and	a	declaration	of	non-infringement and	invalidity	of	these	patents.	Applied	Biosystems	was	not	asserting	any	claim	for	patent	infringement	against	the	Company.

On	January	5,	2009,	the	case	went	to	trial	in	two	phases.	The	first	phase	addressed	the	determination	of	ownership	of	the	patents-in-suit,	and	the	second	phase	addressed	whether	these	patents were	infringed	and	valid.	On	January	14,	2009,	at	the	end	of	the	first	phase,	a	federal	jury	determined	that	Solexa	was	the	rightful	owner	of	all	three	Macevicz	patents.	On	January	27,	2009,	the	same jury	found	that	Applied	Biosystems	did	not	infringe	the	'119	probe	patent,	and	that	the	'119	patent	was	valid.	In	August	2008,	the	court	had	ruled	that	Applied	Biosystems'	two-base	system	did	not infringe	the	'341	and	'597	patents.	Prior	to	the	jury	finding	of	non-infringement	of	the	'119	patent,	Applied	Biosystems	conceded	that	its	one-base	system	infringed	claim	1	of	the	'597	patent	and	Solexa conceded	invalidity	of	that	same	claim	under	the	court's	construction	of	that	claim.	Both	parties	reserved	the	right	to	appeal	the	court's	construction	of	claim	1	of	the	'597	patent,	among	other	things.

The	Company's	Genome	Analyzer	products	use	a	different	technology,	called	Sequencing-by-Synthesis	(SBS),	which	is	not	covered	by	any	of	the	Macevicz	patents.	In	addition,	the	Company has	no	plans	to	use	any	of	the	Sequencing-by-Ligation	technologies	covered	by	these	patents.

The	income	(loss)	before	income	taxes	summarized	by	region	is	as	follows	(in	thousands):

|  | Year	Ended<br>December	28,<br>2008 | Year	Ended<br>December	30,<br>2007 | Year	Ended<br>December	31,<br>2006 |
| :--- | :--- | :--- | :--- |
| United\tStates | $64,424 | $58,445 | $42,612 |
| Foreign | 26,482 | (347,230) | 8 |
| Total\tincome\t(loss)\tbefore\tincome\ttaxes | $90,906 | $(288,785) | $42,620 |

The	provision	(benefit)	for	income	taxes	consists	of	the	following	(in	thousands):

|  | Year	Ended<br>December	28,<br>2008 | Year	Ended<br>December	30,<br>2007 | Year	Ended<br>December	31,<br>2006 |
| :--- | :--- | :--- | :--- |
| Current: |  |  |  |
| Federal | $13,868 | $18,564 | $1,125 |
| State | 2,134 | 4,801 | 1,177 |
| Foreign | 5,042 | (2,172) | 903 |
| Total\tcurrent\tprovision | 21,044 | 21,193 | 3,205 |
| Deferred: |  |  |  |
| Federal | 17,656 | (20,254) | — |
| State | 2,103 | (11,622) | — |
| Foreign | (374) | 257 | (553) |
| Total\tdeferred\tprovision | 19,385 | (31,619) | (553) |
| Total\ttax\tprovision\t(benefit) | $40,429 | $(10,426) | $2,652 |

The	provision	(benefit)	for	income	taxes	reconciles	to	the	amount	computed	by	applying	the	federal	statutory	rate	to	income	(loss)	before	taxes	as	follows	(in	thousands):

|  | Year	Ended<br>December	28,<br>2008 | Year	Ended<br>December	30,<br>2007 | Year	Ended<br>December	31,<br>2006 |
| :--- | :--- | :--- | :--- |
| Tax\tat\tfederal\tstatutory\trate | $31,817 | $(101,075) | $14,945 |
| State,\tnet\tof\tfederal\tbenefit | 4,242 | (9,672) | 1,963 |
| Alternative\tminimum\ttax | — | — | 1,125 |
| Research\tand\tother\tcredits | (4,060) | (3,118) | (3,096) |
| Acquired\tin-process\tresearch\t&amp;\tdevelopment | 9,508 | 116,916 | — |
| Adjustments\tto\tdeferred\ttax\tbalances | — | — | (3,258) |
| Change\tin\tvaluation\tallowance | (149) | (17,125) | (10,038) |
| Permanent\tdifferences | 1,449 | 653 | 573 |
| Foreign\trate\tadjustments | (2,619) | 3,160 | 430 |
| Other | 241 | (165) | 8 |
| Total\ttax\tprovision\t(benefit) | $40,429 | $(10,426) | $2,652 |

Significant	components	of	the	Company's	deferred	tax	assets	and	liabilities	are	as	follows	(in	thousands):

|  | December	28,<br>2008 | December	30,<br>2007 |
| :--- | :--- | :--- |
| Deferred\ttax\tassets: |  |  |
| Net\toperating\tlosses | $18,557 | $34,277 |
| Tax\tcredits | 19,139 | 11,465 |
| Accrued\tlitigation\tsettlements | — | 21,427 |
| Other\taccruals\tand\treserves | 11,341 | 6,326 |
| Stock\tcompensation | 15,962 | 8,166 |
| Convertible\tdebt | 42,456 | 49,137 |
| Other | 13,268 | 12,322 |
| Total\tdeferred\ttax\tassets | 120,723 | 143,120 |
| Valuation\tallowance\ton\tdeferred\ttax\tassets | (15,200) | (28,343) |
| Net\tdeferred\ttax\tassets | 105,523 | 114,777 |
| Deferred\ttax\tliabilities: |  |  |
| Purchased\tintangible\tamortization | (5,985) | (7,084) |
| Accrued\tlitigation\tsettlements | (11,084) | — |
| Other | (1,498) | (514) |
| Total\tdeferred\ttax\tliabilities | (18,567) | (7,598) |
| Net\tdeferred\ttax\tassets | $86,956 | $107,179 |

A	valuation	allowance	is	established	when	it	is	more	likely	than	not	the	future	realization	of	all	or	some	of	the	deferred	tax	assets	will	not	be	achieved.	The	evaluation	of	the	need	for	a	valuation allowance	is	performed	on	a	jurisdiction-by-jurisdiction	basis,	and	includes	a	review	of	all	available	positive	and	negative	evidence.	Based	on	the	available	evidence	as	of	December	28,	2008,	the Company	was	not	able	to	conclude	it	is	more	likely	than	not	certain	U.S.	and	foreign	deferred	tax	assets	will	be	realized.	Therefore,	the	Company	recorded	a	valuation	allowance	of	$2.8	million	and $12.4	million	against	certain	U.S.	and	foreign	deferred	tax	assets,	respectively.	At	December	30,	2007,	the	Company	had	concluded	that	it	is	more	likely	than	not	that	a	significant	portion	of	its	deferred tax	assets	will	be	realized	and,	accordingly	the	Company	released	a	portion	of	its	valuation	allowance,	$17.1	million	of	which	was	recorded	as	a	reduction	to	the	tax	provision.

As	of	December	28,	2008,	the	Company	had	net	operating	loss	carryforwards	for	federal	and	state	tax	purposes	of	$87.7	million	and	$148.3	million,	respectively,	which	begin	to	expire	in	2025 and	2013,	respectively,	unless	previously	utilized.	In	addition,	the	Company	also	had	U.S.	federal	and	state	research	and	development	tax	credit	carryforwards	of	$12.6	million	and	$13.9	million, respectively,	which	begin	to	expire	in	2018	and	2019,	respectively,	unless	previously	utilized.

As	of	December	28,	2008,	the	valuation	allowance	includes	$14.0	million	of	pre-acquisition	deferred	tax	assets	of	Solexa.	Prior	to	the	adoption	of	SFAS	141(R)	to	the	extent	any	of	these	assets were	recognized,	the	adjustment	would	have	been	applied	first	to	reduce	to	zero	any	goodwill	related	to	the	acquisition,	and	then	an	a	reduction	to	the	tax	provision.

Pursuant	to	Section	382	and	383	of	the	Internal	Revenue	Code,	utilization	of	the	Company's	net	operating	losses	and	credits	may	be	subject	to	annual	limitations	in	the	event	of	any	significant future	changes	in	its	ownership	structure.	These	annual	limitations	may	result	in	the	expiration	of	net	operating	losses	and	credits	prior	to	utilization.	Previous	limitations	due	to	Section	382	and	383 have	been	reflected	in	the	deferred	tax	assets	as	of	December	28,	2008.

Due	to	the	adoption	of	SFAS	No.	123R,	the	Company	recognizes	excess	tax	benefits	associated	with	share-based	compensation	to	stockholders'	equity	only	when	realized.	When	assessing whether	excess	tax	benefits	relating	to	share-based	compensation	have	been	realized,	the	Company	follows	the	with-and-without	approach	excluding	any	indirect	effects	of	the	excess	tax	deductions. Under	this	approach,	excess	tax	benefits	related	to	share-based	compensation	are	not	deemed	to	be	realized	until	after	the	utilization	of	all	other	tax	benefits	available	to	the	Company.	During	2008,	the Company	realized	$18.5	million	of	such	excess	tax	benefits,	and	accordingly	recorded	a	corresponding	credit	to	additional	paid	in	capital.	As	of	December	28,	2008,	the	Company	has	$36.5	million	of unrealized	excess	tax	benefits	associated	with	share-based	compensation.	These	tax	benefits	will	be	accounted	for	as	a	credit	to	additional	paid-in	capital,	if	and	when	realized,	rather	than	a	reduction	of the	tax	provision.

The	Company's	manufacturing	operations	in	Singapore	operate	under	various	tax	holidays	and	incentives	that	begin	to	expire	in	2018.	For	the	year	ended	December	28,	2008,	these	tax	holidays and	incentives	resulted	in	an	approximate	$1.9	million	decrease	to	the	tax	provision	and	an	increase	to	net	income	per	diluted	share	of	$0.01.

Residual	U.S.	income	taxes	have	not	been	provided	on	$14.7	million	of	undistributed	earnings	of	foreign	subsidiaries	as	of	December	28,	2008,	since	the	earnings	are	considered	to	be indefinitely	invested	in	the	operations	of	such	subsidiaries.

Effective	January	1,	2007,	the	Company	adopted	FIN	No.	48,	Accounting	for	Uncertainty	in	Income	Taxes	—	an	interpretation	of	FASB	Statement	No.	109,	which	clarifies	the	accounting	for uncertainty	in	tax	positions.	FIN	No.	48	requires	recognition	of	the	impact	of	a	tax	position	in	the	Company's	financial	statements	only	if	that	position	is	more	likely	than	not	of	being	sustained	upon examination	by	taxing	authorities,	based	on	the	technical	merits	of	the	position.	The	adoption	of	FIN	No.	48	did	not	result	in	an	adjustment	to	the	Company's	opening	stockholders'	equity	since	there was	no	cumulative	effect	from	the	change	in	accounting	principle.

The	following	table	summarizes	the	gross	amount	of	the	Company's	uncertain	tax	positions	(in	thousands):

As	of	December	28,	2008,	$7.7	million	of	the	Company's	uncertain	tax	positions	would	reduce	the	Company's	annual	effective	tax	rate,	if	recognized.

The	Company	does	not	expect	its	uncertain	tax	positions	to	change	significantly	over	the	next	12	months.	Any	interest	and	penalties	related	to	uncertain	tax	positions	will	be	reflected	in	income tax	expense.	As	of	December	28,	2008,	no	interest	or	penalties	have	been	accrued	related	to	the	Company's	uncertain	tax	positions.	Tax	years	1992	to	2008	remain	subject	to	future	examination	by	the major	tax	jurisdictions	in	which	the	Company	is	subject	to	tax.

# 13. Employee	Benefit	Plans

# Retirement	Plan

The	Company	has	a	401(k)	savings	plan	covering	substantially	all	of	its	employees.	Company	contributions	to	the	plan	are	discretionary.	During	the	years	ended	December	28,	2008,

# Executive	Deferred	Compensation	Plan

For	the	Company's	executives	and	members	of	the	board	of	directors,	the	Company	adopted	the	Illumina,	Inc.	Deferred	Compensation	Plan	(the	Plan)	that	became	effective	January	1,	2008. Eligible	participants	can	contribute	up	to	80%	of	their	base	salary	and	100%	of	all	other	forms	of	compensation	into	the	Plan,	including	bonus,	commission	and	director	fees.	The	Company	has	agreed	to credit	the	participants'	contributions	with	earnings	that	reflect	the	performance	of	certain	independent	investment	funds.	On	a	discretionary	basis,	the	Company	may	also	make	employer	contributions	to participant	accounts	in	any	amount	determined	by	the	Company.	The	vesting	schedules	of	employer	contributions	are	at	the	sole	discretion	of	the	Compensation	Committee.	However,	all	employer contributions	shall	become	100%	vested	upon	the	occurrence	of	the	participant's	disability,	death	or	retirement	or	a	change	in	control	of	the	Company.	The	benefits	under	this	plan	are	unsecured. Participants	are	generally	eligible	to	receive	payment	of	their	vested	benefit	at	the	end	of	their	elected	deferral	period	or	after	termination	of	their	employment	with	the	Company	for	any	reason	or	at	a later	date	to	comply	with	the	restrictions	of	Section	409A.	As	of	December	28,	2008,	no	employer	contributions	were	made	to	the	Plan.

In	January	2008,	the	Company	also	established	a	rabbi	trust	for	the	benefit	of	its	directors	and	executives	under	the	Plan.	In	accordance	with	FASB	Interpretation	(FIN)	No.	46,	Consolidation	of Variable	Interest	Entities,	an	Interpretation	of	ARB	No.	51,	and	EITF	97-14,	Accounting	for	Deferred	Compensation	Arrangements	Where	Amounts	Earned	Are	Held	in	a	Rabbi	Trust	and	Invested,	the Company	has	included	the	assets	of	the	rabbi	trust	in	its	consolidated	balance	sheet	since	the	trust's	inception.	As	of	December	28,	2008,	the	assets	of	the	trust	and	liabilities	of	the	Company	were $1.3	million.	The	assets	and	liabilities	are	classified	as	other	assets	and	accrued	liabilities,	respectively,	on	the	Company's	balance	sheet	as	of	December	28,	2008.	Changes	in	the	values	of	the	assets held	by	the	rabbi	trust	accrue	to	the	Company.

# 14.		Segment	Information,	Geographic	Data	and	Significant	Customers

During	the	first	quarter	of	2008,	the	Company	reorganized	its	operating	structure	into	a	newly	created	Life	Sciences	Business	Unit,	which	includes	all	products	and	services	related	to	the research	market,	namely	the	BeadArray,	BeadXpress	and	Sequencing	product	lines.	The	Company	also	created	a	Diagnostics	Business	Unit	to	focus	on	the	emerging	opportunity	in	molecular diagnostics.	For	the	year	ended	December	28,	2008,	the	Company	had	limited	activity	related	to	the	Diagnostics	Business	Unit,	and	operating	results	were	reported	on	an	aggregate	basis	to	the	chief operating	decision	maker	of	the	Company,	the	chief	executive	officer.	In	accordance	with	SFAS	No.	131,	Disclosures	about	Segments	of	an	Enterprise	and	Related	Information,	the	Company	operated in	one	reportable	segment	for	the	year	ended	December	28,	2008.

The	Company	had	revenue	in	the	following	regions	for	the	years	ended	December	28,	2008,	December	30,	2007	and	December	31,	2006	(in	thousands):

|  | Year	Ended<br>December	28,<br>2008 | Year	Ended<br>December	30,<br>2007 | Year	Ended<br>December	31,<br>2006 |
| :--- | :--- | :--- | :--- |
| United\tStates | $280,064 | $207,692 | $103,043 |
| United\tKingdom | 67,973 | 34,196 | 22,840 |
| Other\tEuropean\tcountries | 127,397 | 75,360 | 32,600 |
| Asia-Pacific | 72,740 | 35,155 | 15,070 |
| Other\tmarkets | 25,051 | 14,396 | 11,033 |
| Total | $573,225 | $366,799 | $184,586 |

Net	revenues	are	attributable	to	geographic	areas	based	on	the	region	of	destination.

The	majority	of	our	product	sales	consist	of	consumables	and	instruments.	For	the	years	ended	December	28,	2008,	December	30,	2007,	and	December	31,	2006,	consumable	sales	represented 58%,	53%	and	54%,	respectively,	of	total	revenues	and	instrument	sales	comprised	32%,	33%	and	23%,	respectively,	of	total	revenues.	Our	customers	include	leading	genomic	research	centers, pharmaceutical	companies,	academic	institutions,	clinical	research	organizations	and	biotechnology	companies.	The	Company	had	no	customers	that	provided	more	than	10%	of	total	revenue	in	the years	ended	December	28,	2008,	December	30,	2007	and	December	31,	2006.

Net	long-lived	assets	exclude	goodwill	and	other	intangible	assets	since	they	are	not	allocated	on	a	geographic	basis.	The	Company	had	net	long-lived	assets	consisting	of	property	and equipment	in	the	following	regions	as	of	December	28,	2008	and	December	30,	2007	(in	thousands):

|  | Year	Ended<br>December	28,<br>2008 | Year	Ended<br>December	30,<br>2007 |
| :--- | :--- | :--- |
| United\tStates | $65,630 | $40,972 |
| United\tKingdom | 9,849 | 4,809 |
| Other\tEuropean\tcountries | 1,055 | 230 |
| Singapore | 12,586 | — |
| Other\tAsia-Pacific\tcountries | 316 | 263 |
| Total | $89,436 | $46,274 |

# 15. Quarterly	Financial	Information	(unaudited)

The	following	financial	information	reflects	all	normal	recurring	adjustments,	except	as	noted	below,	which	are,	in	the	opinion	of	management,	necessary	for	a	fair	statement	of	the	results	and cash	flows	of	interim	periods.	Summarized	quarterly	data	for	fiscal	2008	and	2007	are	as	follows	(in	thousands	except	per	share	data):

|  | First	Quarter(1) | Second	Quarter | Third	Quarter | Fourth	Quarter |
| :--- | :--- | :--- | :--- | :--- |
| 2008: |  |  |  |  |
| Total\trevenue | $121,861 | $140,177 | $150,260 | $160,927 |
| Total\tcost\tof\trevenue\t(excluding\timpairment\tof\tmanufacturing\tequipment |  |  |  |  |
| and\tamortization\tof\tintangible\tassets) | 46,081 | 50,459 | 54,430 | 54,654 |
| Net\tincome\t(loss) | 13,428 | 15,398 | (7,288) | 28,939 |
| Net\tincome\t(loss)\tper\tshare,\tbasic | 0.12 | 0.14 | (0.06) | 0.24 |
| Net\tincome\t(loss)\tper\tshare,\tdiluted | 0.11 | 0.12 | (0.06) | 0.22 |
| Net\tcash\t(used\tin)\tprovided\tby\toperating\tactivities | (26,755) | 37,222 | 27,298 | 50,117 |
| Net\tcash\tused\tin\tinvesting\tactivities | (44,123) | (37,384) | (164,520) | (31,222) |
| Net\tcash\tprovided\tby\t(used\tin)\tfinancing\tactivities | 15,979 | 14,171 | 356,936 | (49,414) |
| 2007: |  |  |  |  |
| Total\trevenue | $72,150 | $84,535 | $97,510 | $112,604 |
| Total\tcost\tof\trevenue\t(excluding\tamortization\tof\tintangible\tassets) | 25,120 | 30,141 | 37,078 | 40,097 |
| Net\tincome\t(loss) | (298,076) | 9,264 | 14,503 | (4,050) |
| Net\tincome\t(loss)\tper\tshare,\tbasic | (2.79) | 0.09 | 0.14 | (0.04) |
| Net\tincome\t(loss)\tper\tshare,\tdiluted | (2.79) | 0.08 | 0.12 | (0.04) |
| Net\tcash\tprovided\tby\toperating\tactivities | 14,643 | 24,482 | 5,316 | 11,853 |
| Net\tcash\tused\tin\tinvesting\tactivities | (34,410) | (69,514) | (32,143) | 68,381 |
| Net\tcash\tprovided\tby\tfinancing\tactivities | 104,950 | 2,464 | 10,433 | 30,445 |

(1) The	Company	reclassified	$36.0	million	from	cash	provided	by	operating	activities	to	cash	used	in	investing	activities	in	the	first	quarter	of	2008	for	the	portion	of	the	litigation	payment	relating	to intangible	assets.

# SCHEDULE	II	—	VALUATION	AND	QUALIFYING	ACCOUNTS	AND	RESERVES

|  | for	Doubtful | Reserve	for |
| :--- | :--- | :--- |
|  | Accounts | Inventory |
|  | (In\tthousands) |  |
| Balance\tas\tof\tJanuary\t1,\t2006 | $313 | $1,095 |
| Charged\tto\texpense | 179 | 127 |
| Utilizations | (154) | (372) |
| Balance\tas\tof\tDecember\t31,\t2006 | 338 | 850 |
| Acquired\tthrough\tbusiness\tacquisition | — | 439 |
| Charged\tto\texpense | 237 | 1,863 |
| Utilizations | (35) | (1,063) |
| Balance\tas\tof\tDecember\t30,\t2007 | 540 | 2,089 |
| Charged\tto\texpense | 893 | 7,154 |
| Utilizations | (295) | (2,812) |
| Balance\tas\tof\tDecember\t28,\t2008 | $1,138 | $6,431 |


during 2008 what was the share price of the warrants exercised\\n