10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended July 1, 2018

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from             to            

Commission File Number 001-35406

Illumina, Inc.

(Exact name of registrant as specified in its charter)

Delaware	33-0804655
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5200 Illumina Way, San Diego, CA	92122
(Address of principal executive offices)	(Zip Code)

(858) 202-4500

(Registrant’s telephone number, including area code)

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   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   þ    No  ¨

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.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13a of the Exchange Act. o

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

As of July 27, 2018, there were 147 million shares of the registrant’s common stock outstanding.

ILLUMINA, INC.

INDEX

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Income	4
Condensed Consolidated Statements of Comprehensive Income	5
Condensed Consolidated Statement of Stockholders’ Equity	6
Condensed Consolidated Statements of Cash Flows	7
Notes to Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosures About Market Risk	29
Item 4. Controls and Procedures	29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	30
Item 1A. Risk Factors	30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3. Defaults Upon Senior Securities	30
Item 4. Mine Safety Disclosures	30
Item 5. Other Information	30
Item 6. Exhibits	31
SIGNATURES	32

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ILLUMINA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

	July 1, 2018			December 31, 2017
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,344		$	1,225
Short-term investments	1,168			920
Accounts receivable, net	395			411
Inventory	362			333
Prepaid expenses and other current assets	68			91
Total current assets	3,337			2,980
Property and equipment, net	1,036			931
Goodwill	831			771
Intangible assets, net	205			175
Deferred tax assets	108			88
Other assets	334			312
Total assets	$	5,851		$	5,257
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	149		$	160
Accrued liabilities	422			432
Build-to-suit lease liability	21			144
Long-term debt, current portion	625			10
Total current liabilities	1,217			746
Long-term debt	723			1,182
Other long-term liabilities	343			360
Redeemable noncontrolling interests	217			220
Stockholders’ equity:
Preferred stock	—			—
Common stock	2			2
Additional paid-in capital	2,939			2,833
Accumulated other comprehensive loss	(1		)	(1		)
Retained earnings	2,673			2,256
Treasury stock, at cost	(2,356		)	(2,341		)
Total Illumina stockholders’ equity	3,257			2,749
Noncontrolling interests	94			—
Total stockholders’ equity	3,351			2,749
Total liabilities and stockholders’ equity	$	5,851		$	5,257

See accompanying notes to condensed consolidated financial statements.

3

ILLUMINA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In millions, except per share amounts)

	Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Revenue:
Product revenue	$	673		$	543		$	1,301		$	1,034
Service and other revenue	157			119			311			227
Total revenue	830			662			1,612			1,261
Cost of revenue:
Cost of product revenue	181			168			355			334
Cost of service and other revenue	65			50			127			104
Amortization of acquired intangible assets	9			10			17			21
Total cost of revenue	255			228			499			459
Gross profit	575			434			1,113			802
Operating expense:
Research and development	151			130			288			275
Selling, general and administrative	197			161			380			332
Total operating expense	348			291			668			607
Income from operations	227			143			445			195
Other income (expense):
Interest income	11			5			16			9
Interest expense	(11		)	(8		)	(22		)	(16		)
Other income, net	5			1			14			457
Total other income (expense), net	5			(2		)	8			450
Income before income taxes	232			141			453			645
Provision for income taxes	32			21			56			177
Consolidated net income	200			120			397			468
Add: Net loss attributable to noncontrolling interests	9			8			20			27
Net income attributable to Illumina stockholders	$	209		$	128		$	417		$	495
Net income attributable to Illumina stockholders for earnings per share	$	209		$	128		$	417		$	494
Earnings per share attributable to Illumina stockholders:
Basic	$	1.42		$	0.87		$	2.84		$	3.38
Diluted	$	1.41		$	0.87		$	2.82		$	3.35
Shares used in computing earnings per share:
Basic	147			146			147			146
Diluted	148			147			148			147

See accompanying notes to condensed consolidated financial statements.

4

ILLUMINA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In millions)

	Three Months Ended				Six Months Ended
	July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
Consolidated net income	$	200	$	120	$	397	$	468
Unrealized gain on available-for-sale debt securities, net of deferred tax	—		1		—		1
Total consolidated comprehensive income	$	200	$	121	$	397	$	469
Add: Comprehensive loss attributable to noncontrolling interests	9		8		20		27
Comprehensive income attributable to Illumina stockholders	$	209	$	129	$	417	$	496

See accompanying notes to condensed consolidated financial statements.

5

ILLUMINA, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In millions)

	Illumina Stockholders
			Additional			Accumulated Other											Total
	Common		Paid-In			Comprehensive			Retained		Treasury			Noncontrolling			Stockholders’
	Stock		Capital			Loss			Earnings		Stock			Interests			Equity
Balance as of December 31, 2017	$	2	$	2,833		$	(1	)	$	2,256	$	(2,341	)	$	—		$	2,749
Net income (loss)	—		—			—			417		—			(3		)	414
Issuance of common stock, net of repurchases	—		22			—			—		(15		)	—			7
Share-based compensation	—		98			—			—		—			—			98
Adjustment to the carrying value of redeemable noncontrolling interests	—		(13		)	—			—		—			—			(13		)
Contributions from noncontrolling interest owners	—		—			—			—		—			92			92
Issuance of subsidiary shares	—		—			—			—		—			5			5
Vesting of redeemable equity awards	—		(1		)	—			—		—			—			(1		)
Balance as of July 1, 2018	$	2	$	2,939		$	(1	)	$	2,673	$	(2,356	)	$	94		$	3,351

See accompanying notes to condensed consolidated financial statements.

6

ILLUMINA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)

	Six Months Ended
	July 1, 2018			July 2, 2017
Cash flows from operating activities:
Consolidated net income	$	397		$	468
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on deconsolidation of GRAIL	—			(453		)
Depreciation expense	65			52
Amortization of intangible assets	19			24
Share-based compensation expense	98			89
Accretion of debt discount	16			15
Deferred income taxes	(22		)	66
Impairment of intangible assets	—			23
Other	(6		)	(5		)
Changes in operating assets and liabilities:
Accounts receivable	12			14
Inventory	(28		)	(9		)
Prepaid expenses and other current assets	1			5
Other assets	(5		)	(3		)
Accounts payable	1			—
Accrued liabilities	17			41
Other long-term liabilities	(15		)	19
Net cash provided by operating activities	550			346
Cash flows from investing activities:
Purchases of available-for-sale securities	(1,137		)	(86		)
Sales of available-for-sale securities	332			139
Maturities of available-for-sale securities	556			96
Net cash paid for acquisitions	(100		)	—
Proceeds from sale of GRAIL securities	—			278
Deconsolidation of GRAIL cash	—			(52		)
Net purchases of strategic investments	(9		)	(25		)
Purchases of property and equipment	(167		)	(152		)
Net cash (used in) provided by investing activities	(525		)	198
Cash flows from financing activities:
Payments on financing obligations	(2		)	(6		)
Payments on acquisition related contingent consideration liability	—			(3		)
Proceeds from issuance of debt	—			5
Common stock repurchases	—			(101		)
Taxes paid related to net share settlement of equity awards	(15		)	(24		)
Proceeds from issuance of common stock	22			31
Contributions from noncontrolling interest owners	92			36
Net cash provided by (used in) financing activities	97			(62		)
Effect of exchange rate changes on cash and cash equivalents	(3		)	2
Net increase in cash and cash equivalents	119			484
Cash and cash equivalents at beginning of period	1,225			735
Cash and cash equivalents at end of period	$	1,344		$	1,219

See accompanying notes to condensed consolidated financial statements.

7

Illumina, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Unless the context requires otherwise, references in this report to “Illumina,” “we,” “us,” the “Company,” and “our” refer to Illumina, Inc. and its consolidated subsidiaries.

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Interim financial results are not necessarily indicative of results anticipated for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2017, from which the prior year balance sheet information herein was derived. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expense, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

The unaudited condensed consolidated financial statements include our accounts, our wholly-owned subsidiaries, majority-owned or controlled companies, and variable interest entities (VIEs) for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. In management’s opinion, the accompanying financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results for the interim periods presented.

We evaluate our ownership, contractual, and other interests in entities that are not wholly-owned to determine if these entities are VIEs, and, if so, whether we are the primary beneficiary of the VIE. In determining whether we are the primary beneficiary of a VIE and therefore required to consolidate the VIE, a qualitative approach is applied that determines whether we have both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE. We continuously assess whether we are the primary beneficiary of a VIE, as changes to existing relationships or future transactions may result in the consolidation or deconsolidation of such VIE. During the six months endedJuly 1, 2018, our consolidated VIE, Helix, received additional cash contributions from us and third-party investors in exchange for voting equity interests in Helix. Therefore, we reassessed and concluded that Helix continued to be a variable interest entity and that we remained the primary beneficiary. During the periods presented, we have not provided any other financial or other support to our VIEs that we were not contractually required to provide.

The equity method is used to account for investments in which we have the ability to exercise significant influence, but not control, over the investee. Such investments are recorded within other assets, and the share of net income or losses of equity investments is recognized on a one quarter lag in other income, net.

Redeemable Noncontrolling Interests

Noncontrolling interests represent the portion of equity (net assets) in Helix, our consolidated but not wholly-owned entity, that is neither directly nor indirectly attributable to us. Noncontrolling interests with embedded contingent redemption features, such as put rights, that are not solely within our control are considered redeemable noncontrolling interests. Redeemable noncontrolling interests are presented outside of stockholders’ equity on the condensed consolidated balance sheets.

Fiscal Year

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, September 30, and December 31. The three and six months ended July 1, 2018 and July 2, 2017 were both 13 and 26 weeks, respectively.

8

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Significant Accounting Policies

During the three and six months ended July 1, 2018, there have been no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, except as described below.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard is based on the principle that revenue should be recognized in an amount that reflects the consideration to which we expect to be entitled in exchange for the transfer of promised goods or services. We adopted Topic 606 using the modified retrospective transition method. The cumulative effect of applying the new revenue standard to all incomplete contracts as of January 1, 2018 was not material and, therefore, did not result in an adjustment to retained earnings. There was no material difference to the condensed consolidated financial statements for the three and six months ended July 1, 2018 due to the adoption of Topic 606.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10), which requires equity investments (other than those accounted for under the equity method or those that result in consolidation) to be measured at fair value, with changes in fair value recognized in net income. This standard was effective for us beginning in the first quarter of 2018. Based on our elections, our strategic equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient for estimating fair value are measured at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for identifiable or similar investments of the same issuer. The measurement alternative was applied prospectively and did not result in an adjustment to retained earnings.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). The new standard requires lessees to recognize most leases on their balance sheet as lease liabilities with corresponding right-of-use assets. ASU 2016-02 is effective for us beginning in the first quarter of 2019. Currently, the standard will be adopted on a modified retrospective transition basis for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The FASB has proposed an alternative method to adopt the lease standard by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We plan to utilize this alternative adoption method, if finalized by the FASB. In order to adopt the new standard in the first quarter of fiscal 2019, we are currently designing and implementing changes to our systems, processes, policies, and controls for lease accounting. We expect to elect the standard’s package of practical expedients on adoption, which allows us to carry forward our historical assessment of whether existing agreements contain a lease and the classification of our existing lease agreements. We do not expect to elect the standard’s available hindsight practical expedient on adoption. While we continue to review our existing lease agreements and assess the effects of adoption, we believe the new standard will have a material effect on our consolidated financial statements and disclosures. We expect substantially all of our real-estate operating lease commitments will be recognized as lease liabilities with corresponding right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on the consolidated balance sheet. We are currently evaluating the impact of Topic 842 on the consolidated financial statements as it relates to other aspects of our business.

In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. The standard is effective for us beginning in the first quarter of 2020, with early adoption permitted.  We are currently evaluating the expected impact of ASU 2016-13 on our consolidated financial statements.

9

Revenue

Our revenue is generated primarily from the sale of products and services. Product revenue primarily consists of sales of instruments and consumables used in genetic analysis. Service and other revenue primarily consists of revenue generated from genotyping and sequencing services and instrument service contracts.

We recognize revenue when control of our products and services is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control.

Revenue from product sales is recognized generally upon delivery to the end customer, which is when control of the product is deemed to be transferred. Invoicing typically occurs upon shipment; the term between invoicing and when payment is due is not significant. In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met. Revenue from instrument service contracts is recognized as the services are rendered, typically evenly over the contract term. Revenue from genotyping and sequencing services is recognized when earned, which is generally at the time the genotyping or sequencing analysis data is made available to the customer or agreed-upon milestones are reached.

Revenue is recorded net of discounts, distributor commissions, and sales taxes collected on behalf of governmental authorities. Employee sales commissions are recorded as selling, general and administrative expenses when incurred as the amortization period for such costs, if capitalized, would have been one year or less.

We regularly enter into contracts with multiple performance obligations. Such obligations are generally satisfied within a short time frame, approximately three to six months, after the contract execution date. Revenue recognition for contracts with multiple deliverables is based on the separate, distinct performance obligations within the contract. We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

The contract price is allocated to each performance obligation in proportion to its standalone selling price. We determine our best estimate of standalone selling price using average selling prices over a rolling 12-month period coupled with an assessment of current market conditions. If the product or service has no history of sales or if the sales volume is not sufficient, we rely upon prices set by our pricing committee, adjusted for applicable discounts.

Contract liabilities, which consist of deferred revenue and customer deposits, as of July 1, 2018 and December 31, 2017 were $196 million and $181 million, respectively, of which the short-term portions of $168 million and $150 million, respectively, were recorded in accrued liabilities and the remaining long-term portions were recorded in other long-term liabilities. Revenue recorded in the three and six months ended July 1, 2018 included $34 million and $102 million of previously deferred revenue that was included in contract liabilities as of December 31, 2017. Contract assets as of July 1, 2018 and December 31, 2017 were not material.

In certain markets, products and services are sold to customers through distributors. In most sales through distributors, the product is delivered directly to customers. The terms of sales transactions through distributors are consistent with the terms of direct sales to customers.

10

The following tables represent revenue by source (in millions):

	Three Months Ended
	July 1, 2018						July 2, 2017
	Sequencing		Microarray		Total		Sequencing		Microarray		Total
Consumables	$	455	$	85	$	540	$	338	$	64	$	402
Instruments	123		4		127		130		6		136
Other product	6		—		6		5		—		5
Total product revenue	584		89		673		473		70		543
Service and other revenue	106		51		157		77		42		119
Total revenue	$	690	$	140	$	830	$	550	$	112	$	662

	Six Months Ended
	July 1, 2018						July 2, 2017
	Sequencing		Microarray		Total		Sequencing		Microarray		Total
Consumables	$	873	$	172	$	1,045	$	656	$	132	$	788
Instruments	235		9		244		225		11		236
Other product	11		1		12		9		1		10
Total product revenue	1,119		182		1,301		890		144		1,034
Service and other revenue	202		109		311		155		72		227
Total revenue	$	1,321	$	291	$	1,612	$	1,045	$	216	$	1,261

Revenue related to our Consolidated VIEs is included in sequencing services and other revenue.

The following table represents revenue by geographic area, based on region of destination (in millions):

	Three Months Ended				Six Months Ended
	July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
United States	$	445	$	374	$	861	$	699
Europe	196		145		380		271
Greater China (1)	107		78		185		134
Asia-Pacific (1)	55		46		125		113
Other markets	27		19		61		44
Total revenue	$	830	$	662	$	1,612	$	1,261

____________________________________

(1) Revenue for the Greater China region, which consists of China, Taiwan, and Hong Kong, is reported separately from the Asia-Pacific region.

Earnings per Share

Basic earnings per share attributable to Illumina stockholders is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share attributable to Illumina stockholders is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Per-share earnings of our VIEs are included in the consolidated basic and diluted earnings per share computations based on our share of the VIE’s securities.

Potentially dilutive common shares consist of shares issuable under convertible senior notes and equity awards. Convertible senior notes have a dilutive impact when the average market price of our common stock exceeds the applicable conversion price of the respective notes. Potentially dilutive common shares from equity awards are determined using the average share price for each period under the treasury stock method. In addition, proceeds from exercise of equity awards and the average amount of unrecognized compensation expense for equity awards are assumed to be used to repurchase shares.

11

The following is the calculation of weighted average shares used to calculate basic and diluted earnings per share (in millions):

	Three Months Ended		Six Months Ended
	July 1, 2018	July 2, 2017	July 1, 2018	July 2, 2017
Weighted average shares outstanding	147	146	147	146
Effect of potentially dilutive common shares from:
Equity awards	1	1	1	1
Weighted average shares used in calculating diluted earnings per share	148	147	148	147

2. Balance Sheet Account Details

Short-Term Investments

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

	July 1, 2018							December 31, 2017
	Amortized Cost		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale debt securities:
Debt securities in government sponsored entities	$	25	$	—		$	25	$	67	$	—		$	67
Corporate debt securities	643		(1		)	642		423		(2		)	421
U.S. Treasury securities	504		(3		)	501		433		(1		)	432
Total available-for-sale debt securities	$	1,172	$	(4	)	$	1,168	$	923	$	(3	)	$	920

Realized gains and losses are determined based on the specific identification method and are reported in interest income.

Contractual maturities of available-for-sale debt securities as of July 1, 2018 were as follows (in millions):

	Estimated Fair Value
Due within one year	$	525
After one but within five years	643
Total	$	1,168

We have the ability, if necessary, to liquidate any of our cash equivalents and short-term investments to meet our liquidity needs in the next 12 months. Accordingly, those investments with contractual maturities greater than one year from the date of purchase are classified as short-term on the accompanying condensed consolidated balance sheets.

Strategic Investments

The carrying amounts of our strategic equity investments without readily determinable fair values are initially measured at cost and are remeasured for impairment and observable price changes in orderly transactions for identifiable or similar investments of the same issuer.

As of July 1, 2018 and December 31, 2017, the aggregate carrying amounts of our strategic equity investments without readily determinable fair values were $263 million and $250 million, respectively, included in other assets. Revenue recognized from transactions with such companies was $36 million and $72 million, respectively, for the three and six months ended July 1, 2018 and $35 million and $58 million, respectively, for the three and six months ended July 2, 2017.

We invest in a venture capital investment fund (the Fund) with a capital commitment of $100 million that is callable over ten years, of which $77 million remains as of July 1, 2018. Our investment in the Fund is accounted for as an equity-method investment. The carrying amounts of the Fund included in other assets were $21 million and $16 million as of July 1, 2018 and December 31, 2017, respectively.

12

Inventory

Inventory consisted of the following (in millions):

	July 1, 2018		December 31, 2017
Raw materials	$	101	$	93
Work in process	212		188
Finished goods	49		52
Total inventory	$	362	$	333

Property and Equipment

Property and equipment, net consisted of the following (in millions):

	July 1, 2018			December 31, 2017
Leasehold improvements	$	483		$	331
Machinery and equipment	347			316
Computer hardware and software	214			185
Furniture and fixtures	41			34
Buildings	279			155
Construction in progress	148			326
Total property and equipment, gross	1,512			1,347
Accumulated depreciation	(476		)	(416		)
Total property and equipment, net	$	1,036		$	931

Property and equipment, net included non-cash expenditures of $42 million and $94 million for the six months ended July 1, 2018 and July 2, 2017, respectively, which were excluded from the condensed consolidated statements of cash flows. Such non-cash expenditures included $16 million and $60 million recorded under build-to-suit lease accounting for the six months ended July 1, 2018 and July 2, 2017, respectively.

Intangible Assets and Goodwill

On May 14, 2018, we acquired Edico Genome, a provider of data analysis acceleration solutions for next-generation sequencing (NGS) for total cash consideration of $100 million, net of cash acquired. As a result of this transaction, we recorded $56 million as goodwill. In addition, we recorded developed technology of $45 million and a trade name of $1 million, with useful lives of 10 and 3 years, respectively.

We test the carrying value of goodwill in accordance with accounting rules on impairment of goodwill, which require us to estimate the fair value of each reporting unit annually, or when impairment indicators exist, and compare such amounts to their respective carrying values to determine if an impairment is required. We performed the annual assessment for goodwill impairment in the second quarter of 2018, noting no impairment. 

Changes to goodwill during the six months ended July 1, 2018 were as follows (in millions):

	Goodwill
Balance as of December 31, 2017	$	771
Current period acquisitions	60
Balance as of July 1, 2018	$	831

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We perform regular reviews to determine if any event has occurred that may indicate our identifiable intangible assets are potentially impaired.  During the six months ended July 2, 2017, we performed a recoverability test when the planned use of a finite-lived acquired intangible asset changed, resulting in an impairment charge of $18 million recorded in cost of product revenue. Also during the six months ended July 2, 2017, we recorded a $5 million impairment charge in research and development related to an in-process research and development project that was determined to have no future alternative use.

Derivatives

We are exposed to foreign exchange rate risks in the normal course of business. We enter into foreign exchange contracts to manage foreign currency risks related to monetary assets and liabilities that are denominated in currencies other than the U.S. dollar. These foreign exchange contracts are carried at fair value in other current assets or accrued liabilities and are not designated as hedging instruments. Changes in the value of derivatives are recognized in other income, net, along with the remeasurement gain or loss on the foreign currency denominated assets or liabilities.

As of July 1, 2018, we had foreign exchange forward contracts in place to hedge exposures in the euro, Japanese yen, Australian dollar, and Canadian dollar. As of July 1, 2018 and December 31, 2017, the total notional amounts of outstanding forward contracts in place for foreign currency purchases were $95 million and $88 million, respectively.

Accrued Liabilities

Accrued liabilities consisted of the following (in millions):

	July 1, 2018		December 31, 2017
Contract liabilities, current portion	$	168	$	150
Accrued compensation expenses	142		177
Accrued taxes payable	67		50
Other	45		55
Total accrued liabilities	$	422	$	432

Warranties

We generally provide a one-year warranty on instruments. Additionally, we provide a warranty on consumables through the expiration date, which generally ranges from six to twelve months after the manufacture date. At the time revenue is recognized, an accrual is established for estimated warranty expenses based on historical experience as well as anticipated product performance. We periodically review the warranty reserve for adequacy and adjust the warranty accrual, if necessary, based on actual experience and estimated costs to be incurred. Warranty expense is recorded as a component of cost of product revenue.

Changes in the reserve for product warranties during the three and six months ended July 1, 2018 and July 2, 2017 were as follows (in millions):

	Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Balance at beginning of period	$	16		$	12		$	17		$	13
Additions charged to cost of product revenue	6			7			12			11
Repairs and replacements	(7		)	(5		)	(14		)	(10		)
Balance at end of period	$	15		$	14		$	15		$	14

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Investments in Consolidated VIEs

Helix Holdings I, LLC

In July 2015, we obtained a 50% voting equity ownership interest in Helix Holdings I, LLC (Helix), a limited liability company formed with unrelated third-party investors to pursue the development and commercialization of a marketplace for consumer genomics. We determined that Helix is a VIE as the holders of the at-risk equity investments as a group lack the power to direct the activities of Helix that most significantly impact Helix’s economic performance. Additionally, we determined that we have (a) unilateral power over one of the activities that most significantly impacts the economic performance of Helix through its contractual arrangements and no one individual party has unilateral power over the remaining significant activities of Helix and (b) the obligation to absorb losses of and the right to receive benefits from Helix that are potentially significant to Helix. As a result, we are deemed to be the primary beneficiary of Helix and are required to consolidate Helix.

As contractually committed, in July 2015, we contributed certain perpetual licenses, instruments, intangibles, initial laboratory setup, and discounted supply terms in exchange for voting equity interests in Helix. Such contributions were recorded at their historical basis as they remained within our control. Helix is financed through cash contributions made by us and the third-party investors in exchange for voting equity interests in Helix. During the six months endedJuly 1, 2018, we made additional investments of $100 million in exchange for voting equity interests in Helix. As of July 1, 2018, the noncontrolling shareholders and Illumina each held 50% of Helix’s outstanding voting equity interests.

Certain noncontrolling Helix investors may require us to redeem certain noncontrolling interests in cash at the then approximate fair market value. Such redemption right is exercisable at the option of certain noncontrolling interest holders after January 1, 2021, provided that a bona fide pursuit of the sale of Helix has occurred and an initial public offering of Helix has not been completed. As the contingent redemption is outside of our control, the redeemable noncontrolling interests in Helix are classified outside of stockholders’ equity on the accompanying condensed consolidated balance sheets. The balance of the redeemable noncontrolling interests is reported at the greater of its carrying value after receiving its allocation of Helix’s profits and losses or its estimated redemption fair value at each reporting date. The fair value of the redeemable noncontrolling interests is considered a Level 3 instrument.

As of July 1, 2018, the accompanying condensed consolidated balance sheet included $171 million of cash and cash equivalents attributable to Helix that will be used to settle its respective obligations and will not be available to settle obligations of Illumina. The remaining assets and liabilities of Helix were not significant to our financial position as of July 1, 2018. Helix had an immaterial impact on our condensed consolidated statements of income and cash flows for the three and six months ended July 1, 2018.

GRAIL, Inc.

In 2016, we obtained a majority equity ownership interest in GRAIL, a company formed with unrelated third-party investors to develop a blood test for early-stage cancer detection. At that time, we determined that GRAIL was a VIE as the entity lacked sufficient equity to finance its activities without additional support. Additionally, we determined that we were the primary beneficiary of GRAIL and were required to consolidate GRAIL. On February 28, 2017, GRAIL completed the initial close of its Series B preferred stock financing, we ceased to have a controlling financial interest in GRAIL, and our equity ownership was reduced from 52% to 19%. Additionally, our voting interest was reduced to 13% and we no longer had representation on GRAIL’s board of directors. As a result, we deconsolidated GRAIL’s financial statements effective February 28, 2017 and recorded a pretax gain on deconsolidation of $453 million in other income, net. The operations of GRAIL from January 2, 2017 up to February 28, 2017, the date of deconsolidation, were included in the accompanying condensed consolidated statements of income for the six months endedJuly 2, 2017. During this period, we absorbed approximately 50% of GRAIL’s losses based upon our proportional ownership of GRAIL’s common stock.

The carrying value of the investment recorded in other assets was $189 million and $185 million as of July 1, 2018 and December 31, 2017, respectively.

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Redeemable Noncontrolling Interests

The activity of the redeemable noncontrolling interests during the six months ended July 1, 2018 was as follows (in millions):

	Redeemable Noncontrolling Interests
Balance as of December 31, 2017	$	220
Vesting of redeemable equity awards	1
Net loss attributable to noncontrolling interests	(17		)
Adjustment up to the redemption value	13
Balance as of July 1, 2018	$	217

3. Fair Value Measurements

The following table presents the hierarchy for assets and liabilities measured at fair value on a recurring basis as of July 1, 2018 and December 31, 2017 (in millions):

	July 1, 2018								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market funds (cash equivalents)	$	1,015	$	—	$	—	$	1,015	$	957	$	—	$	—	$	957
Debt securities in government-sponsored entities	—		25		—		25		—		67		—		67
Corporate debt securities	—		642		—		642		—		421		—		421
U.S. Treasury securities	501		—		—		501		432		—		—		432
Deferred compensation plan assets	—		37		—		37		—		35		—		35
Total assets measured at fair value	$	1,516	$	704	$	—	$	2,220	$	1,389	$	523	$	—	$	1,912
Liabilities:
Deferred compensation liability	$	—	$	35	$	—	$	35	$	—	$	33	$	—	$	33

We hold available-for-sale securities that consist of highly-liquid, investment-grade debt securities. We consider information provided by our investment accounting and reporting service provider in the measurement of fair value of our debt securities. The investment service provider provides valuation information from an industry-recognized valuation service. Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures. Our deferred compensation plan assets consist primarily of investments in life insurance contracts carried at cash surrender value, which reflects the net asset value of the underlying publicly traded mutual funds. We perform control procedures to corroborate the fair value of our holdings, including comparing valuations obtained from our investment service provider to valuations reported by our asset custodians, validation of pricing sources and models, and review of key model inputs, if necessary.

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4. Debt and Other Commitments

Summary of debt obligations

Debt obligations consisted of the following (dollars in millions):

	July 1, 2018			December 31, 2017
Principal amount of 2019 Notes outstanding	$	633		$	633
Principal amount of 2021 Notes outstanding	517			517
Unamortized discount of liability component of convertible senior notes	(60		)	(75		)
Net carrying amount of liability component of convertible senior notes	1,090			1,075
Obligations under financing leases	254			113
Other	4			4
Less: current portion	(625		)	(10		)
Long-term debt	$	723		$	1,182
Carrying value of equity component of convertible senior notes, net of debt issuance cost	$	161		$	161
Fair value of convertible senior notes outstanding (Level 2)	$	1,427		$	1,305
Weighted-average remaining amortization period of discount on the liability component of convertible senior notes	2.4 years			2.8 years

Convertible Senior Notes

0% Convertible Senior Notes due 2019 (2019 Notes) and 0.5% Convertible Senior Notes due 2021 (2021 Notes)

In June 2014, we issued $633 million aggregate principal amount of 2019 Notes and $517 million aggregate principal amount of 2021 Notes. We used the net proceeds plus cash on hand to repurchase outstanding debt. The 2019 and 2021 Notes mature on June 15, 2019 and June 15, 2021, respectively, and the implied estimated effective rates of the liability components of the Notes were 2.9% and 3.5%, respectively, assuming no conversion.

Both the 2019 and 2021 Notes will be convertible into cash, shares of common stock, or a combination of cash and shares of common stock, at our election, based on an initial conversion rate, subject to adjustment, of 3.9318 shares per $1,000 principal amount of the notes (which represents an initial conversion price of approximately $254.34 per share), only in the following circumstances and to the following extent: (1) during the five business-day period after any 10 consecutive trading day period (the measurement period) in which the trading price per 2019 and 2021 Notes for each day of such measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day; (2) during any calendar quarter (and only during that quarter) after the calendar quarter ending September 30, 2014, if the last reported sale price of our common stock for 20 or more trading days in the 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 described in the indenture for the 2019 and 2021 Notes; and (4) at any time on or after March 15, 2019 for the 2019 Notes, or March 15, 2021 for the 2021 Notes, through the second scheduled trading day immediately preceding the maturity date.

During the six months endedJuly 1, 2018, the market price of our common stock exceeded the conversion price of $254.34 and the potential dilutive impact of the 2019 and 2021 notes has been included in our calculation of diluted earnings per share. Neither the 2019 nor the 2021 Notes were convertible as of July 1, 2018. If the 2019 and 2021 Notes were converted as of July 1, 2018, the if-converted value would exceed the principal amount by $127 million. During the six months endedJuly 1, 2018, the carrying value of the 2019 Notes was reclassified to short-term as they become convertible within twelve months of the balance sheet date.

Build-to-suit leases

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We evaluate whether we are the accounting owner of leased assets during the construction period when we are involved in the construction of leased assets. As of July 1, 2018, we were considered the owner of a construction project for accounting purposes only under build-to-suit lease accounting due to certain indemnification obligations related to the construction. As of July 1, 2018, and December 31, 2017, we recorded $21 million and $144 million, respectively, in project construction costs paid or reimbursed by the landlord as construction in progress and a corresponding build-to-suit lease liability.

During the six months ended July 1, 2018, construction of a build-to-suit property was completed. We concluded we did not qualify for “sale-leaseback” treatment and the lease is accounted for as a financing obligation. Accordingly, $142 million of construction in progress and build-to-suit lease liability were reclassified to building asset and obligations under financing leases, respectively.

5. Share-based Compensation Expense

Share-based compensation expense reported in our statements of income was as follows (in millions):

	Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Cost of product revenue	$	4		$	3		$	8		$	6
Cost of service and other revenue	1			1			2			1
Research and development	15			12			30			26
Selling, general and administrative	30			23			58			56
Share-based compensation expense before taxes	50			39			98			89
Related income tax benefits	(11		)	(12		)	(21		)	(23		)
Share-based compensation expense, net of taxes	$	39		$	27		$	77		$	66

The assumptions used for the specified reporting periods and the resulting estimates of weighted-average fair value per share for stock purchased under the Employee Stock Purchase Plan (ESPP) during the six months ended July 1, 2018 were as follows:

	Employee Stock Purchase Rights
Risk-free interest rate	1.22% - 1.89%
Expected volatility	29% - 39%
Expected term	0.5 - 1.0 year
Expected dividends	0		%
Weighted-average fair value per share	$	58.09

As of July 1, 2018, approximately $328 million of unrecognized compensation cost related to restricted stock and ESPP shares granted to date was expected to be recognized over a weighted-average period of approximately 2.3 years.

6. Stockholders’ Equity

As of July 1, 2018, approximately 5.5 million shares remained available for future grants under the 2015 Stock Plan.

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Restricted Stock

Restricted stock activity and related information for the six months ended July 1, 2018 was as follows (units in thousands):

	Restricted Stock Units (RSU)		Performance Stock Units (PSU)(1)		Weighted-Average Grant-Date Fair Value per Share
					RSU		PSU
Outstanding at December 31, 2017	2,085		542		$	172.92	$	166.15
Awarded	60		172		$	257.00	$	170.08
Vested	(103	)	—		$	159.10	—
Cancelled	(132	)	(20	)	$	169.22	$	163.78
Outstanding at July 1, 2018	1,910		694		$	176.56	$	167.19

______________________________________

(1) The number of units reflect the estimated number of shares to be issued at the end of the performance period.

Stock Options

Stock option activity during the six months ended July 1, 2018 was as follows:

	Options (in thousands)		Weighted-Average Exercise Price
Outstanding at December 31, 2017	322		$	46.93
Exercised	(63	)	$	34.15
Outstanding and exercisable at July 1, 2018	259		$	50.01

ESPP

The price at which common stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first day of the offering period or purchase date, whichever is lower. During the six months ended July 1, 2018, approximately 0.1 million shares were issued under the ESPP. As of July 1, 2018, there were approximately 13.9 million shares available for issuance under the ESPP.

Share Repurchases

On July 28, 2016, our Board of Directors authorized a share repurchase program, which superseded all prior and available repurchase authorizations, to repurchase $250 million of outstanding common stock. During the year ended December 31, 2017, we repurchased 0.6 million shares for $101 million, completing the share repurchase program.

On May 4, 2017, our Board of Directors authorized a share repurchase program to repurchase $250 million of outstanding common stock. During the year ended December 31, 2017, we repurchased 0.8 million shares for $150 million from this program.

On May 1, 2018, our Board of Directors authorized an additional share repurchase program to repurchase $150 million of outstanding common stock. The repurchases may be completed under a 10b5-1 plan or at management’s discretion. Authorizations to repurchase $250 million of our common stock remained available as of July 1, 2018.

7. Income Taxes

Our effective tax rate may vary from the U.S. federal statutory tax rate due to the change in the mix of earnings in tax jurisdictions with different statutory rates, benefits related to tax credits, and the tax impact of non-deductible expenses and other permanent differences between income before income taxes and taxable income. The effective tax rates for the three and six months ended July 1, 2018 were 13.9% and 12.3%, respectively. For the three and six months ended July 1, 2018, the variance from the U.S. federal statutory tax rate of 21% was primarily attributable to the mix of earnings in jurisdictions with lower statutory tax rates than the U.S. federal statutory tax rate, such as in Singapore and the United Kingdom. For the six

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months ended July 1, 2018, the decrease from the federal statutory rate was also attributable to the discrete tax benefit associated with the recognition of prior year losses from our investment in Helix.

We continue to evaluate the impacts of U.S. Tax Reform as we interpret the legislation, including the newly-enacted global intangible low-taxed income (GILTI) provisions which subject our foreign earnings to a minimum level of tax. Because of the complexities of the new legislation, we have not yet elected an accounting policy for GILTI and, therefore, have only included GILTI related to current year operations in our estimated provision for income taxes. Recent FASB guidance indicates that accounting for GILTI either as part of deferred taxes or as a period cost is acceptable. Once further information is gathered and interpretation and analysis of the tax legislation evolves, we will make an appropriate accounting method election.

8. Legal Proceedings

We are involved in various lawsuits and claims arising in the ordinary course of business, including actions with respect to intellectual property, employment, and contractual matters. In connection with these matters, we assess, on a regular basis, the probability and range of possible loss based on the developments in these matters. A liability is recorded in the financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable results could occur, assessing contingencies is highly subjective and requires judgments about future events. We regularly review outstanding legal matters to determine the adequacy of the liabilities accrued and related disclosures. The amount of ultimate loss may differ from these estimates. Each matter presents its own unique circumstances, and prior litigation does not necessarily provide a reliable basis on which to predict the outcome, or range of outcomes, in any individual proceeding. Because of the uncertainties related to the occurrence, amount, and range of loss on any pending litigation or claim, we are currently unable to predict their ultimate outcome, and, with respect to any pending litigation or claim where no liability has been accrued, to make a meaningful estimate of the reasonably possible loss or range of loss that could result from an unfavorable outcome. In the event opposing litigants in outstanding litigations or claims ultimately succeed at trial and any subsequent appeals on their claims, any potential loss or charges in excess of any established accruals, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations, and/or cash flows in the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods.

9. Segment Information

We have two reportable segments: Core Illumina and one segment related to the combined activities of our Consolidated VIEs. Our Consolidated VIEs currently include only the operations of Helix, whereas prior to the deconsolidation of GRAIL on February 28, 2017, our Consolidated VIEs included the combined operations of GRAIL and Helix.

We report segment information based on the management approach. This approach designates the internal reporting used by the Chief Operating Decision Maker (“CODM”) for making decisions and assessing performance as the source of our reportable segments. The CODM allocates resources and assesses the performance of each operating segment using information about its revenue and income (loss) from operations. Based on the information used by the CODM, we have determined our reportable segments as follows:

Core Illumina:

Core Illumina’s products and services serve customers in the research, clinical and applied markets, and enable the adoption of a variety of genomic solutions. Core Illumina includes all operations, excluding the results of the consolidated VIEs.

Consolidated VIEs:

Helix: Helix was established to enable individuals to explore their genetic information by providing affordable sequencing and database services for consumers through third-party partners, driving the creation of an ecosystem of consumer applications.

GRAIL:GRAIL was created to develop a blood test for early-stage cancer detection. GRAIL was in the early stages of developing this test and as such, had no revenues through the date of deconsolidation.

Management evaluates the performance of our operating segments based upon income (loss) from operations. We do not allocate expenses between segments. Core Illumina sells products and provides services to GRAIL and Helix in accordance with contractual agreements between the entities.

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The following table presents the operating performance of each reportable segment (in millions):

	Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Revenue:
Core Illumina	$	829		$	664		$	1,612		$	1,262
Consolidated VIEs	3			2			6			3
Elimination of intersegment revenue	(2		)	(4		)	(6		)	(4		)
Consolidated revenue	$	830		$	662		$	1,612		$	1,261
Income (loss) from operations:
Core Illumina	$	246		$	160		$	484		$	244
Consolidated VIEs	(20		)	(16		)	(41		)	(50		)
Elimination of intersegment earnings	1			(1		)	2			1
Consolidated income from operations	$	227		$	143		$	445		$	195

The following table presents the total assets of each reportable segment (in millions):

	July 1, 2018			December 31, 2017
Core Illumina	$	5,760		$	5,223
Consolidated VIEs	199			45
Elimination of intersegment assets	(108		)	(11		)
Consolidated total assets	$	5,851		$	5,257

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

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

• Results of Operations. Detailed discussion of our revenues and expenses.

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

• Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements.

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

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

This MD&A discussion contains forward-looking statements that involve risks and uncertainties. Please see “Consideration Regarding Forward-Looking Statements” at the end of this MD&A section for additional factors relating to such statements. This MD&A should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. Operating results are not necessarily indicative of results that may occur in future periods.

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Business Overview and Outlook

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

About Illumina

We have two reportable segments: Illumina’s core operations (Core Illumina) and one segment related to the activities of our Consolidated VIEs. Our Consolidated VIEs currently include only the operations of Helix, whereas prior to the GRAIL deconsolidation on February 28, 2017, our Consolidated VIEs included the combined operations of GRAIL and Helix. For information on GRAIL and Helix, refer to notes 2 and 9 of the Notes to the Condensed Consolidated Financial Statements provided in this report.

Our focus on innovation has established us as the global leader in DNA sequencing and array-based technologies, serving customers in the research, clinical and applied markets. Our products are used for applications in the life sciences, oncology, reproductive health, agriculture and other emerging segments.

Our customers include a broad range of academic, government, pharmaceutical, biotechnology, and other leading institutions around the globe.

Our comprehensive line of products addresses the scale of experimentation and breadth of functional analysis to advance disease research, drug development, and the development of molecular tests. This portfolio of leading-edge sequencing and array-based solutions address a range of genomic complexity and throughput, enabling researchers and clinical practitioners to select the best solution for their scientific challenge.

Our financial results have been, and will continue to be, impacted by several significant trends, which are described below. While these trends are important to understanding and evaluating our financial results, this discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto in Item 1, Part I of this report, and the other transactions, events, and trends discussed in “Risk Factors” in Item 1A, Part II of this report and Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Financial Overview

Consolidated financial highlights for the first half of 2018 included the following:

• Net revenue increased28% during the first half of 2018 to $1.6 billion compared to $1.3 billion in the first half of 2017 due to the growth in sales of our consumables, services and instruments, primarily driven by increases in sequencing. We expect our revenue to continue to increase in 2018.

• Gross profit as a percentage of revenue (gross margin) was 69.0% in the first half of 2018 compared to 63.6% in the first half of 2017. The gross margin increase was primarily driven by an increase in consumables as a percentage of revenue, which generate higher gross margins, and the impairment of an acquired intangible asset and inventory reserves related to product transitions that were recorded in the first half of 2017. Our gross margin in future periods will depend on several factors, including: market conditions that may impact our pricing power; sales mix changes among consumables, instruments, and services; product mix changes between established products and new products; excess and obsolete inventories; royalties; our cost structure for manufacturing operations relative to volume; and product support obligations.

• Income from operations as a percentage of revenue increased to 27.6% in the first half of 2018 compared to 15.5% in the first half of 2017 primarily due to increased revenue, improved gross margins, and a decrease in operating expenses as a percentage of revenue. We expect our operating expenses to continue to grow on an absolute basis.

• Our effective tax rate was 12.3% in the first half of 2018 compared to 27.4% in the first half of 2017. The variance from the U.S. federal statutory tax rate of 21% in the first half of 2018 was primarily attributable to the mix of earnings in jurisdictions with lower statutory tax rates than the U.S. federal statutory tax rate, such as in Singapore and the United Kingdom, and the discrete tax benefit associated with the recognition of prior year losses from our investment in Helix.

• Cash, cash equivalents, and short-term investments were $2.5 billion as of July 1, 2018, of which approximately $655 million was held by our foreign subsidiaries.

Results of Operations

To enhance comparability, the following table sets forth our unaudited condensed consolidated statements of income for the specified reporting periods stated as a percentage of total revenue.

	Q2 2018		Q2 2017		YTD 2018		YTD 2017
Revenue:
Product revenue	81.1	%	82.0	%	80.7	%	82.0	%
Service and other revenue	18.9		18.0		19.3		18.0
Total revenue	100.0		100.0		100.0		100.0
Cost of revenue:
Cost of product revenue	21.8		25.4		22.0		26.5
Cost of service and other revenue	7.8		7.6		7.9		8.2
Amortization of acquired intangible assets	1.1		1.5		1.1		1.7
Total cost of revenue	30.7		34.5		31.0		36.4
Gross profit	69.3		65.5		69.0		63.6
Operating expense:
Research and development	18.2		19.7		17.9		21.8
Selling, general and administrative	23.7		24.2		23.5		26.3
Total operating expense	41.9		43.9		41.4		48.1
Income from operations	27.4		21.6		27.6		15.5
Other income (expense):
Interest income	1.3		0.8		1.0		0.7
Interest expense	(1.3	)	(1.2	)	(1.4	)	(1.2	)
Other income, net	0.6		0.1		0.9		36.2
Total other income (expense), net	0.6		(0.3	)	0.5		35.7
Income before income taxes	28.0		21.3		28.1		51.2
Provision for income taxes	3.9		3.2		3.5		14.1
Consolidated net income	24.1		18.1		24.6		37.1
Add: Net loss attributable to noncontrolling interests	1.1		1.2		1.3		2.2
Net income attributable to Illumina stockholders	25.2	%	19.3	%	25.9	%	39.3	%

Percentages may not recalculate due to rounding

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, September 30, and December 31. The three and six month periods ended July 1, 2018 and July 2, 2017 were both 13 and 26 weeks, respectively.

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Revenue

(Dollars in millions)	Q2 2018		Q2 2017		Change			% Change		YTD 2018		YTD 2017		Change		% Change
Consumables	$	540	$	402	$	138		34	%	$	1,045	$	788	$	257	33	%
Instruments	127		136		(9		)	(7	)	244		236		8		3
Other product	6		5		1			20		12		10		2		20
Total product revenue	673		543		130			24		1,301		1,034		267		26
Service and other revenue	157		119		38			32		311		227		84		37
Total revenue	$	830	$	662	$	168		25	%	$	1,612	$	1,261	$	351	28	%

Other product revenue consists primarily of freight. Service and other revenue consists primarily of sequencing and genotyping service revenue as well as instrument service contract revenue. Total revenue primarily relates to Core Illumina for all periods presented.

The increases in consumables revenue in Q2 2018 and the first half of 2018 were primarily due to a $117 million and $217 million increase in sequencing consumables revenue, respectively, driven by growth in the instrument installed base. Instruments revenue decreased in Q2 2018 primarily due to a $7 million decrease in sequencing instruments revenue driven by fewer shipments of our NovaSeq and HiSeq instruments. The increase in instruments revenue in the first half of 2018 was primarily due to a $10 million increase in sequencing instruments revenue driven by shipments of our NovaSeq instrument, which launched in Q1 2017, partially offset by fewer shipments of our HiSeq instruments. Service and other revenue increased in Q2 2018 and the first half of 2018 as a result of increased revenue fromsequencing services, genotyping, and co-development agreements.

Gross Margin

(Dollars in millions)	Q2 2018			Q2 2017			Change		% Change	YTD 2018			YTD 2017			Change		% Change
Gross profit	$	575		$	434		$	141	32%	$	1,113		$	802		$	311	39%
Gross margin	69.3		%	65.5		%				69.0		%	63.6		%

The gross margin increase in Q2 2018 and the first half of 2018 was primarily driven by increases in consumables as a percentage of revenue, which generate higher gross margins. Gross margin also increased in the first half of 2018 due to the $18 million impairment of an acquired intangible asset and inventory reserves related to product transitions that were recorded in Q1 2017.

Operating Expense

(Dollars in millions)	Q2 2018		Q2 2017		Change		% Change		YTD 2018		YTD 2017		Change		% Change
Research and development	$	151	$	130	$	21	16	%	$	288	$	275	$	13	5	%
Selling, general and administrative	197		161		36		22		380		332		48		14
Total operating expense	$	348	$	291	$	57	20	%	$	668	$	607	$	61	10	%

Core Illumina R&D expense increased by $19 million, or 15%, in Q2 2018 and by $17 million, or 7%, in the first half of 2018, primarily due to increased headcount, as we continue to invest in the research and development of new products and enhancements to existing products, and an increase in performance-based compensation. R&D expense of our Consolidated VIEs increased by $2 million in Q2 2018 due to growth in Helix’s operations. R&D expense of our Consolidated VIEs decreased by $4 million in the first half of 2018 primarily due to the deconsolidation of GRAIL in Q1 2017.

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Core Illumina SG&A expense increased by $34 million, or 22%, in Q2 2018 and by $57 million, or 19%, in the first half of 2018, primarily due to increased headcount and investment in facilities to support the continued growth and scale of our operations. Core Illumina SG&A expense also increased in Q2 2018 and the first half of 2018 due to an increase in performance-based compensation and a legal contingency gain of $8 million recorded in Q2 2017. SG&A expense of our Consolidated VIEs increased by $2 million in Q2 2018 due to growth in Helix’s operations. SG&A expense of our Consolidated VIEs decreased by $9 million in the first half of 2018 primarily due to the deconsolidation of GRAIL in Q1 2017.

Other Income (Expense)

(Dollars in millions)	Q2 2018			Q2 2017			Change			% Change		YTD 2018			YTD 2017			Change			% Change
Interest income	$	11		$	5		$	6		120	%	$	16		$	9		$	7		78	%
Interest expense	(11		)	(8		)	(3		)	38		(22		)	(16		)	(6		)	38
Other income, net	5			1			4			400		14			457			(443		)	(97	)
Total other income (expense), net	$	5		$	(2	)	$	7		(350	)%	$	8		$	450		$	(442	)	(98	)%

Other income (expense) primarily relates to Core Illumina for all periods presented.

Interest income increased in Q2 2018 and in the first half of 2018 as a result of higher yields on our investments and higher cash and cash-equivalent balances.

Interest expense consisted primarily of accretion of discount on our convertible senior notes and interest recorded on our financing obligations related to our build-to-suit properties.

Other income, net, in Q2 2018 consisted primarily of gains recorded on our strategic investments. Other income, net decreased in the first half of 2018 primarily due to a $453 million gain recorded on the deconsolidation of GRAIL in Q1 2017.

Provision for Income Taxes

(Dollars in millions)	Q2 2018			Q2 2017			Change		% Change		YTD 2018			YTD 2017			Change			% Change
Income before income taxes	$	232		$	141		$	91	65	%	$	453		$	645		$	(192	)	(30	)%
Provision for income taxes	32			21			11		52		56			177			(121		)	(68	)
Consolidated net income	$	200		$	120		$	80	67	%	$	397		$	468		$	(71	)	(15	)%
Effective tax rate	13.9		%	15.2		%					12.3		%	27.4		%

For U.S. federal purposes, the corporate statutory income tax rate was reduced from 35% to 21%, effective for our 2018 tax year. The provisional impact of U.S. Tax Reform is our current best estimate based on a preliminary review of the new law and is subject to revision based on our existing accounting for income taxes policy as further information is gathered, and interpretation and analysis of the tax legislation evolves. The Securities and Exchange Commission has issued rules allowing for a measurement period of up to one year after the enactment date of U.S. Tax Reform to finalize the recording of the related tax impacts. Any future changes to our provisional estimated impact of U.S. Tax Reform will be included as an adjustment to the provision for income taxes.

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Our effective tax rate was 13.9% for Q2 2018 compared to 15.2% in Q2 2017. The variance from the U.S. federal statutory tax rate of 21% in Q2 2018 was primarily impacted by the mix of earnings in jurisdictions with lower statutory tax rates than the U.S. federal statutory tax rate, such as in Singapore and the United Kingdom. The variance from the U.S. federal statutory tax rate of 35% in Q2 2017 was primarily impacted by the mix of earnings in jurisdictions with lower statutory tax rates than the U.S. federal statutory tax rate, such as in Singapore and the United Kingdom, and excess tax benefits related to share-based compensation.

Our effective tax rate was 12.3% for the first half of 2018 compared to 27.4% for the first half of 2017. For the first half of 2018, the variance from the U.S. federal statutory tax rate of 21% was primarily attributable to the mix of earnings in jurisdictions with lower statutory tax rates than the U.S. federal statutory tax rate, such as in Singapore and the United Kingdom, and the discrete benefit associated with the recognition of prior year losses from our investment in Helix. For the first half of 2017, the variance from the U.S. federal statutory tax rate of 35% was primarily attributable to the mix of earnings in jurisdictions with lower statutory rates than the U.S. federal statutory rate, such as in Singapore and the United Kingdom, and excess tax benefits related to share-based compensation, partially offset by the discrete tax impact of $150 million from the gain on deconsolidation of GRAIL.

Our future effective tax rate may vary from the U.S. federal statutory tax rate due to the mix of earnings in tax jurisdictions with different statutory tax rates and the other factors discussed in the risk factor “We are subject to risks related to taxation in multiple jurisdictions” in Part I Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. Based on our initial interpretation and analysis of U.S. Tax Reform and projected future financial results, we anticipate that our effective tax rate will trend lower than the U.S. federal statutory tax rate in the future due to the portion of our earnings that will be subject to lower statutory tax rates. As further information is gathered, and interpretation and analysis of the tax legislation evolves, we will update our estimate of the future effective tax rate. As a result of the Ninth Circuit decision on July 24, 2018 to overturn a U.S. Tax Court opinion provided in Q3 2015 that stock compensation should be excluded from cost sharing charges, we anticipate our effective tax rate may be adversely impacted.  The final resolution of this case is uncertain and we are still evaluating, but if it is determined that the outcome of this decision is more likely than not, we anticipate a discrete tax detriment of less than $30 million could be recorded and then a modest ongoing impact thereafter.

Liquidity and Capital Resources

At July 1, 2018, we had approximately $1.3 billion in cash and cash equivalents, of which approximately $655 million was held by our foreign subsidiaries. Cash and cash equivalents held by Helix as of July 1, 2018 were $171 million. Cash and cash equivalents increased by $119 million from December 31, 2017, due to the factors described in the “Cash Flow Summary” below. Our primary source of liquidity, other than our holdings of cash, cash equivalents and investments, has been cash flows from operations. Our ability to generate cash from operations provides us with the financial flexibility we need to meet operating, investing, and financing needs. We currently do not expect our foreign earnings generated in 2018 to be indefinitely invested in the foreign jurisdictions.

Historically, we have liquidated our short-term investments and/or issued debt and equity securities to finance our business needs as a supplement to cash provided by operating activities. As of July 1, 2018, we had $1.2 billion in short-term investments. Our short-term investments include marketable securities consisting of U.S. government-sponsored entities, corporate debt securities, and U.S. Treasury securities.

We anticipate that our current cash, cash equivalents, and short-term investments, together with cash provided by operating activities are sufficient to fund our near-term capital and operating needs for at least the next 12 months. Operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our primary short-term needs for capital, which are subject to change, include:

• support of 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;

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

• the continued advancement of research and development efforts;

• potential strategic acquisitions and investments;

• potential early repayment of debt obligations;

• the expansion needs of our facilities, including costs of leasing and building out additional facilities;

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• repurchases of our outstanding common stock; and

• the one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred in accordance with the Tax Cuts and Jobs Act (U.S. Tax Reform) enacted on December 22, 2017.

Our convertible senior notes due in 2019 and 2021 were not convertible as of July 1, 2018. Our convertible senior notes due in 2019 are convertible at any time on or after March 15, 2019.

On May 4, 2017, our Board of Directors authorized a share repurchase program to repurchase $250 million of outstanding common stock. On May 1, 2018, our Board of Directors increased the share repurchase authorization by $150 million. The repurchases may be completed under a 10b5-1 plan or at management’s discretion. Authorizations to repurchase $250 million of our common stock remained available as of July 1, 2018.

Certain noncontrolling Helix investors may require Illumina to redeem certain noncontrolling interests in cash at the then approximate fair market value. Such redemption right is exercisable at the option of certain noncontrolling interest holders after January 1, 2021, provided that a bona fide pursuit of the sale of Helix has occurred and an initial public offering of Helix has not been completed. The fair value of the redeemable noncontrolling interests related to Helix as of July 1, 2018 was $217 million.

We had $77 million remaining in our capital commitment to the venture capital investment fund as of July 1, 2018.

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

Our future capital requirements and the adequacy of our available funds will depend on many factors, including:

• our ability to successfully commercialize and further develop our technologies and create innovative products in our markets;

• 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.

Cash Flow Summary

(In millions)	YTD 2018			YTD 2017
Net cash provided by operating activities	$	550		$	346
Net cash (used in) provided by investing activities	(525		)	198
Net cash provided by (used in) financing activities	97			(62		)
Effect of exchange rate changes on cash and cash equivalents	(3		)	2
Net increase in cash and cash equivalents	$	119		$	484

Operating Activities

Net cash provided by operating activities in the first half of 2018 consisted of net income of $397 million plus net adjustments of $170 million, partially offset by net changes in operating assets and liabilities of $17 million. The primary non-cash adjustments to net income included depreciation and amortization expenses of $84 million, share-based compensation of $98 million, and accretion of debt discount of $16 million, partially offset by deferred income taxes of $22 million. Cash flow impact from changes in net operating assets and liabilities were primarily driven by an increase in inventory and a decrease in other long-term liabilities, partially offset by an increase in accrued liabilities and a decrease in accounts receivable.

Net cash provided by operating activities in the first half of 2017 consisted of net income of $468 million less net adjustments of $189 million partially offset by net changes in operating assets and liabilities of $67 million. The primary non-cash adjustments to net income included the gain on deconsolidation of GRAIL of $453 million, depreciation and amortization expenses of $76 million, share-based compensation of $89 million, deferred income tax of $66 million, impairment of intangible assets of $23 million, and accretion of debt discount of $15 million. Cash flow impact from changes in net operating assets and liabilities were driven by a increases in accrued liabilities and other long-term liabilities and a decrease in accounts receivable.

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Investing Activities

Net cash used in investing activities in the first half of 2018 totaled $525 million. We purchased $1,137 million of available-for-sale securities and $888 million of our available-for-sale securities matured or were sold during the period. Our net cash paid for acquisitions was $100 million, and we invested $167 million in capital expenditures, primarily associated with our investment in facilities.

Net cash provided by investing activities in the first half of 2017 totaled $198 million. We received $278 million from the sale of a portion of our ownership interest in GRAIL. In connection with the sale, we removed $52 million in cash from our condensed consolidated balance sheet as a result of the deconsolidation. We purchased $86 million of available-for-sale securities and $235 million of our available-for-sale securities matured or were sold during the period. We paid $25 million for strategic investments and invested $152 million in capital expenditures, primarily associated with our investment in facilities.

Financing Activities

Net cash provided by financing activities in the first half of 2018 totaled $97 million. We received $22 million in proceeds from issuance of common stock through the exercise of stock options and the sale of shares under our employee stock purchase plan, and contributions from noncontrolling interest owners were $92 million. We used $15 million to pay taxes related to net share settlement of equity awards.

Net cash used in financing activities in the first half of 2017 totaled $62 million. We used $101 million to repurchase our common stock and $24 million to pay taxes related to net share settlement of equity awards. We received $31 million in proceeds from issuance of common stock through the exercise of stock options and the sale of shares under our employee stock purchase plan, and contributions from noncontrolling interest owners were $36 million.

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, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. During the first half of 2018, we were not involved in any “off-balance sheet arrangements” within the meaning of the rules of the Securities and Exchange Commission.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements, we make estimates, assumptions and judgments that can have a significant impact on our net revenue, operating income and net income, as well as on the value of certain assets and liabilities on our balance sheet. We believe that the estimates, assumptions and judgments involved in the accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. Other than the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) as described in note “1. Summary of Significant Accounting Policies” in Part I, Item 1, Notes to Condensed Consolidated Financial Statements provided in this report, there were no material changes to our critical accounting policies and estimates during the first half of 2018.

Recent Accounting Pronouncements

For summary of recent accounting pronouncements applicable to our condensed consolidated financial statements, see note “1. Summary of Significant Accounting Policies” in Part I, Item 1, Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.

Consideration Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains, and our officers and representatives may from time to time make, “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “continue,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “potential,” “predict,” should,” “will,” or similar words or phrases, or the negatives of these words, may identify forward-looking statements, but the absence

27

of these words does not necessarily mean that a statement is not forward looking.  Examples of forward-looking statements include, among others, statements we make regarding:

• our expectations as to our future financial performance, results of operations, or other operational results or metrics;

• our expectations regarding the launch of new products or services;

• the benefits that we expect will result from our business activities and certain transactions we have completed, such as product introductions, increased revenue, decreased expenses, and avoided expenses and expenditures;

• our expectations of the effect on our financial condition of claims, litigation, contingent liabilities, and governmental investigations, proceedings, and regulations;

• our strategies or expectations for product development, market position, financial results, and reserves;

• our expectations regarding the integration of any acquired technologies with our existing technology; and

• other expectations, beliefs, plans, strategies, anticipated developments, and other matters that are not historical facts.

Forward-looking statements are neither historical facts nor assurances of future performance.  Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions.  Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control.  Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.  Therefore, you should not rely on any of these forward-looking statements.  Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

• challenges inherent in developing, manufacturing, and launching new products and services, including expanding manufacturing operations and reliance on third-party suppliers for critical components;

• the timing and mix of customer orders among our products and services;

• the impact of recently launched or pre-announced products and services on existing products and services;

• our ability to develop and commercialize our instruments and consumables, to deploy new products, services, and applications, and to expand the markets for our technology platforms;

• our ability to manufacture robust instrumentation and consumables;

• our ability to identify and integrate acquired technologies, products, or businesses successfully;

• our expectations and beliefs regarding prospects and growth for the business and its markets;

• the assumptions underlying our critical accounting policies and estimates;

• our assessments and estimates that determine our effective tax rate;

• our assessments and beliefs regarding the outcome of pending legal proceedings and any liability, that we may incur as a result of those proceedings;

• uncertainty, or adverse economic and business conditions, including as a result of slowing or uncertain economic growth in the United States or worldwide; and

• other factors detailed in our filings with the SEC, including the risks, uncertainties, and assumptions described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, or in information disclosed in public conference calls, the date and time of which are released beforehand.

The foregoing factors should be considered together with other factors detailed in our filings with the Securities and Exchange Commission, including our most recent filings on Forms 10-K and 10-Q, or in information disclosed in public conference calls, the date and time of which are released beforehand.  We undertake no obligation, and do not intend, to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, or to review or confirm analysts’ expectations, or to provide interim reports or updates on the progress of any current financial quarter, in each case whether as a result of new information, future developments, or otherwise.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There were no substantial changes to our market risks in the six months ended July 1, 2018, when compared to the disclosures in Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Item 4. 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.

Based on management’s evaluation (under the supervision and with the participation of our chief executive officer (CEO) and chief financial officer (CFO)), as of the end of the period covered by this report, our CEO and CFO concluded that 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 (the “Exchange Act”)), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

During Q2 2018, we continued to monitor and evaluate the operating effectiveness of key controls.  There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that materially affected or are reasonably likely to materially affect internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are involved in various lawsuits and claims arising in the ordinary course of business, including actions with respect to intellectual property, employment, and contractual matters. In connection with these matters, we assess, on a regular basis, the probability and range of possible loss based on the developments in these matters. A liability is recorded in the financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable results could occur, assessing contingencies is highly subjective and requires judgments about future events. We regularly review outstanding legal matters to determine the adequacy of the liabilities accrued and related disclosures. The amount of ultimate loss may differ from these estimates. Each matter presents its own unique circumstances, and prior litigation does not necessarily provide a reliable basis on which to predict the outcome, or range of outcomes, in any individual proceeding. Because of the uncertainties related to the occurrence, amount, and range of loss on any pending litigation or claim, we are currently unable to predict their ultimate outcome, and, with respect to any pending litigation or claim where no liability has been accrued, to make a meaningful estimate of the reasonably possible loss or range of loss that could result from an unfavorable outcome. In the event opposing litigants or claims ultimately succeed at trial and any subsequent appeals on their claims, any potential loss or charges in excess of any established accruals, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations, and/or cash flows in the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods.

Item 1A. Risk Factors.

Our business is subject to various risks, including those described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which we strongly encourage you to review. There have been no material changes from the risk factors disclosed in Item 1A of our Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

None.

Purchases of Equity Securities by the Issuer

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibit Number	Description of Document
31.1	Certification of Francis A. deSouza pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Sam A. Samad pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Francis A. deSouza 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 Sam A. Samad pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase

31

SIGNATURES

Pursuant to the requirements 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.

		ILLUMINA, INC. (registrant)
Date:	July 31, 2018		/s/ SAM A. SAMAD
			Sam A. Samad Senior Vice President and Chief Financial Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION OF FRANCIS A. DESOUZA PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Francis A. deSouza, certify that:

1	I have reviewed this Quarterly Report on Form 10-Q of Illumina, Inc.;
2	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: July 31, 2018

By:	/s/ FRANCIS A. DESOUZA
	Francis A. deSouza
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF SAM A. SAMAD PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Sam A. Samad, certify that:

1	I have reviewed this Quarterly Report on Form 10-Q of Illumina, Inc.;
2	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: July 31, 2018

By:	/s/ SAM A. SAMAD
	Sam A. Samad
	Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF FRANCIS A. DESOUZA PURSUANT TO 18 U.S.C. SECTION

1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-

OXLEY ACT OF 2002

In connection with the Quarterly Report of Illumina, Inc. (the “Company”) on Form 10-Q for the quarter ended July 1, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Francis A. deSouza, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 31, 2018

By:	/s/ FRANCIS A. DESOUZA
	Francis A. deSouza
	President and Chief Executive Officer

This certification accompanying the Report is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities such Section, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before, on or after the date of the Report), irrespective of any general incorporation language contained in such filing.

EX-32.2

Exhibit 32.2

CERTIFICATION OF SAM A. SAMAD PURSUANT TO 18 U.S.C.

SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Illumina, Inc. (the “Company”) on Form 10-Q for the quarter ended July 1, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sam A. Samad, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 31, 2018

By:	/s/ SAM A. SAMAD
	Sam A. Samad
	Senior Vice President and Chief Financial Officer

This certification accompanying the Report is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities such Section, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before, on or after the date of the Report), irrespective of any general incorporation language contained in such filing.

XML

Document and Entity Information - shares shares in Millions	6 Months Ended
	Jul. 01, 2018	Jul. 27, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	Illumina Inc
Entity Central Index Key	0001110803
Current Fiscal Year End Date	--12-30
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Jul. 01, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		147

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Millions	Jul. 01, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 1,344	$ 1,225
Short-term investments	1,168	920
Accounts receivable, net	395	411
Inventory	362	333
Prepaid expenses and other current assets	68	91
Total current assets	3,337	2,980
Property and equipment, net	1,036	931
Goodwill	831	771
Intangible assets, net	205	175
Deferred tax assets	108	88
Other assets	334	312
Total assets	5,851	5,257
Current liabilities:
Accounts payable	149	160
Accrued liabilities	422	432
Build-to-suit lease liability	21	144
Long-term debt, current portion	625	10
Total current liabilities	1,217	746
Long-term debt	723	1,182
Other long-term liabilities	343	360
Redeemable noncontrolling interests	217	220
Stockholders’ equity:
Preferred stock	0	0
Common stock	2	2
Additional paid-in capital	2,939	2,833
Accumulated other comprehensive loss	(1)	(1)
Retained earnings	2,673	2,256
Treasury stock, at cost	(2,356)	(2,341)
Total Illumina stockholders’ equity	3,257	2,749
Noncontrolling interests	94
Total stockholders’ equity	3,351	2,749
Total liabilities and stockholders’ equity	$ 5,851	$ 5,257

XML

Condensed Consolidated Statements of Income - USD ($) shares in Millions, $ in Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2018	Jul. 02, 2017	Jul. 01, 2018	Jul. 02, 2017
Revenue:
Product revenue	$ 673	$ 543	$ 1,301	$ 1,034
Service and other revenue	157	119	311	227
Total revenue	830	662	1,612	1,261
Cost of revenue:
Cost of product revenue	181	168	355	334
Cost of service and other revenue	65	50	127	104
Amortization of acquired intangible assets	9	10	17	21
Total cost of revenue	255	228	499	459
Gross profit	575	434	1,113	802
Operating expense:
Research and development	151	130	288	275
Selling, general and administrative	197	161	380	332
Total operating expense	348	291	668	607
Income from operations	227	143	445	195
Other income (expense):
Interest income	11	5	16	9
Interest expense	(11)	(8)	(22)	(16)
Other income, net	5	1	14	457
Total other income (expense), net	5	(2)	8	450
Income before income taxes	232	141	453	645
Provision for income taxes	32	21	56	177
Consolidated net income	200	120	397	468
Add: Net loss attributable to noncontrolling interests	9	8	20	27
Net income attributable to Illumina stockholders	209	128	417	495
Net income attributable to Illumina stockholders for earnings per share	$ 209	$ 128	$ 417	$ 494
Earnings per share attributable to Illumina stockholders:
Basic (in dollars per share)	$ 1.42	$ 0.87	$ 2.84	$ 3.38
Diluted (in dollars per share)	$ 1.41	$ 0.87	$ 2.82	$ 3.35
Shares used in computing earnings per share:
Basic (in shares)	147	146	147	146
Diluted (in shares)	148	147	148	147

XML

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2018	Jul. 02, 2017	Jul. 01, 2018	Jul. 02, 2017
Statement of Comprehensive Income [Abstract]
Consolidated net income	$ 200	$ 120	$ 397	$ 468
Unrealized gain on available-for-sale debt securities, net of deferred tax		1		1
Total consolidated comprehensive income	200	121	397	469
Add: Comprehensive loss attributable to noncontrolling interests	9	8	20	27
Comprehensive income attributable to Illumina stockholders	$ 209	$ 129	$ 417	$ 496

XML

Condensed Consolidated Statement of Stockholders' Equity Statement - 6 months ended Jul. 01, 2018 - USD ($) $ in Millions	Total	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Loss	Retained Earnings	Treasury Stock	Noncontrolling Interests
Beginning balance at Dec. 31, 2017	$ 2,749	$ 2	$ 2,833	$ (1)	$ 2,256	$ (2,341)	$ 0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	414				417		(3)
Issuance of common stock, net of repurchases	7		22			(15)
Share-based compensation	98		98
Adjustment to the carrying value of redeemable noncontrolling interests	(13)		(13)
Contributions from noncontrolling interest owners	92						92
Issuance of subsidiary shares	5						5
Vesting of redeemable equity awards	(1)		(1)
Ending balance at Jul. 01, 2018	$ 3,351	$ 2	$ 2,939	$ (1)	$ 2,673	$ (2,356)	$ 94

XML

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Millions	6 Months Ended
	Jul. 01, 2018	Jul. 02, 2017
Cash flows from operating activities:
Consolidated net income	$ 397	$ 468
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on deconsolidation of GRAIL		(453)
Depreciation expense	65	52
Amortization of intangible assets	19	24
Share-based compensation expense	98	89
Accretion of debt discount	16	15
Deferred income taxes	(22)	66
Impairment of intangible assets		23
Other	(6)	(5)
Changes in operating assets and liabilities:
Accounts receivable	12	14
Inventory	(28)	(9)
Prepaid expenses and other current assets	1	5
Other assets	(5)	(3)
Accounts payable	1
Accrued liabilities	17	41
Other long-term liabilities	(15)	19
Net cash provided by operating activities	550	346
Cash flows from investing activities:
Purchases of available-for-sale securities	(1,137)	(86)
Sales of available-for-sale securities	332	139
Maturities of available-for-sale securities	556	96
Net cash paid for acquisitions	(100)
Proceeds from sale of GRAIL securities		278
Deconsolidation of GRAIL cash		(52)
Net purchases of strategic investments	(9)	(25)
Purchases of property and equipment	(167)	(152)
Net cash (used in) provided by investing activities	(525)	198
Cash flows from financing activities:
Payments on financing obligations	(2)	(6)
Payments on acquisition related contingent consideration liability		(3)
Proceeds from issuance of debt		5
Common stock repurchases		(101)
Taxes paid related to net share settlement of equity awards	(15)	(24)
Proceeds from issuance of common stock	22	31
Contributions from noncontrolling interest owners	92	36
Net cash provided by (used in) financing activities	97	(62)
Effect of exchange rate changes on cash and cash equivalents	(3)	2
Net increase in cash and cash equivalents	119	484
Cash and cash equivalents at beginning of period	1,225	735
Cash and cash equivalents at end of period	$ 1,344	$ 1,219

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Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Jul. 01, 2018

Accounting Policies [Abstract]

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Interim financial results are not necessarily indicative of results anticipated for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2017, from which the prior year balance sheet information herein was derived. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expense, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

The unaudited condensed consolidated financial statements include our accounts, our wholly-owned subsidiaries, majority-owned or controlled companies, and variable interest entities (VIEs) for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. In management’s opinion, the accompanying financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results for the interim periods presented.

We evaluate our ownership, contractual, and other interests in entities that are not wholly-owned to determine if these entities are VIEs, and, if so, whether we are the primary beneficiary of the VIE. In determining whether we are the primary beneficiary of a VIE and therefore required to consolidate the VIE, a qualitative approach is applied that determines whether we have both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE. We continuously assess whether we are the primary beneficiary of a VIE, as changes to existing relationships or future transactions may result in the consolidation or deconsolidation of such VIE. During the six months endedJuly 1, 2018, our consolidated VIE, Helix, received additional cash contributions from us and third-party investors in exchange for voting equity interests in Helix. Therefore, we reassessed and concluded that Helix continued to be a variable interest entity and that we remained the primary beneficiary. During the periods presented, we have not provided any other financial or other support to our VIEs that we were not contractually required to provide.

The equity method is used to account for investments in which we have the ability to exercise significant influence, but not control, over the investee. Such investments are recorded within other assets, and the share of net income or losses of equity investments is recognized on a one quarter lag in other income, net.

Redeemable Noncontrolling Interests

Noncontrolling interests represent the portion of equity (net assets) in Helix, our consolidated but not wholly-owned entity, that is neither directly nor indirectly attributable to us. Noncontrolling interests with embedded contingent redemption features, such as put rights, that are not solely within our control are considered redeemable noncontrolling interests. Redeemable noncontrolling interests are presented outside of stockholders’ equity on the condensed consolidated balance sheets.

Fiscal Year

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, September 30, and December 31. The three and six months ended July 1, 2018 and July 2, 2017 were both 13 and 26 weeks, respectively.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Significant Accounting Policies

During the three and six months ended July 1, 2018, there have been no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, except as described below.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard is based on the principle that revenue should be recognized in an amount that reflects the consideration to which we expect to be entitled in exchange for the transfer of promised goods or services. We adopted Topic 606 using the modified retrospective transition method. The cumulative effect of applying the new revenue standard to all incomplete contracts as of January 1, 2018 was not material and, therefore, did not result in an adjustment to retained earnings. There was no material difference to the condensed consolidated financial statements for the three and six months ended July 1, 2018 due to the adoption of Topic 606.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10), which requires equity investments (other than those accounted for under the equity method or those that result in consolidation) to be measured at fair value, with changes in fair value recognized in net income. This standard was effective for us beginning in the first quarter of 2018. Based on our elections, our strategic equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient for estimating fair value are measured at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for identifiable or similar investments of the same issuer. The measurement alternative was applied prospectively and did not result in an adjustment to retained earnings.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). The new standard requires lessees to recognize most leases on their balance sheet as lease liabilities with corresponding right-of-use assets. ASU 2016-02 is effective for us beginning in the first quarter of 2019. Currently, the standard will be adopted on a modified retrospective transition basis for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The FASB has proposed an alternative method to adopt the lease standard by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We plan to utilize this alternative adoption method, if finalized by the FASB. In order to adopt the new standard in the first quarter of fiscal 2019, we are currently designing and implementing changes to our systems, processes, policies, and controls for lease accounting. We expect to elect the standard’s package of practical expedients on adoption, which allows us to carry forward our historical assessment of whether existing agreements contain a lease and the classification of our existing lease agreements. We do not expect to elect the standard’s available hindsight practical expedient on adoption. While we continue to review our existing lease agreements and assess the effects of adoption, we believe the new standard will have a material effect on our consolidated financial statements and disclosures. We expect substantially all of our real-estate operating lease commitments will be recognized as lease liabilities with corresponding right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on the consolidated balance sheet. We are currently evaluating the impact of Topic 842 on the consolidated financial statements as it relates to other aspects of our business.

In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. The standard is effective for us beginning in the first quarter of 2020, with early adoption permitted.  We are currently evaluating the expected impact of ASU 2016-13 on our consolidated financial statements.

Revenue

Our revenue is generated primarily from the sale of products and services. Product revenue primarily consists of sales of instruments and consumables used in genetic analysis. Service and other revenue primarily consists of revenue generated from genotyping and sequencing services and instrument service contracts.

We recognize revenue when control of our products and services is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control.

Revenue from product sales is recognized generally upon delivery to the end customer, which is when control of the product is deemed to be transferred. Invoicing typically occurs upon shipment; the term between invoicing and when payment is due is not significant. In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met. Revenue from instrument service contracts is recognized as the services are rendered, typically evenly over the contract term. Revenue from genotyping and sequencing services is recognized when earned, which is generally at the time the genotyping or sequencing analysis data is made available to the customer or agreed-upon milestones are reached.

Revenue is recorded net of discounts, distributor commissions, and sales taxes collected on behalf of governmental authorities. Employee sales commissions are recorded as selling, general and administrative expenses when incurred as the amortization period for such costs, if capitalized, would have been one year or less.

We regularly enter into contracts with multiple performance obligations. Such obligations are generally satisfied within a short time frame, approximately three to six months, after the contract execution date. Revenue recognition for contracts with multiple deliverables is based on the separate, distinct performance obligations within the contract. We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

The contract price is allocated to each performance obligation in proportion to its standalone selling price. We determine our best estimate of standalone selling price using average selling prices over a rolling 12-month period coupled with an assessment of current market conditions. If the product or service has no history of sales or if the sales volume is not sufficient, we rely upon prices set by our pricing committee, adjusted for applicable discounts.

Contract liabilities, which consist of deferred revenue and customer deposits, as of July 1, 2018 and December 31, 2017 were $196 million and $181 million, respectively, of which the short-term portions of $168 million and $150 million, respectively, were recorded in accrued liabilities and the remaining long-term portions were recorded in other long-term liabilities. Revenue recorded in the three and six months ended July 1, 2018 included $34 million and $102 million of previously deferred revenue that was included in contract liabilities as of December 31, 2017. Contract assets as of July 1, 2018 and December 31, 2017 were not material.

In certain markets, products and services are sold to customers through distributors. In most sales through distributors, the product is delivered directly to customers. The terms of sales transactions through distributors are consistent with the terms of direct sales to customers.

The following tables represent revenue by source (in millions):

	Three Months Ended
	July 1, 2018						July 2, 2017
	Sequencing		Microarray		Total		Sequencing		Microarray		Total
Consumables	$	455	$	85	$	540	$	338	$	64	$	402
Instruments	123		4		127		130		6		136
Other product	6		—		6		5		—		5
Total product revenue	584		89		673		473		70		543
Service and other revenue	106		51		157		77		42		119
Total revenue	$	690	$	140	$	830	$	550	$	112	$	662

	Six Months Ended
	July 1, 2018						July 2, 2017
	Sequencing		Microarray		Total		Sequencing		Microarray		Total
Consumables	$	873	$	172	$	1,045	$	656	$	132	$	788
Instruments	235		9		244		225		11		236
Other product	11		1		12		9		1		10
Total product revenue	1,119		182		1,301		890		144		1,034
Service and other revenue	202		109		311		155		72		227
Total revenue	$	1,321	$	291	$	1,612	$	1,045	$	216	$	1,261

Revenue related to our Consolidated VIEs is included in sequencing services and other revenue.

The following table represents revenue by geographic area, based on region of destination (in millions):

	Three Months Ended				Six Months Ended
	July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
United States	$	445	$	374	$	861	$	699
Europe	196		145		380		271
Greater China (1)	107		78		185		134
Asia-Pacific (1)	55		46		125		113
Other markets	27		19		61		44
Total revenue	$	830	$	662	$	1,612	$	1,261

____________________________________

(1) Revenue for the Greater China region, which consists of China, Taiwan, and Hong Kong, is reported separately from the Asia-Pacific region.

Earnings per Share

Basic earnings per share attributable to Illumina stockholders is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share attributable to Illumina stockholders is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Per-share earnings of our VIEs are included in the consolidated basic and diluted earnings per share computations based on our share of the VIE’s securities.

Potentially dilutive common shares consist of shares issuable under convertible senior notes and equity awards. Convertible senior notes have a dilutive impact when the average market price of our common stock exceeds the applicable conversion price of the respective notes. Potentially dilutive common shares from equity awards are determined using the average share price for each period under the treasury stock method. In addition, proceeds from exercise of equity awards and the average amount of unrecognized compensation expense for equity awards are assumed to be used to repurchase shares.

The following is the calculation of weighted average shares used to calculate basic and diluted earnings per share (in millions):

	Three Months Ended		Six Months Ended
	July 1, 2018	July 2, 2017	July 1, 2018	July 2, 2017
Weighted average shares outstanding	147	146	147	146
Effect of potentially dilutive common shares from:
Equity awards	1	1	1	1
Weighted average shares used in calculating diluted earnings per share	148	147	148	147

XML

Balance Sheet Account Details

6 Months Ended

Jul. 01, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Balance Sheet Account Details

Balance Sheet Account Details

Short-Term Investments

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

	July 1, 2018							December 31, 2017
	Amortized Cost		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale debt securities:
Debt securities in government sponsored entities	$	25	$	—		$	25	$	67	$	—		$	67
Corporate debt securities	643		(1		)	642		423		(2		)	421
U.S. Treasury securities	504		(3		)	501		433		(1		)	432
Total available-for-sale debt securities	$	1,172	$	(4	)	$	1,168	$	923	$	(3	)	$	920

Realized gains and losses are determined based on the specific identification method and are reported in interest income.

Contractual maturities of available-for-sale debt securities as of July 1, 2018 were as follows (in millions):

	Estimated Fair Value
Due within one year	$	525
After one but within five years	643
Total	$	1,168

We have the ability, if necessary, to liquidate any of our cash equivalents and short-term investments to meet our liquidity needs in the next 12 months. Accordingly, those investments with contractual maturities greater than one year from the date of purchase are classified as short-term on the accompanying condensed consolidated balance sheets.

Strategic Investments

The carrying amounts of our strategic equity investments without readily determinable fair values are initially measured at cost and are remeasured for impairment and observable price changes in orderly transactions for identifiable or similar investments of the same issuer.

As of July 1, 2018 and December 31, 2017, the aggregate carrying amounts of our strategic equity investments without readily determinable fair values were $263 million and $250 million, respectively, included in other assets. Revenue recognized from transactions with such companies was $36 million and $72 million, respectively, for the three and six months ended July 1, 2018 and $35 million and $58 million, respectively, for the three and six months ended July 2, 2017.

We invest in a venture capital investment fund (the Fund) with a capital commitment of $100 million that is callable over ten years, of which $77 million remains as of July 1, 2018. Our investment in the Fund is accounted for as an equity-method investment. The carrying amounts of the Fund included in other assets were $21 million and $16 million as of July 1, 2018 and December 31, 2017, respectively.

Inventory

Inventory consisted of the following (in millions):

	July 1, 2018		December 31, 2017
Raw materials	$	101	$	93
Work in process	212		188
Finished goods	49		52
Total inventory	$	362	$	333

Property and Equipment

Property and equipment, net consisted of the following (in millions):

	July 1, 2018			December 31, 2017
Leasehold improvements	$	483		$	331
Machinery and equipment	347			316
Computer hardware and software	214			185
Furniture and fixtures	41			34
Buildings	279			155
Construction in progress	148			326
Total property and equipment, gross	1,512			1,347
Accumulated depreciation	(476		)	(416		)
Total property and equipment, net	$	1,036		$	931

Property and equipment, net included non-cash expenditures of $42 million and $94 million for the six months ended July 1, 2018 and July 2, 2017, respectively, which were excluded from the condensed consolidated statements of cash flows. Such non-cash expenditures included $16 million and $60 million recorded under build-to-suit lease accounting for the six months ended July 1, 2018 and July 2, 2017, respectively.

Intangible Assets and Goodwill

On May 14, 2018, we acquired Edico Genome, a provider of data analysis acceleration solutions for next-generation sequencing (NGS) for total cash consideration of $100 million, net of cash acquired. As a result of this transaction, we recorded $56 million as goodwill. In addition, we recorded developed technology of $45 million and a trade name of $1 million, with useful lives of 10 and 3 years, respectively.

We test the carrying value of goodwill in accordance with accounting rules on impairment of goodwill, which require us to estimate the fair value of each reporting unit annually, or when impairment indicators exist, and compare such amounts to their respective carrying values to determine if an impairment is required. We performed the annual assessment for goodwill impairment in the second quarter of 2018, noting no impairment. 

Changes to goodwill during the six months ended July 1, 2018 were as follows (in millions):

	Goodwill
Balance as of December 31, 2017	$	771
Current period acquisitions	60
Balance as of July 1, 2018	$	831

We perform regular reviews to determine if any event has occurred that may indicate our identifiable intangible assets are potentially impaired.  During the six months ended July 2, 2017, we performed a recoverability test when the planned use of a finite-lived acquired intangible asset changed, resulting in an impairment charge of $18 million recorded in cost of product revenue. Also during the six months ended July 2, 2017, we recorded a $5 million impairment charge in research and development related to an in-process research and development project that was determined to have no future alternative use.

Derivatives

We are exposed to foreign exchange rate risks in the normal course of business. We enter into foreign exchange contracts to manage foreign currency risks related to monetary assets and liabilities that are denominated in currencies other than the U.S. dollar. These foreign exchange contracts are carried at fair value in other current assets or accrued liabilities and are not designated as hedging instruments. Changes in the value of derivatives are recognized in other income, net, along with the remeasurement gain or loss on the foreign currency denominated assets or liabilities.

As of July 1, 2018, we had foreign exchange forward contracts in place to hedge exposures in the euro, Japanese yen, Australian dollar, and Canadian dollar. As of July 1, 2018 and December 31, 2017, the total notional amounts of outstanding forward contracts in place for foreign currency purchases were $95 million and $88 million, respectively.

Accrued Liabilities

Accrued liabilities consisted of the following (in millions):

	July 1, 2018		December 31, 2017
Contract liabilities, current portion	$	168	$	150
Accrued compensation expenses	142		177
Accrued taxes payable	67		50
Other	45		55
Total accrued liabilities	$	422	$	432

Warranties

We generally provide a one-year warranty on instruments. Additionally, we provide a warranty on consumables through the expiration date, which generally ranges from six to twelve months after the manufacture date. At the time revenue is recognized, an accrual is established for estimated warranty expenses based on historical experience as well as anticipated product performance. We periodically review the warranty reserve for adequacy and adjust the warranty accrual, if necessary, based on actual experience and estimated costs to be incurred. Warranty expense is recorded as a component of cost of product revenue.

Changes in the reserve for product warranties during the three and six months ended July 1, 2018 and July 2, 2017 were as follows (in millions):

	Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Balance at beginning of period	$	16		$	12		$	17		$	13
Additions charged to cost of product revenue	6			7			12			11
Repairs and replacements	(7		)	(5		)	(14		)	(10		)
Balance at end of period	$	15		$	14		$	15		$	14

Investments in Consolidated VIEs

Helix Holdings I, LLC

In July 2015, we obtained a 50% voting equity ownership interest in Helix Holdings I, LLC (Helix), a limited liability company formed with unrelated third-party investors to pursue the development and commercialization of a marketplace for consumer genomics. We determined that Helix is a VIE as the holders of the at-risk equity investments as a group lack the power to direct the activities of Helix that most significantly impact Helix’s economic performance. Additionally, we determined that we have (a) unilateral power over one of the activities that most significantly impacts the economic performance of Helix through its contractual arrangements and no one individual party has unilateral power over the remaining significant activities of Helix and (b) the obligation to absorb losses of and the right to receive benefits from Helix that are potentially significant to Helix. As a result, we are deemed to be the primary beneficiary of Helix and are required to consolidate Helix.

As contractually committed, in July 2015, we contributed certain perpetual licenses, instruments, intangibles, initial laboratory setup, and discounted supply terms in exchange for voting equity interests in Helix. Such contributions were recorded at their historical basis as they remained within our control. Helix is financed through cash contributions made by us and the third-party investors in exchange for voting equity interests in Helix. During the six months endedJuly 1, 2018, we made additional investments of $100 million in exchange for voting equity interests in Helix. As of July 1, 2018, the noncontrolling shareholders and Illumina each held 50% of Helix’s outstanding voting equity interests.

Certain noncontrolling Helix investors may require us to redeem certain noncontrolling interests in cash at the then approximate fair market value. Such redemption right is exercisable at the option of certain noncontrolling interest holders after January 1, 2021, provided that a bona fide pursuit of the sale of Helix has occurred and an initial public offering of Helix has not been completed. As the contingent redemption is outside of our control, the redeemable noncontrolling interests in Helix are classified outside of stockholders’ equity on the accompanying condensed consolidated balance sheets. The balance of the redeemable noncontrolling interests is reported at the greater of its carrying value after receiving its allocation of Helix’s profits and losses or its estimated redemption fair value at each reporting date. The fair value of the redeemable noncontrolling interests is considered a Level 3 instrument.

As of July 1, 2018, the accompanying condensed consolidated balance sheet included $171 million of cash and cash equivalents attributable to Helix that will be used to settle its respective obligations and will not be available to settle obligations of Illumina. The remaining assets and liabilities of Helix were not significant to our financial position as of July 1, 2018. Helix had an immaterial impact on our condensed consolidated statements of income and cash flows for the three and six months ended July 1, 2018.

GRAIL, Inc.

In 2016, we obtained a majority equity ownership interest in GRAIL, a company formed with unrelated third-party investors to develop a blood test for early-stage cancer detection. At that time, we determined that GRAIL was a VIE as the entity lacked sufficient equity to finance its activities without additional support. Additionally, we determined that we were the primary beneficiary of GRAIL and were required to consolidate GRAIL. On February 28, 2017, GRAIL completed the initial close of its Series B preferred stock financing, we ceased to have a controlling financial interest in GRAIL, and our equity ownership was reduced from 52% to 19%. Additionally, our voting interest was reduced to 13% and we no longer had representation on GRAIL’s board of directors. As a result, we deconsolidated GRAIL’s financial statements effective February 28, 2017 and recorded a pretax gain on deconsolidation of $453 million in other income, net. The operations of GRAIL from January 2, 2017 up to February 28, 2017, the date of deconsolidation, were included in the accompanying condensed consolidated statements of income for the six months endedJuly 2, 2017. During this period, we absorbed approximately 50% of GRAIL’s losses based upon our proportional ownership of GRAIL’s common stock.

The carrying value of the investment recorded in other assets was $189 million and $185 million as of July 1, 2018 and December 31, 2017, respectively.

Redeemable Noncontrolling Interests

The activity of the redeemable noncontrolling interests during the six months ended July 1, 2018 was as follows (in millions):

	Redeemable Noncontrolling Interests
Balance as of December 31, 2017	$	220
Vesting of redeemable equity awards	1
Net loss attributable to noncontrolling interests	(17		)
Adjustment up to the redemption value	13
Balance as of July 1, 2018	$	217

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Fair Value Measurements

6 Months Ended

Jul. 01, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The following table presents the hierarchy for assets and liabilities measured at fair value on a recurring basis as of July 1, 2018 and December 31, 2017 (in millions):

	July 1, 2018								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market funds (cash equivalents)	$	1,015	$	—	$	—	$	1,015	$	957	$	—	$	—	$	957
Debt securities in government-sponsored entities	—		25		—		25		—		67		—		67
Corporate debt securities	—		642		—		642		—		421		—		421
U.S. Treasury securities	501		—		—		501		432		—		—		432
Deferred compensation plan assets	—		37		—		37		—		35		—		35
Total assets measured at fair value	$	1,516	$	704	$	—	$	2,220	$	1,389	$	523	$	—	$	1,912
Liabilities:
Deferred compensation liability	$	—	$	35	$	—	$	35	$	—	$	33	$	—	$	33

We hold available-for-sale securities that consist of highly-liquid, investment-grade debt securities. We consider information provided by our investment accounting and reporting service provider in the measurement of fair value of our debt securities. The investment service provider provides valuation information from an industry-recognized valuation service. Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures. Our deferred compensation plan assets consist primarily of investments in life insurance contracts carried at cash surrender value, which reflects the net asset value of the underlying publicly traded mutual funds. We perform control procedures to corroborate the fair value of our holdings, including comparing valuations obtained from our investment service provider to valuations reported by our asset custodians, validation of pricing sources and models, and review of key model inputs, if necessary.

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Debt and Other Commitments

6 Months Ended

Jul. 01, 2018

Debt Disclosure [Abstract]

Debt and Other Commitments

Debt and Other Commitments

Summary of debt obligations

Debt obligations consisted of the following (dollars in millions):

	July 1, 2018			December 31, 2017
Principal amount of 2019 Notes outstanding	$	633		$	633
Principal amount of 2021 Notes outstanding	517			517
Unamortized discount of liability component of convertible senior notes	(60		)	(75		)
Net carrying amount of liability component of convertible senior notes	1,090			1,075
Obligations under financing leases	254			113
Other	4			4
Less: current portion	(625		)	(10		)
Long-term debt	$	723		$	1,182
Carrying value of equity component of convertible senior notes, net of debt issuance cost	$	161		$	161
Fair value of convertible senior notes outstanding (Level 2)	$	1,427		$	1,305
Weighted-average remaining amortization period of discount on the liability component of convertible senior notes	2.4 years			2.8 years

Convertible Senior Notes

0% Convertible Senior Notes due 2019 (2019 Notes) and 0.5% Convertible Senior Notes due 2021 (2021 Notes)

In June 2014, we issued $633 million aggregate principal amount of 2019 Notes and $517 million aggregate principal amount of 2021 Notes. We used the net proceeds plus cash on hand to repurchase outstanding debt. The 2019 and 2021 Notes mature on June 15, 2019 and June 15, 2021, respectively, and the implied estimated effective rates of the liability components of the Notes were 2.9% and 3.5%, respectively, assuming no conversion.

Both the 2019 and 2021 Notes will be convertible into cash, shares of common stock, or a combination of cash and shares of common stock, at our election, based on an initial conversion rate, subject to adjustment, of 3.9318 shares per $1,000 principal amount of the notes (which represents an initial conversion price of approximately $254.34 per share), only in the following circumstances and to the following extent: (1) during the five business-day period after any 10 consecutive trading day period (the measurement period) in which the trading price per 2019 and 2021 Notes for each day of such measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day; (2) during any calendar quarter (and only during that quarter) after the calendar quarter ending September 30, 2014, if the last reported sale price of our common stock for 20 or more trading days in the 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 described in the indenture for the 2019 and 2021 Notes; and (4) at any time on or after March 15, 2019 for the 2019 Notes, or March 15, 2021 for the 2021 Notes, through the second scheduled trading day immediately preceding the maturity date.

During the six months endedJuly 1, 2018, the market price of our common stock exceeded the conversion price of $254.34 and the potential dilutive impact of the 2019 and 2021 notes has been included in our calculation of diluted earnings per share. Neither the 2019 nor the 2021 Notes were convertible as of July 1, 2018. If the 2019 and 2021 Notes were converted as of July 1, 2018, the if-converted value would exceed the principal amount by $127 million. During the six months endedJuly 1, 2018, the carrying value of the 2019 Notes was reclassified to short-term as they become convertible within twelve months of the balance sheet date.

Build-to-suit leases

We evaluate whether we are the accounting owner of leased assets during the construction period when we are involved in the construction of leased assets. As of July 1, 2018, we were considered the owner of a construction project for accounting purposes only under build-to-suit lease accounting due to certain indemnification obligations related to the construction. As of July 1, 2018, and December 31, 2017, we recorded $21 million and $144 million, respectively, in project construction costs paid or reimbursed by the landlord as construction in progress and a corresponding build-to-suit lease liability.

During the six months ended July 1, 2018, construction of a build-to-suit property was completed. We concluded we did not qualify for “sale-leaseback” treatment and the lease is accounted for as a financing obligation. Accordingly, $142 million of construction in progress and build-to-suit lease liability were reclassified to building asset and obligations under financing leases, respectively.

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Share-based Compensation Expense

6 Months Ended

Jul. 01, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-based Compensation Expense

Share-based Compensation Expense

Share-based compensation expense reported in our statements of income was as follows (in millions):

	Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Cost of product revenue	$	4		$	3		$	8		$	6
Cost of service and other revenue	1			1			2			1
Research and development	15			12			30			26
Selling, general and administrative	30			23			58			56
Share-based compensation expense before taxes	50			39			98			89
Related income tax benefits	(11		)	(12		)	(21		)	(23		)
Share-based compensation expense, net of taxes	$	39		$	27		$	77		$	66

The assumptions used for the specified reporting periods and the resulting estimates of weighted-average fair value per share for stock purchased under the Employee Stock Purchase Plan (ESPP) during the six months ended July 1, 2018 were as follows:

	Employee Stock Purchase Rights
Risk-free interest rate	1.22% - 1.89%
Expected volatility	29% - 39%
Expected term	0.5 - 1.0 year
Expected dividends	0		%
Weighted-average fair value per share	$	58.09

As of July 1, 2018, approximately $328 million of unrecognized compensation cost related to restricted stock and ESPP shares granted to date was expected to be recognized over a weighted-average period of approximately 2.3 years.

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Stockholders' Equity

6 Months Ended

Jul. 01, 2018

Equity [Abstract]

Stockholders' Equity

Stockholders’ Equity

As of July 1, 2018, approximately 5.5 million shares remained available for future grants under the 2015 Stock Plan.

Restricted Stock

Restricted stock activity and related information for the six months ended July 1, 2018 was as follows (units in thousands):

	Restricted Stock Units (RSU)		Performance Stock Units (PSU)(1)		Weighted-Average Grant-Date Fair Value per Share
					RSU		PSU
Outstanding at December 31, 2017	2,085		542		$	172.92	$	166.15
Awarded	60		172		$	257.00	$	170.08
Vested	(103	)	—		$	159.10	—
Cancelled	(132	)	(20	)	$	169.22	$	163.78
Outstanding at July 1, 2018	1,910		694		$	176.56	$	167.19

______________________________________

(1) The number of units reflect the estimated number of shares to be issued at the end of the performance period.

Stock Options

Stock option activity during the six months ended July 1, 2018 was as follows:

	Options (in thousands)		Weighted-Average Exercise Price
Outstanding at December 31, 2017	322		$	46.93
Exercised	(63	)	$	34.15
Outstanding and exercisable at July 1, 2018	259		$	50.01

ESPP

The price at which common stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first day of the offering period or purchase date, whichever is lower. During the six months ended July 1, 2018, approximately 0.1 million shares were issued under the ESPP. As of July 1, 2018, there were approximately 13.9 million shares available for issuance under the ESPP.

Share Repurchases

On July 28, 2016, our Board of Directors authorized a share repurchase program, which superseded all prior and available repurchase authorizations, to repurchase $250 million of outstanding common stock. During the year ended December 31, 2017, we repurchased 0.6 million shares for $101 million, completing the share repurchase program.

On May 4, 2017, our Board of Directors authorized a share repurchase program to repurchase $250 million of outstanding common stock. During the year ended December 31, 2017, we repurchased 0.8 million shares for $150 million from this program.

On May 1, 2018, our Board of Directors authorized an additional share repurchase program to repurchase $150 million of outstanding common stock. The repurchases may be completed under a 10b5-1 plan or at management’s discretion. Authorizations to repurchase $250 million of our common stock remained available as of July 1, 2018.

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Income Taxes

6 Months Ended

Jul. 01, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Our effective tax rate may vary from the U.S. federal statutory tax rate due to the change in the mix of earnings in tax jurisdictions with different statutory rates, benefits related to tax credits, and the tax impact of non-deductible expenses and other permanent differences between income before income taxes and taxable income. The effective tax rates for the three and six months ended July 1, 2018 were 13.9% and 12.3%, respectively. For the three and six months ended July 1, 2018, the variance from the U.S. federal statutory tax rate of 21% was primarily attributable to the mix of earnings in jurisdictions with lower statutory tax rates than the U.S. federal statutory tax rate, such as in Singapore and the United Kingdom. For the six months ended July 1, 2018, the decrease from the federal statutory rate was also attributable to the discrete tax benefit associated with the recognition of prior year losses from our investment in Helix.

We continue to evaluate the impacts of U.S. Tax Reform as we interpret the legislation, including the newly-enacted global intangible low-taxed income (GILTI) provisions which subject our foreign earnings to a minimum level of tax. Because of the complexities of the new legislation, we have not yet elected an accounting policy for GILTI and, therefore, have only included GILTI related to current year operations in our estimated provision for income taxes. Recent FASB guidance indicates that accounting for GILTI either as part of deferred taxes or as a period cost is acceptable. Once further information is gathered and interpretation and analysis of the tax legislation evolves, we will make an appropriate accounting method election.

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Legal Proceedings

6 Months Ended

Jul. 01, 2018

Commitments and Contingencies Disclosure [Abstract]

Legal Proceedings

Legal Proceedings

We are involved in various lawsuits and claims arising in the ordinary course of business, including actions with respect to intellectual property, employment, and contractual matters. In connection with these matters, we assess, on a regular basis, the probability and range of possible loss based on the developments in these matters. A liability is recorded in the financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable results could occur, assessing contingencies is highly subjective and requires judgments about future events. We regularly review outstanding legal matters to determine the adequacy of the liabilities accrued and related disclosures. The amount of ultimate loss may differ from these estimates. Each matter presents its own unique circumstances, and prior litigation does not necessarily provide a reliable basis on which to predict the outcome, or range of outcomes, in any individual proceeding. Because of the uncertainties related to the occurrence, amount, and range of loss on any pending litigation or claim, we are currently unable to predict their ultimate outcome, and, with respect to any pending litigation or claim where no liability has been accrued, to make a meaningful estimate of the reasonably possible loss or range of loss that could result from an unfavorable outcome. In the event opposing litigants in outstanding litigations or claims ultimately succeed at trial and any subsequent appeals on their claims, any potential loss or charges in excess of any established accruals, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations, and/or cash flows in the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods.

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Segment Information

6 Months Ended

Jul. 01, 2018

Segment Reporting [Abstract]

Segment Information

Segment Information

We have two reportable segments: Core Illumina and one segment related to the combined activities of our Consolidated VIEs. Our Consolidated VIEs currently include only the operations of Helix, whereas prior to the deconsolidation of GRAIL on February 28, 2017, our Consolidated VIEs included the combined operations of GRAIL and Helix.

We report segment information based on the management approach. This approach designates the internal reporting used by the Chief Operating Decision Maker (“CODM”) for making decisions and assessing performance as the source of our reportable segments. The CODM allocates resources and assesses the performance of each operating segment using information about its revenue and income (loss) from operations. Based on the information used by the CODM, we have determined our reportable segments as follows:

Core Illumina:

Core Illumina’s products and services serve customers in the research, clinical and applied markets, and enable the adoption of a variety of genomic solutions. Core Illumina includes all operations, excluding the results of the consolidated VIEs.

Consolidated VIEs:

Helix: Helix was established to enable individuals to explore their genetic information by providing affordable sequencing and database services for consumers through third-party partners, driving the creation of an ecosystem of consumer applications.

GRAIL:GRAIL was created to develop a blood test for early-stage cancer detection. GRAIL was in the early stages of developing this test and as such, had no revenues through the date of deconsolidation.

Management evaluates the performance of our operating segments based upon income (loss) from operations. We do not allocate expenses between segments. Core Illumina sells products and provides services to GRAIL and Helix in accordance with contractual agreements between the entities.

The following table presents the operating performance of each reportable segment (in millions):

	Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Revenue:
Core Illumina	$	829		$	664		$	1,612		$	1,262
Consolidated VIEs	3			2			6			3
Elimination of intersegment revenue	(2		)	(4		)	(6		)	(4		)
Consolidated revenue	$	830		$	662		$	1,612		$	1,261
Income (loss) from operations:
Core Illumina	$	246		$	160		$	484		$	244
Consolidated VIEs	(20		)	(16		)	(41		)	(50		)
Elimination of intersegment earnings	1			(1		)	2			1
Consolidated income from operations	$	227		$	143		$	445		$	195

The following table presents the total assets of each reportable segment (in millions):

	July 1, 2018			December 31, 2017
Core Illumina	$	5,760		$	5,223
Consolidated VIEs	199			45
Elimination of intersegment assets	(108		)	(11		)
Consolidated total assets	$	5,851		$	5,257

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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jul. 01, 2018

Accounting Policies [Abstract]

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

Consolidation

The unaudited condensed consolidated financial statements include our accounts, our wholly-owned subsidiaries, majority-owned or controlled companies, and variable interest entities (VIEs) for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. In management’s opinion, the accompanying financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results for the interim periods presented.

Variable Interest Entities

We evaluate our ownership, contractual, and other interests in entities that are not wholly-owned to determine if these entities are VIEs, and, if so, whether we are the primary beneficiary of the VIE. In determining whether we are the primary beneficiary of a VIE and therefore required to consolidate the VIE, a qualitative approach is applied that determines whether we have both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE. We continuously assess whether we are the primary beneficiary of a VIE, as changes to existing relationships or future transactions may result in the consolidation or deconsolidation of such VIE. During the six months endedJuly 1, 2018, our consolidated VIE, Helix, received additional cash contributions from us and third-party investors in exchange for voting equity interests in Helix. Therefore, we reassessed and concluded that Helix continued to be a variable interest entity and that we remained the primary beneficiary. During the periods presented, we have not provided any other financial or other support to our VIEs that we were not contractually required to provide.

Equity Method Investments

The equity method is used to account for investments in which we have the ability to exercise significant influence, but not control, over the investee. Such investments are recorded within other assets, and the share of net income or losses of equity investments is recognized on a one quarter lag in other income, net.

Redeemable Noncontrolling Interests

Noncontrolling interests represent the portion of equity (net assets) in Helix, our consolidated but not wholly-owned entity, that is neither directly nor indirectly attributable to us. Noncontrolling interests with embedded contingent redemption features, such as put rights, that are not solely within our control are considered redeemable noncontrolling interests. Redeemable noncontrolling interests are presented outside of stockholders’ equity on the condensed consolidated balance sheets.

Fiscal Year

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, September 30, and December 31.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Recently Adopted and Issued Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). The new standard requires lessees to recognize most leases on their balance sheet as lease liabilities with corresponding right-of-use assets. ASU 2016-02 is effective for us beginning in the first quarter of 2019. Currently, the standard will be adopted on a modified retrospective transition basis for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The FASB has proposed an alternative method to adopt the lease standard by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We plan to utilize this alternative adoption method, if finalized by the FASB. In order to adopt the new standard in the first quarter of fiscal 2019, we are currently designing and implementing changes to our systems, processes, policies, and controls for lease accounting. We expect to elect the standard’s package of practical expedients on adoption, which allows us to carry forward our historical assessment of whether existing agreements contain a lease and the classification of our existing lease agreements. We do not expect to elect the standard’s available hindsight practical expedient on adoption. While we continue to review our existing lease agreements and assess the effects of adoption, we believe the new standard will have a material effect on our consolidated financial statements and disclosures. We expect substantially all of our real-estate operating lease commitments will be recognized as lease liabilities with corresponding right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on the consolidated balance sheet. We are currently evaluating the impact of Topic 842 on the consolidated financial statements as it relates to other aspects of our business.

In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. The standard is effective for us beginning in the first quarter of 2020, with early adoption permitted.  We are currently evaluating the expected impact of ASU 2016-13 on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard is based on the principle that revenue should be recognized in an amount that reflects the consideration to which we expect to be entitled in exchange for the transfer of promised goods or services. We adopted Topic 606 using the modified retrospective transition method. The cumulative effect of applying the new revenue standard to all incomplete contracts as of January 1, 2018 was not material and, therefore, did not result in an adjustment to retained earnings. There was no material difference to the condensed consolidated financial statements for the three and six months ended July 1, 2018 due to the adoption of Topic 606.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10), which requires equity investments (other than those accounted for under the equity method or those that result in consolidation) to be measured at fair value, with changes in fair value recognized in net income. This standard was effective for us beginning in the first quarter of 2018. Based on our elections, our strategic equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient for estimating fair value are measured at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for identifiable or similar investments of the same issuer. The measurement alternative was applied prospectively and did not result in an adjustment to retained earnings.

Revenue

Our revenue is generated primarily from the sale of products and services. Product revenue primarily consists of sales of instruments and consumables used in genetic analysis. Service and other revenue primarily consists of revenue generated from genotyping and sequencing services and instrument service contracts.

We recognize revenue when control of our products and services is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control.

Revenue from product sales is recognized generally upon delivery to the end customer, which is when control of the product is deemed to be transferred. Invoicing typically occurs upon shipment; the term between invoicing and when payment is due is not significant. In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met. Revenue from instrument service contracts is recognized as the services are rendered, typically evenly over the contract term. Revenue from genotyping and sequencing services is recognized when earned, which is generally at the time the genotyping or sequencing analysis data is made available to the customer or agreed-upon milestones are reached.

Revenue is recorded net of discounts, distributor commissions, and sales taxes collected on behalf of governmental authorities. Employee sales commissions are recorded as selling, general and administrative expenses when incurred as the amortization period for such costs, if capitalized, would have been one year or less.

We regularly enter into contracts with multiple performance obligations. Such obligations are generally satisfied within a short time frame, approximately three to six months, after the contract execution date. Revenue recognition for contracts with multiple deliverables is based on the separate, distinct performance obligations within the contract. We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

The contract price is allocated to each performance obligation in proportion to its standalone selling price. We determine our best estimate of standalone selling price using average selling prices over a rolling 12-month period coupled with an assessment of current market conditions. If the product or service has no history of sales or if the sales volume is not sufficient, we rely upon prices set by our pricing committee, adjusted for applicable discounts.

Earnings per Share

Basic earnings per share attributable to Illumina stockholders is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share attributable to Illumina stockholders is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Per-share earnings of our VIEs are included in the consolidated basic and diluted earnings per share computations based on our share of the VIE’s securities.

Potentially dilutive common shares consist of shares issuable under convertible senior notes and equity awards. Convertible senior notes have a dilutive impact when the average market price of our common stock exceeds the applicable conversion price of the respective notes. Potentially dilutive common shares from equity awards are determined using the average share price for each period under the treasury stock method. In addition, proceeds from exercise of equity awards and the average amount of unrecognized compensation expense for equity awards are assumed to be used to repurchase shares.

Strategic Investments

The carrying amounts of our strategic equity investments without readily determinable fair values are initially measured at cost and are remeasured for impairment and observable price changes in orderly transactions for identifiable or similar investments of the same issuer.

Intangible Assets and Goodwill

We test the carrying value of goodwill in accordance with accounting rules on impairment of goodwill, which require us to estimate the fair value of each reporting unit annually, or when impairment indicators exist, and compare such amounts to their respective carrying values to determine if an impairment is required.

Derivatives

We are exposed to foreign exchange rate risks in the normal course of business. We enter into foreign exchange contracts to manage foreign currency risks related to monetary assets and liabilities that are denominated in currencies other than the U.S. dollar. These foreign exchange contracts are carried at fair value in other current assets or accrued liabilities and are not designated as hedging instruments. Changes in the value of derivatives are recognized in other income, net, along with the remeasurement gain or loss on the foreign currency denominated assets or liabilities.

Warranties

We generally provide a one-year warranty on instruments. Additionally, we provide a warranty on consumables through the expiration date, which generally ranges from six to twelve months after the manufacture date. At the time revenue is recognized, an accrual is established for estimated warranty expenses based on historical experience as well as anticipated product performance. We periodically review the warranty reserve for adequacy and adjust the warranty accrual, if necessary, based on actual experience and estimated costs to be incurred. Warranty expense is recorded as a component of cost of product revenue.

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Basis of Presentation and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jul. 01, 2018

Accounting Policies [Abstract]

Disaggregation of Revenue from External Customers

The following tables represent revenue by source (in millions):

	Three Months Ended
	July 1, 2018						July 2, 2017
	Sequencing		Microarray		Total		Sequencing		Microarray		Total
Consumables	$	455	$	85	$	540	$	338	$	64	$	402
Instruments	123		4		127		130		6		136
Other product	6		—		6		5		—		5
Total product revenue	584		89		673		473		70		543
Service and other revenue	106		51		157		77		42		119
Total revenue	$	690	$	140	$	830	$	550	$	112	$	662

	Six Months Ended
	July 1, 2018						July 2, 2017
	Sequencing		Microarray		Total		Sequencing		Microarray		Total
Consumables	$	873	$	172	$	1,045	$	656	$	132	$	788
Instruments	235		9		244		225		11		236
Other product	11		1		12		9		1		10
Total product revenue	1,119		182		1,301		890		144		1,034
Service and other revenue	202		109		311		155		72		227
Total revenue	$	1,321	$	291	$	1,612	$	1,045	$	216	$	1,261

Revenue related to our Consolidated VIEs is included in sequencing services and other revenue.

The following table represents revenue by geographic area, based on region of destination (in millions):

	Three Months Ended				Six Months Ended
	July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
United States	$	445	$	374	$	861	$	699
Europe	196		145		380		271
Greater China (1)	107		78		185		134
Asia-Pacific (1)	55		46		125		113
Other markets	27		19		61		44
Total revenue	$	830	$	662	$	1,612	$	1,261

____________________________________

(1) Revenue for the Greater China region, which consists of China, Taiwan, and Hong Kong, is reported separately from the Asia-Pacific region.

Summary of Calculation of Weighted Average Shares used to Calculate Basic and Diluted Earnings Per Share, Earnings Per Share

The following is the calculation of weighted average shares used to calculate basic and diluted earnings per share (in millions):

	Three Months Ended		Six Months Ended
	July 1, 2018	July 2, 2017	July 1, 2018	July 2, 2017
Weighted average shares outstanding	147	146	147	146
Effect of potentially dilutive common shares from:
Equity awards	1	1	1	1
Weighted average shares used in calculating diluted earnings per share	148	147	148	147

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Balance Sheet Account Details (Tables)

6 Months Ended

Jul. 01, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of Short-term Investments

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

	July 1, 2018							December 31, 2017
	Amortized Cost		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale debt securities:
Debt securities in government sponsored entities	$	25	$	—		$	25	$	67	$	—		$	67
Corporate debt securities	643		(1		)	642		423		(2		)	421
U.S. Treasury securities	504		(3		)	501		433		(1		)	432
Total available-for-sale debt securities	$	1,172	$	(4	)	$	1,168	$	923	$	(3	)	$	920

Summary of Contractual Maturities of Available-for-sale Debt Securities

Contractual maturities of available-for-sale debt securities as of July 1, 2018 were as follows (in millions):

	Estimated Fair Value
Due within one year	$	525
After one but within five years	643
Total	$	1,168

Summary of Inventory

Inventory consisted of the following (in millions):

	July 1, 2018		December 31, 2017
Raw materials	$	101	$	93
Work in process	212		188
Finished goods	49		52
Total inventory	$	362	$	333

Summary of Property and Equipment

Property and equipment, net consisted of the following (in millions):

	July 1, 2018			December 31, 2017
Leasehold improvements	$	483		$	331
Machinery and equipment	347			316
Computer hardware and software	214			185
Furniture and fixtures	41			34
Buildings	279			155
Construction in progress	148			326
Total property and equipment, gross	1,512			1,347
Accumulated depreciation	(476		)	(416		)
Total property and equipment, net	$	1,036		$	931

Summary of Changes in Goodwill

Changes to goodwill during the six months ended July 1, 2018 were as follows (in millions):

	Goodwill
Balance as of December 31, 2017	$	771
Current period acquisitions	60
Balance as of July 1, 2018	$	831

Summary of Accrued Liabilities

Accrued liabilities consisted of the following (in millions):

	July 1, 2018		December 31, 2017
Contract liabilities, current portion	$	168	$	150
Accrued compensation expenses	142		177
Accrued taxes payable	67		50
Other	45		55
Total accrued liabilities	$	422	$	432

Summary of Changes in Reserve for Product Warranties

Changes in the reserve for product warranties during the three and six months ended July 1, 2018 and July 2, 2017 were as follows (in millions):

	Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Balance at beginning of period	$	16		$	12		$	17		$	13
Additions charged to cost of product revenue	6			7			12			11
Repairs and replacements	(7		)	(5		)	(14		)	(10		)
Balance at end of period	$	15		$	14		$	15		$	14

Summary of Activity of Redeemable Noncontrolling Interests

The activity of the redeemable noncontrolling interests during the six months ended July 1, 2018 was as follows (in millions):

	Redeemable Noncontrolling Interests
Balance as of December 31, 2017	$	220
Vesting of redeemable equity awards	1
Net loss attributable to noncontrolling interests	(17		)
Adjustment up to the redemption value	13
Balance as of July 1, 2018	$	217

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Fair Value Measurements (Tables)

6 Months Ended

Jul. 01, 2018

Fair Value Disclosures [Abstract]

Summary of Hierarchy for Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the hierarchy for assets and liabilities measured at fair value on a recurring basis as of July 1, 2018 and December 31, 2017 (in millions):

	July 1, 2018								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market funds (cash equivalents)	$	1,015	$	—	$	—	$	1,015	$	957	$	—	$	—	$	957
Debt securities in government-sponsored entities	—		25		—		25		—		67		—		67
Corporate debt securities	—		642		—		642		—		421		—		421
U.S. Treasury securities	501		—		—		501		432		—		—		432
Deferred compensation plan assets	—		37		—		37		—		35		—		35
Total assets measured at fair value	$	1,516	$	704	$	—	$	2,220	$	1,389	$	523	$	—	$	1,912
Liabilities:
Deferred compensation liability	$	—	$	35	$	—	$	35	$	—	$	33	$	—	$	33

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Debt and Other Commitments (Tables)

6 Months Ended

Jul. 01, 2018

Debt Disclosure [Abstract]

Convertible Debt

Debt obligations consisted of the following (dollars in millions):

	July 1, 2018			December 31, 2017
Principal amount of 2019 Notes outstanding	$	633		$	633
Principal amount of 2021 Notes outstanding	517			517
Unamortized discount of liability component of convertible senior notes	(60		)	(75		)
Net carrying amount of liability component of convertible senior notes	1,090			1,075
Obligations under financing leases	254			113
Other	4			4
Less: current portion	(625		)	(10		)
Long-term debt	$	723		$	1,182
Carrying value of equity component of convertible senior notes, net of debt issuance cost	$	161		$	161
Fair value of convertible senior notes outstanding (Level 2)	$	1,427		$	1,305
Weighted-average remaining amortization period of discount on the liability component of convertible senior notes	2.4 years			2.8 years

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Share-based Compensation Expense (Tables)

6 Months Ended

Jul. 01, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of Share-based Compensation Expense for all Stock Awards

Share-based compensation expense reported in our statements of income was as follows (in millions):

	Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Cost of product revenue	$	4		$	3		$	8		$	6
Cost of service and other revenue	1			1			2			1
Research and development	15			12			30			26
Selling, general and administrative	30			23			58			56
Share-based compensation expense before taxes	50			39			98			89
Related income tax benefits	(11		)	(12		)	(21		)	(23		)
Share-based compensation expense, net of taxes	$	39		$	27		$	77		$	66

Summary of Assumptions used to Estimate the Weighted-Average Fair Value Per Share for Stock Purchase under the Employee Stock Purchase Plan

The assumptions used for the specified reporting periods and the resulting estimates of weighted-average fair value per share for stock purchased under the Employee Stock Purchase Plan (ESPP) during the six months ended July 1, 2018 were as follows:

	Employee Stock Purchase Rights
Risk-free interest rate	1.22% - 1.89%
Expected volatility	29% - 39%
Expected term	0.5 - 1.0 year
Expected dividends	0		%
Weighted-average fair value per share	$	58.09

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Stockholders' Equity (Tables)

6 Months Ended

Jul. 01, 2018

Equity [Abstract]

Summary of Restricted Stock Activity and Related Information, Restricted Stock

Restricted stock activity and related information for the six months ended July 1, 2018 was as follows (units in thousands):

	Restricted Stock Units (RSU)		Performance Stock Units (PSU)(1)		Weighted-Average Grant-Date Fair Value per Share
					RSU		PSU
Outstanding at December 31, 2017	2,085		542		$	172.92	$	166.15
Awarded	60		172		$	257.00	$	170.08
Vested	(103	)	—		$	159.10	—
Cancelled	(132	)	(20	)	$	169.22	$	163.78
Outstanding at July 1, 2018	1,910		694		$	176.56	$	167.19

______________________________________

(1) The number of units reflect the estimated number of shares to be issued at the end of the performance period.

Summary of Restricted Stock Activity and Related Information, Performance Units

Restricted stock activity and related information for the six months ended July 1, 2018 was as follows (units in thousands):

	Restricted Stock Units (RSU)		Performance Stock Units (PSU)(1)		Weighted-Average Grant-Date Fair Value per Share
					RSU		PSU
Outstanding at December 31, 2017	2,085		542		$	172.92	$	166.15
Awarded	60		172		$	257.00	$	170.08
Vested	(103	)	—		$	159.10	—
Cancelled	(132	)	(20	)	$	169.22	$	163.78
Outstanding at July 1, 2018	1,910		694		$	176.56	$	167.19

______________________________________

(1) The number of units reflect the estimated number of shares to be issued at the end of the performance period.

Summary of Stock Option Activity Under all Stock Option Plans

Stock option activity during the six months ended July 1, 2018 was as follows:

	Options (in thousands)		Weighted-Average Exercise Price
Outstanding at December 31, 2017	322		$	46.93
Exercised	(63	)	$	34.15
Outstanding and exercisable at July 1, 2018	259		$	50.01

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Segment Information (Tables)

6 Months Ended

Jul. 01, 2018

Segment Reporting [Abstract]

Summary of Operating Performance and Assets by Segment

The following table presents the operating performance of each reportable segment (in millions):

	Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Revenue:
Core Illumina	$	829		$	664		$	1,612		$	1,262
Consolidated VIEs	3			2			6			3
Elimination of intersegment revenue	(2		)	(4		)	(6		)	(4		)
Consolidated revenue	$	830		$	662		$	1,612		$	1,261
Income (loss) from operations:
Core Illumina	$	246		$	160		$	484		$	244
Consolidated VIEs	(20		)	(16		)	(41		)	(50		)
Elimination of intersegment earnings	1			(1		)	2			1
Consolidated income from operations	$	227		$	143		$	445		$	195

The following table presents the total assets of each reportable segment (in millions):

	July 1, 2018			December 31, 2017
Core Illumina	$	5,760		$	5,223
Consolidated VIEs	199			45
Elimination of intersegment assets	(108		)	(11		)
Consolidated total assets	$	5,851		$	5,257

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Basis of Presentation and Summary of Significant Accounting Policies - Narrative (Details) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jul. 01, 2018	Jul. 01, 2018	Dec. 31, 2017
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Contract liability	$ 196	$ 196	$ 181
Contract liabilities, current portion	168	168	$ 150
Revenue recognized, previously recorded as deferred revenue	$ 34	$ 102
Minimum
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction, period		3 months
Maximum
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction, period		6 months

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Basis of Presentation and Summary of Significant Accounting Policies - Recently Adopted Accounting Principles (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2018	Jul. 02, 2017	Jul. 01, 2018	Jul. 02, 2017
Disaggregation of Revenue [Line Items]
Revenue	$ 830	$ 662	$ 1,612	$ 1,261
United States
Disaggregation of Revenue [Line Items]
Revenue	445	374	861	699
Europe
Disaggregation of Revenue [Line Items]
Revenue	196	145	380	271
Greater China
Disaggregation of Revenue [Line Items]
Revenue	107	78	185	134
Asia-Pacific
Disaggregation of Revenue [Line Items]
Revenue	55	46	125	113
Other markets
Disaggregation of Revenue [Line Items]
Revenue	27	19	61	44
Sequencing
Disaggregation of Revenue [Line Items]
Revenue	690	550	1,321	1,045
Microarray
Disaggregation of Revenue [Line Items]
Revenue	140	112	291	216
Consumables
Disaggregation of Revenue [Line Items]
Revenue	540	402	1,045	788
Consumables | Sequencing
Disaggregation of Revenue [Line Items]
Revenue	455	338	873	656
Consumables | Microarray
Disaggregation of Revenue [Line Items]
Revenue	85	64	172	132
Instruments
Disaggregation of Revenue [Line Items]
Revenue	127	136	244	236
Instruments | Sequencing
Disaggregation of Revenue [Line Items]
Revenue	123	130	235	225
Instruments | Microarray
Disaggregation of Revenue [Line Items]
Revenue	4	6	9	11
Other products
Disaggregation of Revenue [Line Items]
Revenue	6	5	12	10
Other products | Sequencing
Disaggregation of Revenue [Line Items]
Revenue	6	5	11	9
Other products | Microarray
Disaggregation of Revenue [Line Items]
Revenue			1	1
Total product revenue
Disaggregation of Revenue [Line Items]
Revenue	673	543	1,301	1,034
Total product revenue | Sequencing
Disaggregation of Revenue [Line Items]
Revenue	584	473	1,119	890
Total product revenue | Microarray
Disaggregation of Revenue [Line Items]
Revenue	89	70	182	144
Service and other revenue
Disaggregation of Revenue [Line Items]
Revenue	157	119	311	227
Service and other revenue | Sequencing
Disaggregation of Revenue [Line Items]
Revenue	106	77	202	155
Service and other revenue | Microarray
Disaggregation of Revenue [Line Items]
Revenue	$ 51	$ 42	$ 109	$ 72

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Basis of Presentation and Summary of Significant Accounting Policies - Summary of Calculation of Weighted Average Shares used to Calculate Basic and Diluted Earnings Per Share (Details) - shares shares in Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2018	Jul. 02, 2017	Jul. 01, 2018	Jul. 02, 2017
Weighted average shares used to calculate basic and diluted earnings per share
Weighted average shares outstanding	147	146	147	146
Effect of potentially dilutive common shares from:
Equity awards	1	1	1	1
Weighted average shares used in calculating diluted earnings per share	148	147	148	147

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Balance Sheet Account Details - Summary of Short-term Investments (Details) - USD ($) $ in Millions	Jul. 01, 2018	Dec. 31, 2017
Available-for-sale debt securities:
Amortized Cost	$ 1,172	$ 923
Gross Unrealized Losses	(4)	(3)
Estimated Fair Value	1,168	920
Debt securities in government sponsored entities
Available-for-sale debt securities:
Amortized Cost	25	67
Gross Unrealized Losses
Estimated Fair Value	25	67
Corporate debt securities
Available-for-sale debt securities:
Amortized Cost	643	423
Gross Unrealized Losses	(1)	(2)
Estimated Fair Value	642	421
U.S. Treasury securities
Available-for-sale debt securities:
Amortized Cost	504	433
Gross Unrealized Losses	(3)	(1)
Estimated Fair Value	$ 501	$ 432

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Balance Sheet Account Details - Summary of Contractual Maturities of Available-for-sale Debt Securities (Details) - USD ($) $ in Millions	Jul. 01, 2018	Dec. 31, 2017
Estimated Fair Value
Due within one year	$ 525
After one but within five years	643
Total	$ 1,168	$ 920

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Balance Sheet Account Details - Narrative - Strategic Investments (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2018	Jul. 02, 2017	Jul. 01, 2018	Jul. 02, 2017	Dec. 31, 2017
Schedule of Investments [Line Items]
Commitment in new venture capital investment fund	$ 100		$ 100
Callable period			10 years
Remaining capital commitment	77		$ 77
Other Assets
Schedule of Investments [Line Items]
Strategic equity investments, without readily determinable fair values	263		263		$ 250
Equity method investments	21		21		$ 16
Investee
Schedule of Investments [Line Items]
Revenue from transactions with Company's cost-method investments in non-publicly traded companies	$ 36	$ 35	$ 72	$ 58

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Balance Sheet Account Details - Summary of Inventory (Details) - USD ($) $ in Millions	Jul. 01, 2018	Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Raw materials	$ 101	$ 93
Work in process	212	188
Finished goods	49	52
Total inventory	$ 362	$ 333

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Balance Sheet Account Details - Summary of Property and Equipment (Details) - USD ($) $ in Millions	Jul. 01, 2018	Dec. 31, 2017
Property, Plant and Equipment [Line Items]
Total property and equipment, gross	$ 1,512	$ 1,347
Accumulated depreciation	(476)	(416)
Total property and equipment, net	1,036	931
Leasehold improvements
Property, Plant and Equipment [Line Items]
Total property and equipment, gross	483	331
Machinery and equipment
Property, Plant and Equipment [Line Items]
Total property and equipment, gross	347	316
Computer hardware and software
Property, Plant and Equipment [Line Items]
Total property and equipment, gross	214	185
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Total property and equipment, gross	41	34
Buildings
Property, Plant and Equipment [Line Items]
Total property and equipment, gross	279	155
Construction in progress
Property, Plant and Equipment [Line Items]
Total property and equipment, gross	$ 148	$ 326

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Balance Sheet Account Details - Narrative - Property and Equipment (Details) - USD ($) $ in Millions	6 Months Ended
	Jul. 01, 2018	Jul. 02, 2017
Property, Plant and Equipment [Line Items]
Non-cash expenditures included in capital expenditures	$ 42	$ 94
Construction In Progress And Build to Suit Lease Liability
Property, Plant and Equipment [Line Items]
Non-cash expenditures included in capital expenditures	$ 16	$ 60

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Balance Sheet Account Details - Narrative - Intangible Assets and Goodwill (Details) - USD ($) $ in Millions		6 Months Ended
	May 14, 2018	Jul. 02, 2017
Finite-Lived Intangible Assets [Line Items]
Impairment of in-process research and development		$ 5
Cost of Sales
Finite-Lived Intangible Assets [Line Items]
Impairment of finite-lived intangible assets		$ 18
Edico Genome
Finite-Lived Intangible Assets [Line Items]
Cash consideration, net of cash acquired	$ 100
Goodwill, acquired during period	56
Developed technology | Edico Genome
Finite-Lived Intangible Assets [Line Items]
Intangible assets acquired	$ 45
Useful life	10 years
Trade Name | Edico Genome
Finite-Lived Intangible Assets [Line Items]
Intangible assets acquired	$ 1
Useful life	3 years

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Balance Sheet Account Details - Summary of Changes in Goodwill (Details) $ in Millions	6 Months Ended
	Jul. 01, 2018 USD ($)
Goodwill [Roll Forward]
Beginning balance	$ 771
Current period acquisitions	60
Ending balance	$ 831

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Balance Sheet Account Details - Narrative - Derivatives (Details) - USD ($) $ in Millions	Jul. 01, 2018	Dec. 31, 2017
Not Designated as Hedging Instrument | Foreign Exchange Forward
Derivative [Line Items]
Derivative, notional amount	$ 95	$ 88

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Balance Sheet Account Details - Summary of Accrued Liabilities (Details) - USD ($) $ in Millions	Jul. 01, 2018	Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Contract liabilities, current portion	$ 168	$ 150
Accrued compensation expenses	142	177
Accrued taxes payable	67	50
Other	45	55
Total accrued liabilities	$ 422	$ 432

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Balance Sheet Account Details - Narrative - Warranties (Details)	6 Months Ended
	Jul. 01, 2018
Instruments
Product Warranty Liability [Line Items]
Warranty period	1 year
Consumables | Minimum
Product Warranty Liability [Line Items]
Warranty period	6 months
Consumables | Maximum
Product Warranty Liability [Line Items]
Warranty period	12 months

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Balance Sheet Account Details - Summary of Changes in Reserve for Product Warranties (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2018	Jul. 02, 2017	Jul. 01, 2018	Jul. 02, 2017
Reserve for product warranties [Roll Forward]
Balance at beginning of period	$ 16	$ 12	$ 17	$ 13
Additions charged to cost of product revenue	6	7	12	11
Repairs and replacements	(7)	(5)	(14)	(10)
Balance at end of period	$ 15	$ 14	$ 15	$ 14

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Balance Sheet Account Details - Narrative - Investment in Consolidated Variable Interest Entities (Details) - USD ($) $ in Millions	6 Months Ended
	Jul. 01, 2018	Dec. 31, 2017	Jul. 02, 2017	Jan. 01, 2017	Jul. 31, 2015
Variable Interest Entity [Line Items]
Additional investment in exchange for voting equity interests	$ 100
Cash and cash equivalents	$ 1,344	$ 1,225	$ 1,219	$ 735
Helix Holdings I, LLC | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Equity ownership interest percentage	50.00%				50.00%
Ownership percentage by noncontrolling interest owners	50.00%
Cash and cash equivalents	$ 171

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Balance Sheet Account Details - Narrative - Deconsolidation of GRAIL, Inc. (Details) - USD ($) $ in Millions		2 Months Ended	6 Months Ended
	Feb. 28, 2017	Feb. 28, 2017	Jul. 02, 2017	Jul. 01, 2018	Dec. 31, 2017	Feb. 27, 2017
Variable Interest Entity [Line Items]
Gain on deconsolidation of GRAIL			$ 453
GRAIL, Inc.
Variable Interest Entity [Line Items]
Cost-method investment ownership percentage	19.00%	19.00%
Cost-method investment voting interest percentage	13.00%	13.00%
Gain on deconsolidation of GRAIL	$ 453
GRAIL, Inc. | Other Assets
Variable Interest Entity [Line Items]
Cost-method investments				$ 189	$ 185
Variable Interest Entity, Primary Beneficiary | GRAIL, Inc.
Variable Interest Entity [Line Items]
Equity ownership interest percentage						52.00%
Percentage of GRAIL's losses absorbed		50.00%

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Balance Sheet Account Details - Summary of Activity of Redeemable Noncontrolling Interests (Details) $ in Millions	6 Months Ended
	Jul. 01, 2018 USD ($)
Increase (Decrease) in Redeemable Noncontrolling Interests [Roll Forward]
Balance as of December 31, 2017	$ 220
Vesting of redeemable equity awards	1
Net loss attributable to noncontrolling interests	(17)
Adjustment up to the redemption value	13
Balance as of July 1, 2018	$ 217

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Fair Value Measurements - Summary of Hierarchy for Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Millions	Jul. 01, 2018	Dec. 31, 2017
Assets:
Available-for-sale securities	$ 1,168	$ 920
Debt securities in government sponsored entities
Assets:
Available-for-sale securities	25	67
Corporate debt securities
Assets:
Available-for-sale securities	642	421
U.S. Treasury securities
Assets:
Available-for-sale securities	501	432
Fair Value, Measurements, Recurring
Assets:
Deferred compensation plan assets	37	35
Total assets measured at fair value	2,220	1,912
Liabilities:
Deferred compensation liability	35	33
Fair Value, Measurements, Recurring | Debt securities in government sponsored entities
Assets:
Available-for-sale securities	25	67
Fair Value, Measurements, Recurring | Corporate debt securities
Assets:
Available-for-sale securities	642	421
Fair Value, Measurements, Recurring | U.S. Treasury securities
Assets:
Available-for-sale securities	501	432
Fair Value, Measurements, Recurring | Money market funds (cash equivalents)
Assets:
Money market funds (cash equivalents)	1,015	957
Fair Value, Measurements, Recurring | Level 1
Assets:
Total assets measured at fair value	1,516	1,389
Fair Value, Measurements, Recurring | Level 1 | U.S. Treasury securities
Assets:
Available-for-sale securities	501	432
Fair Value, Measurements, Recurring | Level 1 | Money market funds (cash equivalents)
Assets:
Money market funds (cash equivalents)	1,015	957
Fair Value, Measurements, Recurring | Level 2
Assets:
Deferred compensation plan assets	37	35
Total assets measured at fair value	704	523
Liabilities:
Deferred compensation liability	35	33
Fair Value, Measurements, Recurring | Level 2 | Debt securities in government sponsored entities
Assets:
Available-for-sale securities	25	67
Fair Value, Measurements, Recurring | Level 2 | Corporate debt securities
Assets:
Available-for-sale securities	$ 642	$ 421

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Debt and Other Commitments - Summary of Information about Equity and Liability Components of Convertible Senior Notes Outstanding (Details) - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Jul. 01, 2018	Dec. 31, 2017	Jun. 29, 2014
Debt Instrument [Line Items]
Obligations under financing leases	$ 254	$ 113
Other	4	4
Less: current portion	(625)	(10)
Long-term debt	723	1,182
Convertible Senior Notes
Debt Instrument [Line Items]
Unamortized discount of liability component of convertible senior notes	(60)	(75)
Net carrying amount of liability component of convertible senior notes	1,090	1,075
Carrying value of equity component, net of debt issuance cost	$ 161	$ 161
Weighted-average remaining amortization period of discount on the liability component of convertible senior notes	2 years 5 months	2 years 9 months
Level 2 | Convertible Senior Notes
Debt Instrument [Line Items]
Fair value of convertible senior notes outstanding (Level 2)	$ 1,427	$ 1,305
2019 Notes | Convertible Senior Notes
Debt Instrument [Line Items]
Principal amount of notes outstanding	633	633	$ 633
2021 Notes | Convertible Senior Notes
Debt Instrument [Line Items]
Principal amount of notes outstanding	$ 517	$ 517	$ 517

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Debt and Other Commitments - Narrative (Details) - Convertible Senior Notes $ / shares in Units, $ in Millions	1 Months Ended	6 Months Ended
	Jun. 29, 2014 USD ($) day $ / shares	Jul. 01, 2018 USD ($) $ / shares	Dec. 31, 2017 USD ($)
2019 Notes
Debt Instrument [Line Items]
Stated rate		0.00%
Principal amount of notes outstanding | $	$ 633	$ 633	$ 633
Effective interest rate used to measure fair value of converted notes upon conversion	2.90%
Conversion rate	0.0039318
Conversion price (in dollars per share) | $ / shares	$ 254.34	$ 254.34
Threshold note trading days	5
Threshold consecutive note trading days	10
Threshold percentage of note price trigger	98.00%
Threshold common stock trading days	20
Threshold consecutive common stock trading days	30
Threshold percentage of common stock price trigger	130.00%
2021 Notes
Debt Instrument [Line Items]
Stated rate		0.50%
Principal amount of notes outstanding | $	$ 517	$ 517	$ 517
Effective interest rate used to measure fair value of converted notes upon conversion	3.50%
Conversion rate	0.0039318
Conversion price (in dollars per share) | $ / shares	$ 254.34	$ 254.34
Threshold note trading days	5
Threshold consecutive note trading days	10
Threshold percentage of note price trigger	98.00%
Threshold common stock trading days	20
Threshold consecutive common stock trading days	30
Threshold percentage of common stock price trigger	130.00%
Convertible Senior Notes Due 2019 and 2021
Debt Instrument [Line Items]
If-converted value in excess of principal | $		$ 127

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Debt and Other Commitments - Build-to-suit leases Narrative (Details) - USD ($) $ in Millions	Jul. 01, 2018	Dec. 31, 2017
Debt Instrument [Line Items]
Build-to-suit lease liability	$ 21	$ 144
Build-to-suit lease, asset under construction	21	144
Obligations under financing leases	254	$ 113
Construction In Progress And Build to Suit Lease Liability
Debt Instrument [Line Items]
Obligations under financing leases	$ 142

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Share-based Compensation Expense - Summary of Share-based Compensation Expense for all Stock Awards (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2018	Jul. 02, 2017	Jul. 01, 2018	Jul. 02, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense before taxes	$ 50	$ 39	$ 98	$ 89
Related income tax benefits	(11)	(12)	(21)	(23)
Share-based compensation expense, net of taxes	39	27	77	66
Cost of product revenue
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense before taxes	4	3	8	6
Cost of service and other revenue
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense before taxes	1	1	2	1
Research and development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense before taxes	15	12	30	26
Selling, general and administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense before taxes	$ 30	$ 23	$ 58	$ 56

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Share-based Compensation Expense - Summary of Assumptions used to Estimate the Weighted-Average Fair Value Per Share for Stock Purchase under the Employee Stock Purchase Plan (Details) - Employee Stock	6 Months Ended
	Jul. 01, 2018 $ / shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility, minimum	29.00%
Expected volatility, maximum	39.00%
Expected dividends	0.00%
Weighted-average fair value per share (in dollars per share)	$ 58.09
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	1.22%
Expected term	6 months
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	1.89%
Expected term	1 year

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Share-based Compensation Expense - Narrative (Details) $ in Millions	6 Months Ended
	Jul. 01, 2018 USD ($)
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Unrecognized compensation cost related to stock options, restricted stock, and ESPP shares granted to date	$ 328
Weighted-average period of unrecognized compensation cost related to stock options, restricted stock, and ESPP shares granted to date	2 years 4 months

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Stockholders' Equity - Narrative (Details) shares in Millions	Jul. 01, 2018 shares
2015 Stock Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for issuance (in shares)	5.5

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Stockholders' Equity - Summary of Restricted Stock Activity and Related Information (Details) shares in Thousands	6 Months Ended
	Jul. 01, 2018 $ / shares shares
Restricted Stock Units (RSU)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding at period start (in shares) | shares	2,085
Awarded (in shares) | shares	60
Vested (in shares) | shares	(103)
Cancelled (in shares) | shares	(132)
Outstanding at period end (in shares) | shares	1,910
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Weighted-Average Grant Date Fair Value per Share, Outstanding at period start (in dollars per share) | $ / shares	$ 172.92
Weighted-Average Grant Date Fair Value per Share, Awarded (in dollars per share) | $ / shares	257.00
Weighted-Average Grant Date Fair Value per Share, Vested (in dollars per share) | $ / shares	159.10
Weighted-Average Grant Date Fair Value per Share, Cancelled (in dollars per share) | $ / shares	169.22
Weighted-Average Grant Date Fair Value per Share, Outstanding at period end (in dollars per share) | $ / shares	$ 176.56
Performance Stock Units (PSU)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding at period start (in shares) | shares	542
Awarded (in shares) | shares	172
Cancelled (in shares) | shares	(20)
Outstanding at period end (in shares) | shares	694
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Weighted-Average Grant Date Fair Value per Share, Outstanding at period start (in dollars per share) | $ / shares	$ 166.15
Weighted-Average Grant Date Fair Value per Share, Awarded (in dollars per share) | $ / shares	170.08
Weighted-Average Grant Date Fair Value per Share, Cancelled (in dollars per share) | $ / shares	163.78
Weighted-Average Grant Date Fair Value per Share, Outstanding at period end (in dollars per share) | $ / shares	$ 167.19

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Stockholders' Equity - Summary of Stock Option Activity Under all Stock Option Plans (Details) shares in Thousands	6 Months Ended
	Jul. 01, 2018 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Options, Outstanding at period start (in shares) | shares	322
Options, Exercised (in shares) | shares	(63)
Options, Outstanding at period end (in shares) | shares	259
Options, Exercisable (in shares) | shares	259
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Weighted-Average Exercise Price, Options, Outstanding at period start (in dollars per share) | $ / shares	$ 46.93
Weighted-Average Exercise Price, Options, Exercised (in dollars per share) | $ / shares	34.15
Weighted-Average Exercise Price, Options, Outstanding at period end (in dollars per share) | $ / shares	50.01
Weighted-Average Exercise Price, Options, Exercisable (in dollars per share) | $ / shares	$ 50.01

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Stockholders' Equity - Narrative - Employee Stock Purchase Plan (Details) - ESPP - Employee Stock shares in Millions	6 Months Ended
	Jul. 01, 2018 shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Specified percentage of the fair market value of the common stock on the first or last day of the offering period whichever is lower at which stock is purchased	85.00%
Total shares issued under the ESPP (in shares)	0.1
Shares available for issuance (in shares)	13.9

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Stockholders' Equity - Narrative - Share Repurchases (Details) - USD ($) shares in Millions, $ in Millions	6 Months Ended	12 Months Ended
	Jul. 02, 2017	Dec. 31, 2017	Jul. 01, 2018	May 01, 2018	May 04, 2017	Jul. 28, 2016
Class of Stock [Line Items]
Common stock repurchases	$ 101
Common Stock
Class of Stock [Line Items]
Dollar amount remaining in authorized stock repurchase program			$ 250
Common Stock | July 2016 Share Repurchase Plan
Class of Stock [Line Items]
Stock repurchase program, authorized amount						$ 250
Repurchase of common shares (in shares)		0.6
Common stock repurchases		$ 101
Common Stock | May 2017 Share Repurchase Plan
Class of Stock [Line Items]
Stock repurchase program, authorized amount					$ 250
Repurchase of common shares (in shares)		0.8
Common stock repurchases		$ 150
Common Stock | May 2018 Share Repurchase Plan
Class of Stock [Line Items]
Stock repurchase program, authorized amount				$ 150

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Income Taxes - Narrative (Details)	3 Months Ended	6 Months Ended
	Jul. 01, 2018	Jul. 01, 2018
Income Tax Disclosure [Abstract]
Effective tax rate	13.90%	12.30%

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Segment Information (Details) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2018 USD ($)	Jul. 02, 2017 USD ($)	Jul. 01, 2018 USD ($) segment	Jul. 02, 2017 USD ($)	Dec. 31, 2017 USD ($)
Segment Reporting Information [Line Items]
Number of reportable segments | segment			2
Consolidated revenue	$ 830	$ 662	$ 1,612	$ 1,261
Consolidated income from operations	227	143	445	195
Consolidated total assets	5,851		5,851		$ 5,257
Operating Segments | Core Illumina
Segment Reporting Information [Line Items]
Consolidated revenue	829	664	1,612	1,262
Consolidated income from operations	246	160	484	244
Consolidated total assets	5,760		5,760		5,223
Operating Segments | Consolidated VIEs
Segment Reporting Information [Line Items]
Consolidated revenue	3	2	6	3
Consolidated income from operations	(20)	(16)	(41)	(50)
Consolidated total assets	199		199		45
Elimination of intersegment
Segment Reporting Information [Line Items]
Consolidated revenue	(2)	(4)	(6)	(4)
Consolidated income from operations	1	$ (1)	2	$ 1
Consolidated total assets	$ (108)		$ (108)		$ (11)