ILLUMINA INC

Strategic Investments

Marketable Equity Securities

Our short-term investments consist of marketable equity securities. As of March 30, 2025 and December 29, 2024, the fair value of our marketable equity securities totaled $124 million and $93 million, respectively.

Gains recognized in other income, net on marketable equity securities were as follows:

Non-Marketable Equity Securities

As of March 30, 2025 and December 29, 2024, non-marketable equity securities, without readily determinable fair values, included in other assets, were $46 million and $26 million, respectively.

Venture Funds

We invest inthree venture capital investment funds (the Funds), which are accounted for as equity-method investments. The aggregate carrying amount of the Funds, included in other assets, was $205 million and $201 million as of March 30, 2025 and December 29, 2024, respectively. We recorded net gains of $2 million and $6 million in Q1 2025 and Q1 2024, respectively, in other income, net.

Our commitments to the Funds are as follows:

(1)Fund I also had recallable distributions of approximately $10 million.

Revenue recognized from transactions with our strategic investees was immaterial for both Q1 2025 and Q1 2024.

Fair Value Measurements

The following table presents the hierarchy for assets and liabilities measured at fair value on a recurring basis:

Marketable equity securities are measured at fair value based on quoted trade prices in active markets. Other investments, included in other assets, consist of convertible notes, for which we elected the fair value option. Fair value is derived using a probability-weighted scenario approach. Changes in fair value are recognized in other income, net. 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 corroborate the fair value of our holdings, comparing valuations obtained from our investment service provider to valuations reported by our asset custodians, validating pricing sources and models, and reviewing key model inputs.

Contingent Consideration Liabilities

We reassess the fair value of contingent consideration related to acquisitions on a quarterly basis, with changes in the fair value, subsequent to the acquisition date, recognized in selling, general and administrative expense.

Changes in the estimated fair value of our contingent consideration liabilities during Q1 2025 were as follows:

The fair value of our contingent consideration liability related to GRAIL was $61 million and $71 million as of March 30, 2025 and December 29, 2024, respectively, of which $59 million and $70 million, respectively, was included in other long-term liabilities, with the remaining balances included in accrued liabilities. The contingent value rights issued as part of the GRAIL acquisition entitle the holders to receive future cash payments on a quarterly basis (Covered Revenue Payments) representing a pro rata portion of certain GRAIL-related revenues (Covered Revenues) each year for a 12-year period (through August 2033). As defined in the Contingent Value Rights Agreement, this will reflect a 2.5% payment right to the first $1 billion of revenue each year for 12 years. Revenue above $1 billion each year will be subject to a 9% contingent payment right during this same period. Covered Revenues for the periods Q4 2024 and Q4 2023 were $38 million and $30 million, respectively, driven primarily by sales of GRAIL’s Galleri test. Covered Revenue Payments relating to such periods were $360,000 and $284,000, respectively, which were paid in Q1 2025 and Q1 2024, respectively.

We use a Monte Carlo simulation to estimate the fair value of our GRAIL contingent consideration. Estimates and assumptions used in the Monte Carlo simulation include forecasted revenues for GRAIL, a revenue risk premium, a revenue volatility estimate, an operational leverage ratio and a counterparty credit spread. These unobservable inputs represent a Level 3 measurement because they are supported by little or no market activity and reflect our own assumptions in measuring fair value. Subsequent to the GRAIL Spin-Off, we no longer have access to GRAIL management’s forecasts. Therefore, we rely on information made public by GRAIL and information published in analyst reports to estimate forecasted revenues through August 2033. To estimate the liability as of March 30, 2025, we selected a revenue risk premium of 5%, derived from reconciling our forecasted revenues for GRAIL to GRAIL’s market capitalization based on a 10-day trailing average. We used a 10-day trailing average in Q1 2025, instead of a 60-day trailing average as used in prior periods, given the volatility in GRAIL’s market capitalization at the beginning of Q1 2025.

The assumptions used in estimating the fair value of our contingent consideration liability related to GRAIL are inherently subject to uncertainty and we note that small changes in these assumptions could have a significant impact on the concluded value. For example, an increase or decrease of 20%, in each year, to the forecasted revenues would have resulted in an increase and a decrease, respectively, of $15 million in the liability as of March 30, 2025. Additionally, an increase or decrease of 250 basis points to the selected revenue risk premium would have resulted in a decrease of $10 million and an increase of $13 million, respectively. We expect certain levels of volatility in the GRAIL contingent consideration liability are possible in future periods.