It's too bad you can't spell "ugly" with the four single-letter codes for the bases that make up the sequence of DNA, because that was exactly what Illumina 's (Nasdaq: ILMN) earnings release yesterday was. U-G-L-Y! The only question is whether the ugly runs all the way through or whether there might be some beauty under the surface.

Revenue rose by 5% year over year, but for a company that has grown revenue by more than 50% annually over the past five years, that measly below-guidance increase just isn't going to cut it.

It continues to be a tale of two business segments for Illumina, with sales from the consumables used in its sequencing machines more than doubling, while its array business remains down considerably. Consumers are waiting to begin new projects because they're expecting next-generation array products that will be able to test 5 million genetic variations using data from the 1,000 Genomes Project. To spur things along, Illumina is planning on launching new chips as the data becomes available from the 1,000 Genomes Project and will offer supplemental chips as more data becomes available.

Despite the strong showing, the sequencing products weren't without their own issues this quarter. A manufacturing problem, which has been resolved, resulted in a loss of $6 million to $8 million in revenue in the third quarter and could negatively affect revenue by as much as $15 million in the fourth quarter, as the company replaces defective reagents.

Despite the ugly quarter, I do think there's some beauty under the surface. Illumina wasn't willing to pin down when stimulus money from grants through the National Institute of Health will come in -- Waters (NYSE: WAT) said it expects to start seeing money in the fourth quarter -- but the important thing is that Illumina will eventually see a benefit from the long-awaited stimulus.

Most importantly, the company continues to sell more sequencers -- a record number for the quarter -- and believes that it has more than 50% of the market, handily beating competitors Roche and Life Technologies (Nasdaq: LIFE). Like other companies with razor-and-bladebusiness models -- Intuitive Surgical (Nasdaq: ISRG), Hewlett-Packard (NYSE: HPQ), and, of course, Procter & Gamble 's (NYSE: PG) Gillette -- the installed base of systems will drive the sales of consumables in future quarters.

Assuming, of course, that the company doesn't run into any other manufacturing issues.

This article was originally published as Ugly, but Still Built for Growthon Fool.com

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