ILMN vs. AFFX

While not as famous as the Coca-Cola/Pepsi war, the battle between Illumina (ILMN) and Affymetrix (AFFX) is just as intense. The two companies are operating in the lucrative field of biotech and life sciences. As such, their main products are targeted at genetic analysis and genotyping. I won't go into much detail about the exact process used in their equipment (for lack of qualification), but I will say that the genotyping tools will lead to major breakthroughs in gene therapy. The question is: which company to invest in? According to experts, ILMN has the better technology, which allows to use wax samples (most research labs have slides since the 70s), unlike AFFX, which uses live tissue for analysis. Recently, the market has reflected the sentiment by letting ILMN quadruple in the last year, while AFFX has lost almost half its market cap. Although I hold ILMN since it was at $16.80 (now at $25.60), I think I will switch to the inferior AFFX. My reason for this is that the contracts that these companies sign have extremely high switching costs, and thus universities and biotech companies can't just drop AFFX for ILMN. By the time the contracts expire, I bet AFFX will counter with an improved product. As well, AFFX remains the more profitable of the two, with forward P/E of 40 and a P/S of 5.62. ILMN on the other hand has no profits and trades at a forward P/E of 44 and a 14.35 P/S. Given these reasons, my bet is that the two will converge, as ILMN adjusts down and AFFX trades up.