STR Holdings pinning business recovery on PID solutions

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Encapsulant supplier STR Holdings is pinning hopes for a recovery in sales on a range of new potential induced degradation (PID) products having taken a hit last year with the loss of its largest customer First Solar.

Last week, STR reported fourth quarter revenue of US$16.1 million, down 56% year-over-year and 30% from the previous quarter when sales were US$23.1 million.

The significant revenue decline was primarily due to volume shipments declining by approximately 43%, and an ASP decline in 2012 of 23%.

Management attributed sales to First Solar in 2012 of around US$39 million, but due to the notification in January, 2013 that it had lost the account, STR said that it only expected around US$2.5 million to US$3.5 million in sales for the thin film leader in 2013, which is expected to be in the early part of the year.

Sales are expected to decline even further in the first quarter of 2013 as the company guided sales in the range of US$9 million to US$10 million.

Restructuring

STR announced a drastic restructuring plan after losing First Solar’s business at the beginning of the year. The company stopped production at its facility at East Windsor, Connecticut and reduced its headcount by approximately 160, with the majority of its restructuring having already been completed in the first quarter of 2013, according to the company.

Asia shift

To further reduce manufacturing costs and meet expected demand for its range of new products to be launched in 2013, STR said that it would establish an encapsulant material manufacturing facility in China and expected the leased building to be operational in the third quarter of 2013.

Management said in a call to discuss financial results that the facility would have an initial capacity of 1GW and would require approximately US$2 million of new capital spending, compared to approximately US$15 million for a new build facility. Initial emphasis will be on the roll-out of its next-generation EVA-based products launch.

PID protection product focus

Management highlighted in the call that business recovery was being pinned on new product introductions that have been in the R&D phase for over a year and that renewed focus on development efforts with a boosted R&D team and new facilities would result in both product cycle-times and performance being improved.

Traditional encapsulant formulations have had their chemistries tweeked to enhance light transmission, volume resistivity, curing properties and provide protection against PID resistance, STR said.

Overall, the aim with legacy products is to make them more cost competitive with rivals that have eroded STR’s market share in recent years. Key to the cost reduction strategy is the tweaked chemistries that enable the company to offer these products in a paperless packaged format, something rivals have been focusing on for some time.

Management noted that it expected approximately 40% of its sales encapsulant material sales in 2013 would be paperless-based, compared to only 1% in 2012.  

Related to new product initiatives is the drive to offer PID protection. STR said in the call that it had recently carried-out internal damp heat testing (3,000 hours), both of its planned formula’s as well as unidentified rivals encapsulant offerings.

Slides were produced to highlight the electroluminescent inspected affects of the damp heat tests that indicate STR’s good performance in most of the tests.

New orders

STR finally shipped products to two new China-based PV manufacturers in the fourth quarter, after touting gaining traction in evaluations that have lasted over a year, yet the overcapacity situation meant a slowdown in customers making new selection choices other than simply on price.

Management noted that it expected to recognise revenue from these new orders sometime in 2013 due to the shipment terms of the supply agreements, which could support revenue of approximately US$8 million this year. The company also noted that that it had received its first orders for the same encapsulant from an unidentified European-based PV manufacturer.

However, broadening the PV product offering was said to be key to its business recovery.

“While we continue to believe that EVA will remain the predominant solar encapsulant material, our POE does offer potential performance advantages for certain module designs,” noted Robert Yorgensen, chief executive. “As such, we intend to offer a diversified product portfolio to meet evolving technical requirements for solar panel encapsulation.”

However, the company is still facing a tough business environment, not least without First Solar as a key customer. Management reiterated in the call that it continued to seek strategic options for the company that could include its sale or merger. 

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