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STR Holdings, Inc. (STRI), a worldwide leader in Solar Panel Encapsulation, believes that its largest customer First Solar, Inc. (FSLR - Analyst Report) will terminate its relationship with it. The company expects First Solar to begin the termination process in the first quarter of 2013 and end the long-lived relationship over the next few months.

The exact timing remains uncertain. Meanwhile, STR Holdings has hired UBS AG (UBS - Analyst Report) to review its strategic options.

Transactions with First Solar had enabled STR Holdings to generate revenues of $39.0 million during 2012. The loss of a long-standing customer would have a material negative affect on the company’s top and bottom line.

Though the adverse affect of losing First Solar cannot be avoided, the company is trying to compensate this loss in several ways. STR Holdings plans to stop its manufacturing operations at its East Windsor, Connecticut facility by the end of the first quarter of 2013. It is planning a strategy that will provide services to its customers in North America from its production facilities in Spain and Malaysia.

In the process of comprehensive review of its cost structure, the company intends to make significant headcount reductions throughout the organization. Also, the company is evaluating its long-lived assets for impairment, and thereby expects to incur significant restructuring charges in 2013.

Meanwhile, addition of three new customers in China would also compensate the loss incurred due to the annihilation of bond with First Solar to some extent.

STR Holdings is a global provider of high quality solar encapsulants to the photovoltaic module industry. The initiatives taken by the company would help it in minimizing the costs and maintain strong balance sheet. Of late, the company has been focusing on product innovation, making strategies for growth in Asia, taking cost reduction initiatives while maintaining its balance sheet. Going forward, this would prove to be beneficial for the company.

On the flip side, these positives would be offset by huge expenditure on research and development, severance charges incurred on closure of the facility and lowering average selling prices.

Like one other solar company, LDK Solar Co., Ltd. , STR Holdings also presently retains a short-term Zacks Rank #3 (Hold).

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