First Solar hits the mainstream with S&P 500 listing

First Solar has become the first pure-play renewable energy company to make it to the Standard & Poor 500 Index, despite on-going concerns that the solar energy sector will struggle to maintain current growth rates.

The firm last week joined the S&P 500 GICS (Global Industry Classification Standard) Electrical Components and Equipment Sub-Industry of the Industrials Sector. While other suppliers that manufacture renewable energy equipment such as General Electric are already on the list, First Solar is touting itself as the first pure play renewable energy firm to make the high-profile index, and has hailed the move as "a milestone for the solar industry".

Although the recession has caused its stock price to drop, First Solar has consistently exceeded revenue and earnings expectations, reporting that sales more than doubled last year to more than $1.2 billion (£0.73bn).

The company has also continued to reduce the average price of its solar panels, announcing earlier this year that it had broken the $1 per Watt mark for production costs.

The listing comes just weeks after the company hired Rob Gillette, former head of Honeywell's $11 billion aerospace division, to become its new chief executive.

But according to Reuters, concerns remain among some market analysts that the supplier – as well as rivals such as China's Suntech Power Holdings Co Ltd and California's SunPower Corp – could be using overly aggressive accounting methods to support their earnings growth.

The worry is that their respective cash flows are starting to lag behind profit levels because they are failing to collect on revenues. This scenario means that it may not be possible to sustain current earnings growth into the long term.

While Suntech and SunPower refused to comment on the situation as they are due to release their financial results in the next few weeks, First Solar attributed its lag in cash flow for the first and second quarters of 2009 - which amounted to $101 million and $158 million (£61.5m and £96m) respectively - to several factors.

It told the news agency that during the first quarter it stretched payment terms from 10 days to 45 days, bringing it more in line with the industry standard, while shipping times to Germany from its Malaysian factory were also longer than usual. The impact of this situation was fully felt in the second quarter and resulted in an additional $93 million (£56.7m) going on its books in terms of revenues owed by customers.

In addition, First Solar indicated that product shipment was not spread evenly throughout the second quarter, but was focused at the end, which increased the amount of solar panels held in its inventory.

The company was first set up in the mid-1980s, but initially struggled to commercialise its cadmium telluride solar modules, which are cheaper to produce than traditional crystalline silicon cells, although they are said to be somewhat less efficient.

By the early 2000s, however, the firm had successfully commercialised the technique and filed for an initial public offering in November 2006. The shares were issued at $20 (£12) each, but hit $200 (£121) within a year.