(Reuters) - Suntech Power Holdings Co Ltd STP.N, the No.1 solar panel maker, slashed production capacity while smaller rival LDK Solar Co LDK.N said it has held talks with potential investors as the two Chinese firms struggle with a glut that has pummeled the industry.
Prices for solar panels have crashed in the last two years, erasing profits across the sector. Chinese firms face additional pressure from anti-dumping fights with the United States and Europe.
LDK on Monday reported a second-quarter loss nearly three times bigger than a year earlier, slashed its revenue outlook, and said it planned to raise new funds.
Suntech said it would cut solar cell capacity by 25 percent, through cutbacks at its Wuxi facility, near Shanghai, that would affect about 1,500 jobs. Most staff would be offered jobs at other plants but some would face severance, it said.
Suntech shares rose 8 percent on Monday on the New York Stock Exchange on news of the capacity reduction, although they are down 58 percent for the year.
The weak outlook sent LDK shares down 5 percent to an all-time low of $1.18 on Monday. The stock, which was listed on the New York Stock Exchange in 2007, has lost about three-quarters of its value in the last year.
LDK, which has already cut more than 5,000 jobs this year, said it laid off 3,884 more employees in the second quarter.
It said it planned no further substantial cuts but analysts questioned if it had done enough to stem the mounting losses.
"These guys are responding a bit, but they have to run even tighter ships to survive a 65-cent module environment," said Aaron Chew, analyst at Maxim Group.
After peaking at $4.20 a watt four years ago, prices for solar panels have dived 85 percent to about 65 cents in 2012.
A massive reduction in supply and also capacity is necessary to balance supply and demand in the solar market, Raymond James analyst Pavel Molchanov wrote in a note.
In addition to chronic oversupply, Chinese solar companies have been hit by anti-dumping tariffs in the United States and they face a similar action in Europe, their largest market.
"In light of the preliminary U.S. anti-dumping tariff, the European anti-dumping investigation, and oversupply of solar modules, we have decided to right-size our production capacity and continue to optimize our organization," Suntech CEO David King said.
Europe and the United States are objecting to billions of dollars in credit lines and other support that China has provided to its solar industry through state-run banks.
In July, the government of Xinyu city, in Jiangxi province, said it would use taxpayer funds to repay some of LDK's loans, but CEO Xiaofeng Peng said on a conference call with analysts the firm was still looking to raise funds.
"In the past few months we've had in-depth discussions with several companies and a few of them have shown a significant interest in taking a strategic investment position in the company," he said, adding that the company had not received any offer yet.
Suntech's cuts mean its operational solar cell capacity will temporarily be reduced to 1.8 gigawatts (GW) from about 2.4 GW, following the lead of other producers in cutting output.
First Solar Inc (FSLR.O) earlier this year cut output of its thin-film solar panels, while SunPower Corp SPRW.O shut down some production at its Philippines plant. A number of other players have been operating their plants at reduced rates.
Suntech said it was on track to reduce recurring operating costs by 20 percent in 2012. The company said it was targeting a return to positive operating cash flow in 2013.
"This is a necessary step they have to take just to keep their head above water, but it is not like it is transformational and will keep them afloat," said Maxim's Chew, who has a $0 price target on Suntech.
Suntech, which is facing an acute financing shortfall, said it was likely defrauded of 560 million euros ($690 million) by its partner in a jointly owned fund, raising questions about its ability to repay over half a billion dollars of debt due next March.
Editing by Sriraj Kalluvila and Rodney Joyce