Memory chips: capping capex - FT.com Cutting edge is one thing, bleeding freely is another. SK Hynix's plan to reduce capital spending this year will be a relief not only to its investors, but also to its memory chipmaking rivals, who have just received another signal that the industry's habitual death-by-overcapacity game is still on hold. Pay attention at the back, this is a business school case study in the making. Put aside chipmakers" love of impenetrable acronyms and take the markets for D-Ram and NAND. Shipments of D-Ram - used in mobiles but more in PCs - rose 28 per cent, but prices dropped a tenth in the last quarter according to SK Hynix, the number two player. This is the older market of the two and the one that has suffered from multiple players and managers" belief that boosting market share will produce profits - leaving huge facilities at the mercy of demand. NAND meanwhile is benefiting from the surge in mobile devices. SK Hynix's sales of these chips rose by a fifth but average prices nudged up, too. This is a market with fewer players who appear to be subtly signalling via news about capacity cuts and capex culls (SK Hynix spent $3.5bn last year) that they don't want to risk bleeding. This is wise. Scenarios projected by Bernstein analysts - overinvestment in NAND, no new capacity and a base case of supply to meet demand - show industry operating margins down a third by 2015 and negative cumulative free cash flow of $7bn after $64bn on capex if D-Ram-like overinvestment takes place. Under the base case, investors pick up $12bn in free cash after $44bn on capex. Average chip prices fall between two- and three-fifths in any scenario. SK Hynix is not the purest NAND bet - it gets about a quarter of sales from the market. But all chipmakers will benefit if market-led growth is shown to trump market share battles.