Foxconn exits US$20 billion Indian semiconductor joint venture, slowing country's global chip hub march

Electronic components giant Foxconn Technologies, best known for assembling iPhones and other Apple products, on Monday announced it was withdrawing from a multibillion-dollar semiconductor joint venture with a Mumbai-based metals and mining conglomerate, dealing a blow to India's microchip manufacturing ambitions.

The blockbuster US$20 billion partnership with Vedanta Ltd came together last year in a bid to manufacture semiconductors in Indian Prime Minister Narendra Modi's home state of Gujarat. The proposed semiconductor fabrication plant sought initially to produce some 40,000 40-nanometre chips per month for mobile phones, consumer electronics, automotives and network equipment.

On Monday, Taiwan-headquartered Foxconn said in a statement that it had "worked hard" with Vedanta for over a year "to bring a great semiconductor idea to reality".

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But now the multinational had decided to explore "more diverse development opportunities", it said, and had "determined not to move forward on the joint venture with Vedanta", adding that the project was now a fully owned entity of the company.

Though Foxconn did not disclose a reason for its exit, Rajeev Chandrasekahar, an Indian minister for entrepreneurship, skill development, electronics and technology, said via Twitter that as both companies lacked experience in semiconductor technology, it was expected they would source fab tech from a tech partner.

The Vedanta-Foxconn venture had originally submitted a proposal for a 28nm fab, Chandrasekahar tweeted, but the two could not source an appropriate tech partner.

More recently Vedanta had submitted a 40nm fab proposal "backed by [a] tech licensing agreement" from a major global semiconductor company that was "currently being evaluated", he added.

Chandrasekahar believed Foxconn's decision would have "no impact on India's semiconductor fab goals".

Last year the Modi government raised questions over an application submitted by the Foxconn-Vedanta venture seeking federal funds under a US$10 billion incentive scheme, Reuters reported.

Arun Mampazhy, a semiconductor analyst, said it was less surprising that the venture had fallen through and more "that it survived for more than 15 months". To qualify for federal and state incentives, "there has to be either a partnership with or a production-grade license from a high-volume chip fab", he added.

"Foxconn does not qualify as one," said Mampazhy.

Amid the setback, Vedanta on Monday pledged its commitment to establishing a semiconductor fab in India, saying it would "redouble its efforts to fulfil" Modi's "vision" for semiconductors.

"We have lined up other partners to set up India's first foundry. We will continue to grow our semiconductor team," the company said in a statement on Monday.

Vedanta had already secured a license for production-grade technology for 40nm chips "from a prominent integrated device manufacturer", it said, adding: "We will shortly acquire a license for production-grade 28nm as well".

Mampazhy said Vedanta's claim of now owning a license for 40nm technology from a high-volume chip fab "rumoured to be STMicroelectronics" - a Dutch multinational company - meant it could still win approval for government incentives "if the project cost quoted by Vedanta and the equity structure with the technology provider as well as any new business partners" were vetted by an Indian government advisory group.

Calling for a "patient, measured and circumspect" approach given the "very complex nature of semiconductor manufacturing", India's communications minister Ashwini Vaishnaw in April said the country was working to "ensure a robust ecosystem" to become a major global hub in semiconductor manufacturing over the next 10 years.

India, the world's fifth-largest economy, forecast its semiconductor market to be worth US$63 billion by 2026 under Modi's "Make-in-India" scheme as American firms like Apple look to diversify their supply chains away from China.

Last year, Beijing's stringent Covid-19 restrictions led to an exodus of workers at Foxconn's largest assembly line in the world in Zhengzhou, China. Bloomberg reported that Apple had lost in production about 6 million iPhone units due to the disruption.

Foxconn, which is building other factories for Apple products in the Indian city of Bangalore as well as the state of Telangana, said on Monday it would continue to "establish a diversity of local partnerships that meet the needs of stakeholders".

American companies are also trying to avoid any potential impact on their business from rising tensions between the US and China over Taiwan, a self-ruled island that Beijing claims sovereignty over and aims to reunite with the mainland, by force if necessary.

Meanwhile, the great-power rivalry has helped New Delhi lure new investors.

In May, US President Joe Biden and Modi hailed the signing of a memo of understanding relating to semiconductor supply chain and innovation partnership as the two countries coordinate semiconductor incentive programmes.

American memory chip giant Micron Technology, which Beijing in May banned from critical infrastructure projects to "safeguard national security", has already announced plans to invest up to US$825 million to build a new semiconductor assembly and test facility in India.

Separately, Lam Research, an American provider of wafer fabrication equipment and services to the semiconductor industry, has proposed to train 60,000 Indian engineers.

And US-based semiconductor manufacturer Applied Materials has pledged to invest US$400 million to establish a collaborative engineering centre in India.

India's quest to ascend the semiconductor food chain could be undermined by a scarcity of workers with skills and experience "specific to the semiconductor industry", according to A2 Global, a Florida-based electronics and supply chains solutions company.

In a blog entry published in May, A2 cited "complex and opaque" regulations in India as well as hurdles in accessing required financing among several challenges in the South Asian country.

"India is nowhere close to China when it comes to a strong industrial base, especially for sophisticated hardware manufacturers such as semiconductors," Anu Anwar of Harvard University's John K. Fairbank Centre for Chinese Studies told American media outlet The Wire China.

India's infrastructure was "a few decades behind [that of] China, and the business environment is a nightmare", Anwar said.

Monday's joint venture news will not have a "significant and long-term impact" on India's semiconductor ambitions because both Foxconn and Vedanta lacked prior experience, according to Aadil Brar, a visiting scholar at National Chengchi University in Taipei. In all the other deals announced during Modi's recent visit to Washington, at least one company has chips experience like Micron, he noted.

But Brar said the failed venture showcased "the difficulties of setting up a complex industry" like a semiconductor fab initiative.

"The failure of the Foxconn-Vedanta joint venture will raise doubts about Micron's plans to set up a fab in India," he added.

Micron has a long history in manufacturing semiconductors with knowledge of the semiconductor ecosystem from design to fabrication plants, he said, describing its deal in India as "on more solid footing - at least for now".

This article originally appeared on the South China Morning Post (SCMP).

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