Foxconn dumps $19.5 bn Vedanta Chip Venture, dealing a blow to India’s semiconductor plans

KATHMANDU: In a significant setback to India’s ambitions of becoming a major player in chipmaking, Taiwanese electronics giant Foxconn has announced its withdrawal from a high-profile $19.5 billion semiconductor joint venture with Indian conglomerate Vedanta. This decision deals a blow to Prime Minister Narendra Modi’s vision of establishing India as a hub for chip manufacturing.

The collaboration between Foxconn, the world’s largest contract electronics manufacturer, and Vedanta aimed to set up cutting-edge semiconductor and display production plants in Gujarat, Modi’s home state.

However, Foxconn’s statement regarding the termination of the joint venture provided no specific reasons for the withdrawal, except to state that the decision was reached mutually after a year-long effort to materialize their shared semiconductor idea.

Vedanta, undeterred by the setback, expressed full commitment to its semiconductor project and revealed that it has already lined up alternative partners to establish India’s first foundry.

The company emphasized its determination to realize Prime Minister Modi’s vision of bolstering the nation’s chipmaking capabilities. However, a source familiar with the matter pointed out that concerns over delays in obtaining incentives from the Indian government played a role in Foxconn’s decision.

The government also raised questions regarding cost estimates provided to request incentives, adding to the challenges faced by the joint venture.

Prime Minister Modi had prioritized chipmaking as a key element of India’s economic strategy, aiming to usher in a new era of electronics manufacturing. The collapse of this deal deals a significant blow to the “Make in India” initiative, which sought to attract foreign investors to produce chips domestically for the first time.

Industry experts, such as Neil Shah, Vice President of research at Counterpoint, view this development as a setback that raises doubts about the viability of other companies partnering with Vedanta and participating in India’s chipmaking plans.

Responding to Foxconn’s withdrawal, Deputy IT Minister Rajeev Chandrasekhar sought to downplay the impact, asserting that the decision had no bearing on India’s chipmaking plans.

He emphasized that both Foxconn and Vedanta remained valued investors in the country, indicating that it was not the government’s role to intervene in private companies’ partnership decisions.

Foxconn, renowned for its assembly of Apple products, has been diversifying its business by expanding into the chip sector. While chip production is currently concentrated in a few countries, such as Taiwan, India’s entry into the market has been relatively late.

Last September, the Vedanta-Foxconn joint venture announced its ambitious chipmaking plans in Gujarat, with Prime Minister Modi hailing it as a significant step towards realizing India’s chipmaking aspirations.

The joint venture encountered various obstacles, including protracted negotiations with European chipmaker STMicroelectronics to join as a tech partner, as reported by Reuters.

While STMicro was willing to license its technology, the Indian government desired a more substantial involvement from the European company, such as a stake in the partnership. Due to these differences, the talks remained deadlocked.

Despite the challenges faced by the Vedanta-Foxconn project, the Indian government remains optimistic about attracting investors to the chipmaking sector. Recently, Micron announced its investment of up to $825 million in a chip testing and packaging unit, signaling confidence in India’s potential.

The government, along with the state of Gujarat, is actively supporting the project, resulting in a total investment of $2.75 billion.

With India projecting its semiconductor market to reach $63 billion by 2026, the country received three applications last year under a $10 billion incentive scheme aimed at establishing chip manufacturing plants.

These applications came from the Vedanta-Foxconn joint venture, Singapore-based IGSS Ventures, and global consortium ISMC, which counts Tower Semiconductor as a tech partner. However, the ISMC project has stalled due to Tower’s acquisition by Intel, while IGSS’s $3 billion plan was put on hold for application resubmission.

India has since re-invited applications for the incentive scheme, maintaining its determination to attract investments and drive the growth of its chipmaking industry.

Reported by Munsif Vengattil in Bengaluru, Ben Blanchard in Taipei, Aditya Kalra in New Delhi; Additional reporting by Rishika Sadam; Editing by David Goodman and Alexander Smith. Agencies