Has India's chip manufacturing blueprint suffered a heavy setback?, Foxconn exits $19.5 billion joint venture company | Foxconn | Manufacturing

After less than two years of official announcement of cooperation, Foxconn has decided not to advance its semiconductor joint venture with the Indian mining and industrial group Vedanta Group.

On the evening of July 10th, Foxconn's parent company, Hon Hai Precision Industries Co., Ltd., announced its "breakup" with Vedanta Group, stating that over the past year, Hon Hai and Vedanta Group have been working together to realize their common semiconductor concept in India. This is a fruitful cooperation experience and also lays a solid foundation for both sides to take the next step. In order to explore more diverse development opportunities, according to the agreement between both parties, Hon Hai will no longer participate in the joint venture operation of both parties in the future.

In its announcement, Hon Hai stated that the joint venture company will be fully owned by Vedanta Group in the future. Hon Hai has no affiliation with the joint venture legal entity of the company and has officially notified Vedanta Group to remove the name of Hon Hai from the joint venture company to avoid confusion with the respective stakeholders of both parties in the future. Vedanta Group has also issued a statement that it has taken over ownership of the joint venture with Hon Hai through its holding company.

Hon Hai stated in its announcement that it will continue to strongly support the Indian government's "Made in India" vision, establish more diverse and stakeholder friendly partnerships locally, and remain confident in the direction of semiconductor development in India.

Taiwanese media reports lack of technical partners

From the above announcement, it can be seen that Hon Hai did not disclose the specific reasons for withdrawing from the joint venture, and the wording used was "to explore more diverse development opportunities.". Reuters cited sources familiar with the matter as saying that the progress of the joint venture factory's plan is slow, and Hon Hai's withdrawal is due to concerns about India's delayed approval of incentive measures.

According to Taiwanese media reports, the progress of the joint venture company has been slow due to a lack of technical partners, and the application for rewards and subsidies has also been requested by the Indian government to resubmit under new evaluation conditions. Earlier, informed sources stated that Hon Hai would no longer submit semiconductor production plans and reward applications under the name of a joint venture with Vedanta Group. However, Vedanta Group soon told Indian media that the joint venture had resubmitted its application. Vedanta Group was fined 3 million rupees by the Securities and Exchange Commission of India for releasing misleading information on semiconductor manufacturing plans related to Hon Hai.

It is reported that in December 2021, the Indian government announced the approval of a $10 billion incentive plan to provide financial support of up to 50% of project costs to eligible display and semiconductor manufacturers, in order to attract semiconductor and display manufacturers and build India into a global electronic product production center. The joint venture between Foxconn and Vedanta was established in this context. Indian Prime Minister Modi commented at the time that this was an "important step" in driving India's ambition in chip manufacturing.

Under the aforementioned $10 billion incentive plan, in addition to attracting Foxconn, India has also attracted Singapore's IGSS company and Tower Semiconductor's partner ISMC consortium. Apart from Foxconn's withdrawal from the joint venture, the progress of the other two companies in India is also not smooth.

According to sources cited by Reuters, Israeli chip manufacturer Tower is in the process of being acquired by Intel, and its joint venture ISMC's plan to build a $3 billion semiconductor factory in India has come to a halt; IGSS's $3 billion has been suspended due to its desire to resubmit its application.

The Setbacks of India's Semiconductor Dream

The Wall Street Journal reported that the impact of Foxconn's withdrawal on Indian chip manufacturing is a setback for India's new plan to become a semiconductor manufacturing center. However, officials from the Indian Ministry of Science and Technology have stated on social media that the dissolution of the joint venture will not affect the country's chip manufacturing plans. Vedanta has revealed that it has obtained a license from a well-known chip manufacturer to use this technology to manufacture larger and more mature chips.

The Wall Street Journal reported that India has no experience in chip manufacturing, and experts were quoted as saying that a major obstacle faced by joint ventures from the beginning was that both companies were newcomers in the semiconductor field. "Both players are newcomers and have not manufactured chips before." Neil Shah, Vice President of Research at Counterpoint Research, believes that India's incentive plan should focus on well-known and experienced semiconductor companies.

In February 2022, Foxconn announced a partnership with Vedanta to establish a chip company. The joint venture is worth $19.5 billion and was originally planned to produce semiconductor and display components. The factory is located in Gujarat, the hometown of Indian Prime Minister Modi, and may begin operations around 2025. As a technology partner, Foxconn will invest $118.7 million and hold a 40% stake in the joint venture. Vedanta will provide necessary funding for the joint venture project.

It is worth noting that during Modi's visit to the United States in June, he also reached an investment agreement with American chip storage company Micron. Micron will invest $825 million to build its first assembly and testing factory in India, which is expected to start operation by the end of 2024. Chip equipment manufacturer AMAT will also invest $400 million to build an engineering center in India.

The Wall Street Journal once pointed out that India is working hard to attract more semiconductor investment. According to Micron, including financial support from the Indian government and the government of Gujarat, the total investment will reach $2.75 billion, which means that the Indian government has made a big move. The report suggests that in order for businesses to continue investing, India needs to upgrade its infrastructure and create a better business environment. The increasing protectionism in the field of software technology may cause foreign companies to hesitate.

Although Foxconn has withdrawn from the joint venture, it has other factories in India. According to a report from Reuters cited by Global Times on November 15, 2022, Foxconn opened a factory in Tamil Nadu, southern India in 2019 and has been increasing its production capacity. Starting from 2022, Foxconn's India factory will begin producing the iPhone 14, which is a significant advancement for India's smartphone foundry industry. Sources say that Foxconn plans to increase the number of employees at its southern Indian factory by 53000 to 70000 in the next two years.

Hon Hai has not yet officially released its second quarter financial report. Based on the previous revenue summary, the company's second quarter revenue was NT $1.3 trillion, a decrease of 10.94% compared to the previous period and 13.75% year-on-year, which is in line with previous expectations. Hon Hai stated that based on the current peak season in the second half of the year, operations will gradually warm up, and the third quarter will grow compared to the second quarter. It is expected that the quarterly increase in the third quarter will be slightly higher than the level of the previous two years; If compared to before the epidemic, it is roughly equivalent.