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Why Foxconn-Vedanta divorce is not going to ruin India’s happy marriage with semicon

Explained: Why Foxconn-Vedanta divorce is not going to ruin India's happy marriage with semicon

While industry experts believe that Foxconn pulling out of its joint venture with Vedanta to set up India’s first semiconductor fabrication unit is a setback, it is a minor one. As IT Minister Rajeev Chandrasekhar pointed out, it does not hamper Semicon India in anyway

On Monday, Taiwan’s Foxconn announced its decision to back out of a $19.5 billion semiconductor joint venture with Indian conglomerate Vedanta, citing unspecified reasons.

Although this may seem like a massive setback for Prime Minister Narendra Modi’s chipmaking plans for India, it isn’t that big a setback and was something that many industry experts had anticipated. To allay any concerns that may arise of the JV not going forward, Union IT Minister of State, Rajeev Chandrasekhar, put out a tweet stating that Foxconn’s withdrawal from the JV will have no impact on India Semicon.

Why the JV did not go through
While Foxconn and Vedanta have not offered any explanations as to why the JV could not go through, industry experts have provided various explanations for the collapse of the partnership.

One factor was the fine imposed on Vedanta by SEBI for violating disclosure regulations. Vedanta had issued a press release suggesting a partnership with Foxconn for semiconductor manufacturing in India, whereas the deal was actually with Vedanta’s parent company.

The Indian government also raised concerns regarding Vedanta’s application for an incentive program aimed at promoting chip production. Officials in New Delhi questioned the accuracy of the cost estimates submitted to claim incentives from the government.

Furthermore, the involvement of European chipmaker STMicroelectronics as a technology partner posed another challenge. While STMicroelectronics had entered into a licensing agreement for certain technologies, the Indian government insisted that any participant in the joint venture must have a greater level of commitment and ownership in the partnership. Simple licensing arrangements were deemed inadequate.

Experts had anticipated that there would be major hiccups
Neither Vedanta nor Foxconn had any major chipmaking experience. Because of this, they had to license the tech to fabricate chips from some other company. Industry experts had anticipated that the involvement of a third partner would have been great. However, Foxconn and Vedanta’s agreement with STMicroelectronics was that of a licensing deal. This would have significantly skewed the financials of the deal going forward.

Considering all of this, experts had anticipated that unless third-party partners had a stake in the semiconductor fab in India, the JV between Foxconn and Vedanta would have had to face a number of hiccups.

What this means for Vedanta and Foxconn
The dissolution of the JV between Vedanta and Foxconn, while significant, does not mean to be a massive setback for either of them. Vedanta, for its part, is still adamant about setting up India’s first Semicon fabrication unit and has partnered up with other entities that would facilitate the setting up of the fabrication unit.

Meanwhile, Foxconn too, has diversified its portfolio. While it is known to assemble smartphones, mainly Apple’s iPhone, in the last couple of years, it has expanded to creating semiconductors and chips for other companies. If sources are to be believed, they plan on soon starting to design and package their chips.

Regardless of everything else, Foxconn will obviously continue with its main business in India, which is producing iPhones in India. For this, they will also be partnering up with several local players to set up new production lines and factories. For example, Foxconn’s upcoming Bengaluru factory will have a production capacity that can produce 7-10 per cent of total iPhones sold in a year, all over the world

Chip-making fab imminent in India
It is clear that a chip-making fabrication will be set up in India soon. India projects a semiconductor market value of $63 billion by 2026, and had received three applications last year from companies looking to establish semiconductor plants as part of a $10 billion incentive scheme.

These applications came from the Vedanta-Foxconn joint venture, IGSS Ventures based in Singapore, and a global consortium consisting of ISMC and Tower Semiconductors.

Furthermore, India has issued a fresh call for applications from companies interested in participating in the incentive scheme.

In addition to these developments, Micron recently announced its intention to invest up to $825 million in a chip testing and packaging unit, rather than manufacturing facilities. With support from both the Indian federal government and the state of Gujarat, the total investment is expected to reach $2.75 billion.

TSMC, the Taiwanese semiconductor giant, is actively considering the establishment of a chip fabrication factory in India. The company is engaged in discussions with various government agencies to assess the feasibility of setting up operations in the country.

TSMC already maintains one of its largest offices outside Taiwan in Bengaluru, Karnataka, where it offers support to its customers across Asia, Europe, and North America. Additionally, it promotes the growth and development of fabless companies in India through its presence.

In addition to TSMC, Powerchip Semiconductor Manufacturing Corporation, another Taiwanese chipmaker, is reportedly engaged in preliminary discussions with multiple Indian companies to assist in establishing chip operations in India. This announcement from the memory chip manufacturer comes after six months of speculation regarding its plans to invest in India and diversify its operations, despite the increasing geopolitical tensions involving Taiwan.

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