Foxconn-Vedanta deal breakup brings out government’s dilemma

In a setback to Prime Minister Narendra Modi’s ambitious chipmaking plans for India, Taiwanese electronics manufacturer Foxconn has announced its withdrawal from a $19.5 billion semiconductor joint venture with Indian conglomerate Vedanta. The joint venture aimed to establish semiconductor and display production plants in Gujarat, Modi’s home state.

Foxconn, the world’s largest contract electronics maker, had signed a pact with Vedanta last year to bring the project to fruition. However, the company has decided not to move forward with the joint venture, as stated in a press release without providing specific reasons. It confirmed that the decision was made mutually, and Foxconn’s name will be removed from the entity, which is now fully owned by Vedanta.

Vedanta, on the other hand, expressed its unwavering commitment to the semiconductor project and claimed to have secured alternative partners to establish India’s first foundry. It emphasized its determination to fulfill Modi’s vision and Make in India program. A source familiar with the matter mentioned that delays in incentive approval by the Indian government and questions raised about the project’s cost estimates were contributing factors to Foxconn’s withdrawal.

Chipmaking has been a top priority in Modi’s economic strategy to bolster India’s electronics manufacturing industry, and Foxconn’s departure from the joint venture is a blow to these ambitions. Neil Shah, Vice President of research at Counterpoint, described the collapse of the deal as a setback for the “Make in India” initiative and raised concerns and doubts about future partnerships involving Vedanta.

Deputy IT Minister Rajeev Chandrasekhar attempted to downplay the impact of Foxconn’s decision, stating that it would not affect India’s plans and acknowledging both companies as valued investors in the country. He emphasized that it was not the government’s role to interfere in private companies’ partnership decisions. Foxconn, known for assembling iPhones and other Apple products, has been diversifying its business by expanding into chip manufacturing.

While most of the world’s chip production is concentrated in a few countries such as Taiwan, India has entered the scene relatively late. The Vedanta-Foxconn joint venture, which announced its chipmaking plans in Gujarat in September of the previous year, faced challenges in implementation. Previous reports from Reuters highlighted the difficulties in involving European chipmaker STMicroelectronics as a technology partner, with talks reaching an impasse.

Although Vedanta-Foxconn managed to secure technology licensing from STMicro, the Indian government expressed the desire for the European company to have more involvement in the partnership, such as taking a stake. STMicro was reluctant to proceed under those conditions, leaving the discussions in limbo.

Despite the setback, the Indian government remains optimistic about attracting investors for chipmaking. Recently, Micron announced its plans to invest up to $825 million in a chip testing and packaging unit, although not for manufacturing purposes. With support from the federal government and the state of Gujarat, the total investment is expected to reach $2.75 billion.

India, anticipating a $63 billion semiconductor market by 2026, received three applications last year for plants under a $10 billion incentive scheme. These applications came from the Vedanta-Foxconn joint venture, Singapore-based IGSS Ventures, and global consortium ISMC, with Tower Semiconductor as a tech partner. However, the $3 billion ISMC project stalled due to Tower’s acquisition by Intel, and IGSS’s $3 billion plan was halted pending a resubmission of its application.

India has since reopened applications for the incentive scheme, inviting companies to participate and contribute to the country’s growing semiconductor industry.

After the exit from the deal foxconn in a statement said that It is working toward submitting an application related to Modified Programme for semiconductors and Display Fab Ecosystem. And they are actively reviewing the landscape for optimal partners.

Only one of the three semiconductor manufacturing proposals submitted to secure financial support under India’s $10 billion incentive scheme is likely to make the cut. After the breakup of the partnership it will be interesting to see who wins the incentive and the scheme as the dilemma of the government has increased.

As the Indian government seeks to make India a major player in chip manufacturing, the withdrawal of Foxconn from the Vedanta joint venture poses challenges to the realization of this vision. Nevertheless, efforts continue to attract investments and establish a robust semiconductor ecosystem in the country.

Sakshi Singhania
Sakshi Singhania
Sakshi singhania , an english journalism post graduate from Indian institute mass communication