Know why Foxconn broke up with Vedanta and set up shop in Tamil Nadu

Taiwan’s Foxconn pulling out of its joint venture with India’s Vedanta seemed to be a pretty major setback for India’s Semicon dreams. However, the falling apart of the JV isn’t a major concern for MeiTY, and for India’s semicon dreams. 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.

➡️This decision of Foxconn to withdraw from its JV wth Vedanta has no impact on India's #Semiconductor Fab goals. None.

➡️Both Foxconn n Vedanta have significant investments in India and are valued investors who are creating jobs n growth.

➡️It was well known that both… https://t.co/0DQrwXeCIr

— Rajeev Chandrasekhar 🇮🇳 (@RajeevRC_X) July 10, 2023

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. 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. The joint venture’s progress has been limited due to variations in their rollout strategies. On Tuesday, a Reuters report revealed that the Indian government and Foxconn were concerned about the financial stability of Vedanta, which is owned by Anil Agarwal. These concerns prompted Foxconn, the Taiwanese company, to opt out of the joint venture. Vedanta Ltd’s parent company, Vedanta Resources, based in London, has been facing a debt crisis. Several rating agencies downgraded Vedanta Resources due to fears of a potential debt default, as reported by Reuters. Additionally, there were reports indicating that delays in obtaining approval for incentives from the Indian government may have influenced Foxconn’s decision to terminate the deal. The government had raised questions about Vedanta’s eligibility for a chip production incentive scheme, and the venture’s application for financial assistance reportedly did not meet the government’s criteria. Cultural differences in the approaches of Vedanta and Foxconn were also cited in a few reports as potential factors contributing to the decision to end the joint venture. 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. 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.