Why Foxconn drops $19.5 bn semiconductor JV with Vedanta?

The latest news report from Reuters has revealed the reasons for the withdrawal of Foxconn from its $19.5 billion semiconductor joint venture with Vedanta in India.
Apple supplier FoxconnThe report said the development is a significant setback for Prime Minister Narendra Modi’s ambitions of developing a domestic chipmaking industry. Narendra Modi will be facing a national election next year, and his Make in India initiative failed to deliver as compared with investment in tech ventures in China in 2022.

The joint venture between Taiwan-based Foxconn and India-based Vedanta was aimed to establish semiconductor and display production plants in Gujarat, Narendra Modi’s home state. Recently, top tech companies have selected Gujarat as their major investment destination, though India has 30 states. Narendra Modi, who is looking for third term as PM, wants India to attract more foreign investment and boost domestic electronics manufacturing.

The decision by Foxconn to pull out of the joint venture raises concerns about the investment climate and the challenges faced by companies looking to establish a presence in India’s semiconductor sector. One of the key reasons cited by Foxconn for its withdrawal was concerns about incentive approval delays by the Indian government. This suggests that the bureaucratic hurdles and uncertainty surrounding incentive programs may have discouraged Foxconn from proceeding with the project.

The Indian government’s raised questions about the cost estimates provided by the joint venture partners to request incentives also likely contributed to Foxconn’s decision. This indicates that the government’s cautious approach to approving incentives and its desire for greater transparency in investment projects may have clashed with the expectations and requirements of Foxconn.

The failure to involve European chipmaker STMicroelectronics as a tech partner in the joint venture further complicated the project. While Vedanta-Foxconn managed to secure licensing technology from STMicro, the government’s insistence on the European company having a stake in the partnership led to a deadlock in negotiations. This highlights the challenges of aligning the interests of all stakeholders involved in complex multinational collaborations.

The withdrawal of Foxconn from the joint venture is undoubtedly a setback for Modi’s chipmaking plans. It not only raises doubts about the attractiveness of India as a destination for chip manufacturing but also reflects poorly on Vedanta’s ability to execute such projects. The lack of progress and deadlocked negotiations may deter other companies from considering similar investments in India’s semiconductor industry.

However, government officials have downplayed the impact of Foxconn’s withdrawal, emphasizing that it does not affect India’s plans and highlighting the country’s confidence in attracting investors for chipmaking. Deputy IT minister Rajeev Chandrasekhar stated that the government does not interfere in private companies’ partnership decisions. This suggests that the government will continue to focus on creating a favorable investment climate and attracting other potential investors.

India’s semiconductor market has significant growth potential, and the government’s goal of reaching a market value of $63 billion by 2026 is ambitious. The recent investment announcement by Micron, albeit for chip testing and packaging rather than manufacturing, demonstrates some continued interest in the Indian market. Additionally, the re-invitation of applications for the incentive scheme indicates that the government remains committed to attracting investment in the semiconductor sector.

Overall, while the withdrawal of Foxconn from the joint venture is a setback to Modi’s chipmaking ambitions, it highlights the challenges and complexities of establishing a competitive semiconductor industry in India. The government’s ability to address concerns around bureaucracy, incentives, and partnership negotiations will be crucial in attracting and retaining investors in this strategically important sector.