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February 21, 2022

Foxconn joins Vedanta to manufacture semiconductors in India

India’s efforts to develop a semiconductor industry began gaining pace last week, as India’s Vedanta Group partnered with Taiwan’s Foxconn Technology Group to produce chips.

Foxconn and Vedanta Group signed a memorandum of understanding to produce semiconductors. It was agreed that Foxconn would invest $118.7 million to form a joint venture company in which it would own a 40% stake. The two businesses will create a first-of-its-kind cooperative venture to help Indian Prime Minister Narendra Modi’s aim of establishing a semiconductor manufacturing industry in India. That may not be the whole case.

Financial gain for both ventures

Last year, the Indian government announced a plan to invest $30 billion in transforming the country into a chip manufacturing powerhouse. India’s government will also put over $7 billion into incentives, including a production-linked incentive system, and will upgrade the chip industry from just assembly to more technically advanced semiconductor production. With this scheme, both companies might be looking at potential financial gain.

Vedanta is an unexpected choice

Vedanta plans to expand its business into a new area with a $500 million investment over two to three years, with an aim to develop liquid-crystal-display glass substrates for electronic panels. This is an odd option because such operations must be manufactured near panel manufacturing units, and India is not yet involved in this industry. Foxconn, on the other hand, is experienced with flat panels, and its Innolux Corporation is one of the biggest names globally. Because Vedanta’s expertise is in mining and commodities, and it has limited experience in technology manufacturing, it is an unlikely partnership.

Challenges to Vedanta

The $118.7 million announced by Foxconn is barely enough to set up a design team, let alone a manufacturing facility. Vedanta is expected to offer up to ten times that amount, but even $1 billion will not be enough to begin semiconductor manufacturing from scratch. Vedanta must understand that computer and smartphone screens are not the same as semiconductors; investing in display glass does not guarantee a successful move into semiconductor production.

A look ahead at semiconductor production in India

With Foxconn’s technical proficiency, Vedanta’s local ties make for a compelling partnership. But that joint venture is only on paper for the time being and has gone no further. Several multinational companies—including Intel, Taiwan Semiconductor Manufacturing Company, and United Microelectronics Corporation—will soon consider establishing a semiconductor manufacturing site in India. The initiative from the Indian government to provide eligible applicants with fiscal support of up to 50% of the project cost under its special incentive plan will play a pivotal role and will attract many chip manufacturers to the country.