Vedanta and Foxconn to make semi-conductors in India

In the last few years, the biggest challenge for the electronics industry has been making the requisite quantum of microchips (semiconductors) available. Today, most appliances from cars to white goods to mobile phones are based on chips. The microchips play the role of storing data in memory and processing instructions. When your car helps you to park automatically or when your washing machine selects soft wash, it is the chip at work.

Since the pandemic began, people have been splurging on electronic items. Demand for laptops, smart phones and PCs have shot up due to less of scope for travel. In addition, everything from cars to shavers are becoming smarter. And they all need chips. But chip making is capital intensive and they take 4 to 5 years to bring production on stream. Also, it is a very specialized job, so only the best of the best survive in this business.

Enter Vedanta and Foxconn in the fray

It was the perfect set up. There is a shortage of microchips in the market, India wants to go import-substitution way and there is an attractive PLI scheme in place. To make the best of this sweet spot, the Vedanta group and Foxconn group of Taiwan have formed a joint venture to manufacture semiconductors (microchips) in India. This JV will look to fully leverage the allocation of the government of India for the PLI scheme for microchips.

The outlays and the plans are both quite grand. For instance, the Indian government has already cleared a PLI scheme for semiconductors and display board production in India with a target investment of Rs.76,000 crore or $10 billion over the next 5 years. The idea is to attract large investments for manufacturing facilities amidst the global chip crisis. The joint venture between Vedanta and Foxconn is the first of its kind JV in chip making in India.

The long term investment plan of Vedanta group in the manufacture of microchips and displays in India is about $15 billion, but it is not yet clear how much will come in phase - 1. There is not much else known about the investment amount, the location of the factory, etc except that Vedanta will be the majority partner in the joint venture while Foxconn of Taiwan will be the minority partner. Foxconn is the biggest electronic outsourcer globally.

Foxconn is a global giant in EMS (electronic manufacturing services) with a global market share of over 40%. Foxconn is already a multi-billion dollar company (part of the Hon Hai Technology group of Taiwan) and is one of the largest contractors to manufacture Apple products, including iPhones. Anil Agarwal of Vedanta is expected to be the chairman of the joint venture entity. Foxconn already has a large presence in South India.

Chipmaking is a complex business because it has to be done in fabs that must be many times cleaner than a high-end pharma or biotech facility. Also, it is extremely capital intensive and there are companies like Taiwan Semiconductors that invest tens of billions in expanding capacity on a continuous basis. How Vedanta and Foxconn manage to sustain the momentum of continuous fund infusion remains the key to the success of the venture.