Foxconn's decision to withdrawn from chip JV with Vedanta could have been avoided

Despite being the front-runner for India's semiconductor manufacturing incentive scheme, Foxconn decided to withdraw from the joint venture with Vedanta and is looking for new Indian partners for its chip investments in India, highlighting how the short window of just 45 days that the Indian government offered for the incentive scheme made applicants acting so hastily.

Foxconn on July 10 announced in a statement that it would not move forward with its joint venture with Vedanta, and on the following day, released another statement saying that it is working toward applying to India's semiconductor and display fabs incentive scheme, adding that it has been actively reviewing the landscape for optimal partners.

Foxconn said that building fabs from scratch in a new geography is a challenge, but it is committed to investing in India and would continue to strongly support the government's 'Make in India' ambitions and establish a diversity of local partnerships that meet the needs of stakeholders.

Furthermore, The Economic Times quoted sources saying that Foxconn had told the Indian government that it planned to set up 4-5 fab lines in India, highlighting Foxconn's commitment in the semiconductor ecosystem in India despite the latest development.

It is noteworthy that after India announced the applicants for its INR760 billion (US$93 billion) semiconductor and display fabs incentive scheme in February 2022, all of the three applicants for wafer fabs, including Vedanta-Foxconn JV, ISMC, and IGSS Ventures, have yet to receive government approval for subsidy and have to re-apply as their proposals did not convince the Indian government to offer upfront incentives worth billions of dollars.

On May 31, the Ministry of Electronics and IT of India re-opened a new round of applications for setting up semiconductor and display fabs in India, with the application window open between June 2023 and December 2024. It starkly contrasts with the previous invitation for the same scheme first announced in December 2022, which was open for just 45 days for applications. The Indian government's decision to re-open the application and provide a much longer application window means that the policy implementation was too rushed, and even businesses did not have enough time to prepare for it.

One reason the Vedanta-Foxconn JV fell apart is that both companies have little or no experience in semiconductor manufacturing. Foxconn began its semiconductor foray in recent years, including forming a JV with Yageo, buying Macronix, and investing in Tsinghua Unigroup, whose stakes Foxconn later sold due to regulatory pressure from Taiwan. Meanwhile, Vedanta started as a scrap-metal dealer and only diversified into the LCD glass substrate business by buying Japan-based AvanStrate in 2017, the closest business to electronics manufacturing for Vedanta thus far and still much different from semiconductor manufacturing.

WSJ quoted sources saying that there were external issues related to Foxconn's decision to withdraw from Vedanta Foxconn Semiconductors Limited without elaboration. Sources told Reuters that Indian authorities and Foxconn were both concerned about Vedanta's finances.

Following Foxconn's decision to quit, Bloomberg reported that Citi warned Vedanta's plan to acquire the chip and display units of its subsidiary Twin Star might increase its debt load. Business Standard reported that Standard and Poor's suggested Vedanta Resources be proactive about refinancing its US$1 billion bone due in January 2024, adding that a credible refinancing plan at least six months before maturity would be important to maintain its current rating.

According to the statement, Foxconn is still eager to develop and grow its semiconductor business in India and worldwide, and Foxconn's decision to partner with other companies instead of Vedanta implies that if the application window were much longer than 45 days for applicants to find a suitable partner, Foxconn could have saved the 17 months.

Source: Bloomberg, July 2023