Why Foxconn’s Exit May Not Be Bad News For Vedanta’s Semiconductor Venture 

India’s ambitions to set up domestic semiconductor manufacturing facilities was dealt a shock on Monday when Taiwanese contract manufacturer Foxconn pulled out of its joint venture (JV) with natural resources conglomerate Vedanta. The partnership between the two, named Vedanta Foxconn Semiconductor Ltd (VFSL), was seen as the front runner for the Indian government’s $10 billion incentive package, aimed at earning the country a prominent position in the global chip supply chain. 

However, the Centre was quick to soft-pedal the break-up of the JV and said that it won’t hinder India’s semiconductor goals. Union Minister of Electronics and IT Ashwini Vaishnaw maintained that both Foxconn and Vedanta will continue to be committed to India's semiconductor mission and ‘Make in India’ programme.  

In a statement, Foxconn said that it is working to remove its name from what now is a fully-owned entity of Vedanta. The Taiwan-based company did not elaborate on why it was moving away from the JV where it previously owned a 37 per cent stake. “There was recognition from both sides that the project was not moving fast enough,” Foxconn said on Tuesday. Mining baron Anil Agarwal’s Vedanta group has complete ownership of VFSL now and is looking for new partners in the venture. 

Foxconn is also reportedly in talks with several domestic and international firms as it plans to submit a new application to avail government’s subsidy package earmarked for semiconductor fabrication plants (fabs). “Foxconn is committed to India and sees the country successfully establishing a robust semiconductor manufacturing ecosystem,” the company said.  

The Partnership Template  

Earlier, Vedanta had described Foxconn’s role in the JV as that of a technology partner. “Although Foxconn was not experienced in manufacturing chips, it had an assembly background, and is based out of Taiwan. So, it was tasked to do the operation and sales, get the technology partner and then use their Taiwan background to build an ecosystem around manufacturing chips” says Kumar Priyadarshi, director of Monk9 Tech Private Ltd. 

Despite Foxconn’s exit, Vedanta remains optimistic about its chip fabrication plans due to the production-grade license it claims to have sourced from a global chip major. It said in a statement, “We have lined up other partners to set up India’s first foundry. We will continue to grow our Semiconductor team, and we have the license for production-grade technology for 40 nm from a prominent Integrated Device Manufacturer (IDM).”  

At the outset, the break-up of the JV might not be a bad thing for Vedanta after all. Neil Shah, partner at Counterpoint Research, believes that Vedanta can make a valuable opportunity out of this setback. “Vedanta must now seek a suitable technology partner with chip manufacturing expertise to continue supplying displays and chips for both domestic and export markets,” he says. 

Although VFSL was considered the favourite contender for the Centre’s chip subsidy programme, an initial proposal submitted by the venture failed to satisfy the government’s requirements. After the Ministry for Electronics and IT (MeitY) reopened the window for submitting applications for semiconductor fabs in June, VFSL submitted a new proposal which is currently being reviewed by the government. The Vedanta-led venture has secured licensing agreement for 40 nm semiconductors from European multinational corporation STMicroelectronics. 

The Centre wants STMicro to have more a bigger involvement in Vedanta’s semiconductor venture, beyond a transfer of technology, according to people aware of the matter. This would include STMicro getting a stake in the venture, and the time is now ripe for Vedanta to push for this as well, since Foxconn is out of the picture.  

Debate Around Debt 

Since news broke out last year that Vedanta is looking to capitalise on India’s subsidy package for semiconductor fabs, there were concerns around the conglomerate’s ability to raise the required capital. In February this year, S&P Global Ratings even cautioned that Vedanta Resources Ltd (VRL), the parent firm of the India-listed Vedanta Ltd, could come under pressure if it failed to meet its debt repayment obligations. 

In May, VRL pledged 4.4 per cent of its stake in Vedanta Ltd to Glencore International AG for a $250 million loan, and managed to repay all its obligations for the ongoing quarter. As of now, the London-listed parent company of Vedanta Ltd reduced $3.3 billion of its debt in less than 16 months after setting a target to cut $4 billion debt in three years. 

Although the holding company has never defaulted on any of its loans so far, there is undue criticism of its balance sheet, Vedanta group chief Anil Agarwal recently said in an interview. According to a report by research and analysis firm CreditSights, VRL will likely succeed in servicing its debt maturities by next year. If that comes true, Vedanta can put all the concerns around the financing of its semiconductor project to rest.   

Vedanta’s present agreement with STMicro for technology transfer is only expected to kick in once Centre gives the nod for its proposed semiconductor fab. VFSL had earlier signed memorandum of understanding (MoU) with the Gujarat government to set up its semiconductor plant in Dholera Special Investment Region, near Ahmedabad city.   

Along with a display glass fabrication facility, under a separate Vedanta subsidiary called Vedanta Displays Ltd (VDL), the total cost of Vedanta’s mega manufacturing facility in Gujarat is estimated to be $19.5 billion. After discounting for possible subsidies from central and state governments, Vedanta is expected to foot only about 30 per cent of the overall cost. 

Veterans At The Helm 

Another major concern around Vedanta’s foray into chipmaking was that it did not have experts to leads its new venture. But that has changed in the past six months. Talking about this transformation, Satya Gupta, president of VLSI society of India, says, “The major difference between then and today is that Vedanta now has a professional team. They don’t need Foxconn to help bring in a tech partner with the required expertise.”  

In the past few months, Vedanta roped in many industry veterans to top positions at VFSL. This includes VFSL CEO David Reed, who has over three decades of experience in the field with industry majors such as GlobalFoundries and NXP Semiconductors. The venture also brought in Mike Young as the senior vice president. Young had previously worked across semiconductor operations and device engineering with major companies like STMicroelectronics, Siemens and X-FAB UK. Former IBM executive Terry Daly was also appointed as an advisor in Vedanta’s semiconductor firm. 

With one production-grade tech license in its kitty, and many industry veterans on board, Vedanta has reasons to believe that it can pull off India’s first semiconductor fab. Foxconn’s exit can be viewed as an opportunity to bring in appropriate tech partners, and the Anil Agarwal-led group is already working on this. If it succeeds in finding an appropriate tech partner, Agarwal’s dreams of bringing in revenue from his semiconductor business by 2027 will remain intact. Those at the helm of Indian government’s chip aspirations, too, will keep a keen eye on where Vedanta heads from here.