Dealbreaker: Foxconn Exits Chip Joint Venture With Vedanta

Taiwanese electronics contract manufacturer Foxconn announced on Monday that it was pulling out of the $19.5 billion joint venture (JV) with Vedanta to set up semiconductor and display plants in India. The company said it had worked with Vedanta for more than a year to bring "a great semiconductor idea to reality" but the two had mutually decided to part ways.

"Foxconn is working to remove the Foxconn name from what now is a fully-owned entity of Vedanta," the company said in the statement. "Foxconn has no connection to the entity and efforts to keep its original name will cause confusion for future stakeholders."

Why Did Foxconn Drop Out?

In its statement, Foxconn said it was not moving forward with the venture "in order to explore more diverse development opportunities". However, the JV had been facing several roadblocks leading up to this. For one, it was still waiting for approval from the government. The JV was in talks to get European chipmaker STMicroelectronics on board as a technology partner.

Having the chipmaker on board was key for the JV to avail of the government's Rs 76,000 production linked incentive (PLI) scheme. Talks with STMicroelectronics were in limbo, with it wanting Vedanta to take the lead and invest more as well as limit the duration of the partnership.

Given that it had not yet secured a technology partner, the JV in June had submitted a revised application seeking government funding for manufacturing 40-nanometer chips, as opposed to the more expensive and complex 28-nanometer chips.

More Controversies For Foxconn-Vedanta

Controversies have surrounded the deal right from the announcement of the MoU in 2022 to facing a fine of Rs 30 lakh last week. The press release itself did not clearly state which entity had signed the MoU with Foxconn – Vedanta Limited (the Indian listed entity) or Vedanta Resources (the London-based promoter of Vedanta Limited). Despite Vedanta Resources clarifying in February 2022 that the semiconductor business was not associated with Vedanta Limited, the Indian-listed entity remained vague in its communication with investors through media interactions, earnings conference calls, and the annual general meeting.

Also Read: There Was Something Murky About Vedanta's Foxconn Announcement

This ultimately led the Securities and Exchange Board of India (SEBI) to fine Vedanta Rs 30 lakh for misleading market disclosures about the joint venture last week. Nevertheless, Vedanta responded to SEBI's allegations by asserting that the appearance of the stationery referencing "Vedanta Limited" was an unintentional error, promptly rectified.

What's Next For Vedanta?

Vedanta seems unfazed. "Vedanta reiterates that it is fully committed to its semiconductor fab project and 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). We will shortly acquire a license for production-grade 28 nm as well," a spokesperson told Forbes on Monday.

Meanwhile, the move also hasn't thrown a complete wrench in the government's ‘Make in India' semiconductor dreams, given that it signed a deal with US chipmaker Micron Technology Inc. to set up a $2.75-billion semiconductor testing and assembly facility in Gujarat last month.