CIOInsider India Magazine

Taiwan’s Foxconn withdrew from the $19.5 billion semiconductor joint venture (JV) partnership with Indian metals-to-oil behemoth Vedanta, and sent a shock wave to Prime Minister Narendra Modi’s ambitions of setting up a domestic semiconductor manufacturing hub for India. This partnership was viewed as a hopeful attempt in positioning the nation in the global chip supply chain.

India does not exist in the map of global semiconductor manufacturing countries. Taiwan and South Korea are leaders in the field with the US and China as their customers. Infact Taiwan and South Korea are already invested in producing nano-meter microchips and control nearly 50 percent of the global chip market.

Even China and the US have a stable position in the market, as China imports 40 percent of its chip requirements from Taiwan, as it possesses an enormous amount of material for chip production. The US and a few European nations are producing most of the hardware for chip manufacturing processes.

India’s immunity in this domain is weak. Not only does it lack the raw materials to manufacture chips, but does not produce hardware as well. For now the country relies on having everything imported. But it's not that India did not think of setting up microprocessors or a chip industry. Interestingly, India’s first attempt of starting its semiconductor journey began in 1974 in Punjab.

India Started Early but Backfired
The Department of Electronics (DoE) proposed the setting up of Semiconductor Complex Limited (SCL) in Mohali and Madras. Due to the insufficiency of employment generation in Madras, Mohali became India’s first semiconductor fab in 1978, weighing a project cost of Rs.15 crore.

At the same time, another semiconductor designing work was set in place called the Gateway Design Automation (GDA) pioneered by an IIT-Kanpur alumni, Prabhakar Goel, and it specialized in testing tool, Verilog, for chips.

Four years later Silicon Valley’s Cadence Design Systems acquired a GDA including the India unit. A decade later, 17 top global semiconductor companies including Intel opened centers in India and possibly enabled it to become a formidable force in chip designing. Soon US and European semiconductor companies began counting on India’s chip designing talent, while using Taiwan’s facilities for mass production. But India soon lost its foundation when SCL was struck with a major fire accident amid upgrading its production technology. It took a very long time for recovery and the government has made it run as a commercial fab.

India did try to establish its position in the global semiconductor market early on, but it missed the bus due to several drawbacks such as. suboptimal investment, low domestic demand, changing dynamics of the business globally, etc.

Fortunately, the Center assures that this cancellation of the partnership will not affect the nation’s semiconductor goals. As both companies, as stated by the Union Minister of Electronics and IT Ashwini Vaishnaw, will continue to be a part of the nation’s semiconductor mission, including Make in India program.

What Lies for Vedanta after Foxconn’s Exit?
Foxconn stated that it is attempting to have its name removed from what is currently wholly owned by Vedanta.

As part of its preparations to submit a fresh application for the government's subsidy program designated for semiconductor fabrication plants (fabs), Foxconn is also allegedly in talks with a number of domestic and foreign companies. Foxconn is committed to India and sees the country successfully establishing a robust semiconductor manufacturing ecosystem, the company assured.

Despite Foxconn's decision to leave, Vedanta is still upbeat about its intentions to manufacture chips since it claims to have obtained a production-grade license from a significant global chip manufacturer. To establish India's first foundry, it has lined up more partners. It holds the license for production-grade technology for 40 nm from a well-known Integrated Device Manufacturer (IDM), and it will continue to expand our Semiconductor team.

Although VFSL was thought to be the front-runner for the Center's chip subsidy program, the venture's initial proposal didn't meet the demands of the administration. The government is presently reviewing a fresh proposal that VFSL filed after the Ministry for Electronics and IT (MeitY) reopened the window for submitting applications for semiconductor fabs in June. A licensing agreement for 40 nm semiconductors has been reached between the Vedanta-led business and the multinational STMicroelectronics of Europe.

Reports claim that the Center wants STMicro to be more involved in Vedanta's semiconductor venture than just a technology transfer. This would include STMicro receiving a stake in the business, and now that Foxconn is out of the equation, it is appropriate for Vedanta to press for this as well.

Still a Nutty Road for Vedanta
Vedanta's capacity to raise the necessary funds has been a source of concern since news of the conglomerate's intention to profit from India's subsidy program for semiconductor fabs first surfaced last year. Even Vedanta Resources Ltd (VRL), the parent company of the India-listed Vedanta Ltd, was warned by S&P Global Ratings in February of this year that it would face pressure if it didn't fulfill its debt repayment requirements.

The fact that Vedanta lacked experts to guide its new endeavor was another significant concern regarding its push into chip manufacturing. But in the last six months, that has changed.

Vedanta has hired numerous industry experts to key positions at VFSL during the last few months. This includes David Reed, the CEO of VFSL, who has worked for significant companies in the sector for more than three decades, including GlobalFoundries and NXP Semiconductors. Mike Young was hired for the project as senior vice president as well. Young had previously held positions with prestigious businesses including STMicroelectronics, Siemens, and X-FAB UK in semiconductor operations and device engineering. Terry Daly, a former IBM executive, was also appointed as a consultant for Vedanta's semiconductor business.

The Anil Agarwal-led consortium is already working on bringing in the proper IT partners in light of Foxconn's departure. Agarwal will still be able to realize his goal of turning a profit from his semiconductor business by 2027 if it is successful in finding a suitable tech partner. Those in charge of the Indian government's chip ambitions will also keep a close eye on Vedanta's future developments.