India Says Foxconn, Vedanta Chip Venture Ended Due to ‘Internal Issues’

India’s minister for technology said a multibillion-dollar chip venture between Taiwanese electronics manufacturer Foxconn Technology and resources conglomerate Vedanta ended due to “internal issues,” and expressed confidence in the country’s plans to seek a perch in the global semiconductor supply chain.

“This split doesn’t affect India’s semiconductor program,” Ashwini Vaishnaw said early Wednesday local time. “We are in for a long-haul. Our semiconductor program is focused on ecosystem development.”

He said that both companies will continue to pursue independent plans to set up semiconductor units in India, and that additional global firms are seriously evaluating the country for chip manufacturing projects. The minister didn’t elaborate on the nature of the internal issues faced by Foxconn, best known for assembling Apple iPhones, and Vedanta, an India-focused group.

The Taiwanese firm, formally known as Hon Hai Precision Industry, announced on Monday it would pull out of the roughly $20 billion investment the companies announced last year with the aim of qualifying for production incentives from the government.

On Tuesday, Foxconn said it believes in the country’s plans to promote a local chip industry—and is actively looking for new partners.

“Foxconn is committed to India and sees the country successfully establishing a robust semiconductor manufacturing ecosystem. It will take time,” the company said.

India’s manufacturing incentive program sets aside $10 billion to foster the development of a semiconductor and display manufacturing ecosystem, with qualifying firms eligible to get up to $1.5 billion toward their setup costs. The program was announced in 2021, as governments globally were becoming more concerned about their chip imports in the wake of pandemic shortages and amid an escalating tech rivalry between the U.S. and China. 

The chip supply chain is both highly interdependent, with major chip producers also being major importers, and highly concentrated. Taiwan Semiconductor Manufacturing Co. , or TSMC, makes most of the world’s sophisticated chips. The U.S. has sought to limit China’s access to advanced chips and to bring more of this manufacturing back to the U.S.

Earlier this year, the U.S. and India pledged to increase private cooperation in semiconductor manufacturing. During Indian Prime Minister Narendra Modi’s visit to the U.S. in June, Micron, the U.S.’s largest memory-chip maker, announced it would invest more than $800 million toward a facility in India’s Gujarat state, which would be matched by nearly $2 billion of national and local government support. The same month, U.S. chip toolmaker Applied Materials

India’s efforts to develop a commercial semiconductor industry have frequently been met with skepticism, given how expensive it is to set up a foundry and because of India’s reputation for infrastructure issues, while foundries need vast quantities of water and steady, high-quality power. Even countries with far deeper pockets, such as China, have struggled to foster homegrown chip expertise. 

The announcements by Foxconn and Vedanta this week prompted questions as to whether the end of the partnership represented insurmountable challenges unique to the two firms or flaws with India’s semiconductor goals—a takeaway Indian officials have strongly rebutted. Experts and people familiar with the matter point to both companies’ lack of experience as the most likely reason for the end of the project.

Foxconn’s latest remarks also suggest changes made this year to India’s chip incentive program could have played a role. Vedanta didn’t respond to questions on why the partnership ended.

Foxconn said it parted ways with Vedanta because the project wasn’t moving fast enough and there were “challenging gaps we were not able to smoothly overcome.” It cited external issues but didn’t say what they were. “The group looks forward to growing alongside India’s nascent semiconductor industry,” it said.

An Indian official said this week that the joint venture applied last year for incentives under an earlier version of the program to make a type of chip requiring more advanced technology. The companies were unable to line up a partner to help them produce that type of chip, Rajeev Chandrasekhar, India’s minister of state for technology, has said.

Last year India modified the incentive program to cover more of the upfront costs of setting up manufacturing for an older type of chip and began taking applications to make these chips under the changed rules at the end of May. 

Foxconn said it was working on a new application for the Indian government’s modified semiconductor incentive program. It also said it was communicating with officials across India and would continue its commitment to invest in the country. 

An official overseeing semiconductor policy for Gujarat, where the Vedanta-Foxconn plant was supposed to be set up, said it remained confident in the ability of its infrastructure to attract chip projects.

“We are at an advanced state of discussion with multiple investors in the semiconductor ecosystem, including but not limited to wafer fabs and display fab,” said Vijay Nehra, secretary in Gujarat’s department of science and technology. “[A]nnouncements will be made by the prospective investors in due course.”

Foxconn started to invest in India in 2006, building manufacturing facilities in cities such as Tamil Nadu and Andhra Pradesh. In March, Foxconn’s chairman, Young Liu, held a second meeting with Modi, following their initial meeting in June 2022, to discuss local expansion. The expansion has been driven by increasing demands from major Foxconn clients such as Apple.

Vedanta, meanwhile, has said it has lined up a partner to make the older type of chip. Chandrasekhar, the tech minister, said the company has submitted a fresh application—under the joint venture entity that still includes the Foxconn name—and that it is currently under consideration.

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

— Krishna Pokharel contributed to this article.

Write to Tripti Lahiri at [email protected] and Yang Jie at [email protected]