Apple supplier Foxconn’s failed India chip venture shows how tough it is for new players

Foxconn
is
best
known
as
the
main
assembler
of
Apple’s
iPhones.
But
in
last
couple
of
years,
the
Taiwanese
firm
has
made
a
push
into
semiconductors,
betting
that
the
rise
of
technologies
like
artificial
intelligence
will
boost
demand
for
these
chips.

But
Foxconn’s
semiconductor
foray
has
had
a
tough
start,
highlighting
the
difficulty
for
new
players
to
enter
a
market
dominated
by
established
firms
with
huge
experience
and
a
highly
intricate
supply
chain.

“The
industry
presents
newcomers
with
high
barriers
to
entry,
mainly
high
levels
of
capital
intensity
and
access
to
coveted
intellectual
property,”
Gabriel
Perez,
ICT
analyst
at
BMI,
a
unit
at
Fitch
Group,
told
CNBC
via
email.

“Established
players
such
as


TSMC,
Samsung
or


Micron
count
with
several
decades
of
R&D
(research
and
development),
process
engineering
and
trillions
of
dollars
in
investment
to
reach
their
current
capabilities.”

Foxconn,
officially
known
as
Hon
Hai
Technology
Group,
is
a
contract
electronics
manufacturer
that
assembles
consumer
products
like
iPhones.
But
in
the
last
two
years,
it
has
stepped
up
its
presence
in
semiconductors.

In
May
2021,
it
formed
a
joint
venture
with
Yageo
Corporation,
which
makes
various
types
of
electronic
components.
That
same
year,
Foxconn
bought
a
chip
plant
from
Taiwanese
chipmaker


Macronix.

The
biggest
ramp-up
in
effort
came
last
year
when
Foxconn
agreed
with
Indian
metals-to-oil
conglomerate
Vedanta
to
set
up
a
semiconductor
and
display
production
plant
in
India
as
part
of
a
$19.5
billion
joint
venture.

Neil
Shah,
vice
president
of
research
at
Counterpoint
Research,
said
Foxconn’s
push
into
semiconductors
is
about
diversifying
its
business,
and
the
company’s
decision
to
launch

an
electric
car
unit
is
part
of
that
plan.
Its
aim
is
to
become
a
“one
stop
shop”
for
electronics
and
automotive
companies,
Shah
said.

If
Foxconn
could
assemble
electronics
and
manufacture
chips,
it
would
be
a
very
unique
and
competitive
business.

Foxconn
looked
to
India
for
its
joint
venture
with
Vedanta
because
the
country’s
government
is
looking
to

boost
its
domestic
semiconductor
industry
and
bring
manufacturing
on
shore.

“Foxconn’s
decision
to
establish
a
JV
in
India
responds
to
two
key
trends
–
one
of
them
being
the
market’s
growing
role
as
a
consumer
electronics
manufacturing
hub,
the
second
one
being
India’s
ambitions
–
mirroring
other
major
markets
such
as
the
US,
the
EU
and
Mainland
China
–
to
develop
its
domestic
semiconductor
industry
through
public
subsidies
and
regulatory
incentives,”
BMI’s
Perez
said.

This
month,
Foxconn
pulled
out
of
its
joint
venture
with
Vedanta.
The
two
sides
“mutually
agreed
to
part
ways,”
Foxconn
said
in
a
statement
at
the
time.

“There
was
recognition
from
both
sides
that
the
project
was
not
moving
fast
enough,
there
were
challenging
gaps
we
were
not
able
to
smoothly
overcome,
as
well
as
external
issues
unrelated
to
the
project,”
Foxconn
said.

Deadlocked
talks
with
European
chipmaker
STMicroelectronics,
which
was
the
technology
partner
for
the
project,
was
one
major
reason
for
the
venture’s
failure,

Reuters
reported
this
month.

Foxconn
and
Vedanta
wanted
to
license
the
technology
from
STMicro
and
India
wanted
the
firm
to
have
a
stake
in
the
joint
venture,
but
the
European
chipmaker
did
not,
Reuters
reported.

Foxconn’s
hurdles
point
to
a
broader
issue
—
it’s
hard
for
newcomers
to
get
into
semiconductor
manufacturing.

The
manufacturing
of
chips
is
dominated
by
one
player
—
Taiwan
Semiconductor
Manufacturing
Company,
better
known
as
TSMC
—
which
has
a
59%
market
share
in
the
foundry
segment,
according
to
Counterpoint
Research.

TSMC
doesn’t
design
its
own
chips.
Instead,
it
makes
these
components
for
other
companies
like
Apple.
TSMC
has
had
more
than
two
decades
of
experience
and
billions
of
dollars
of
investment

to
get
to
where
it
is.

TSMC
also
relies
on
a

complex
supply
chain
of
companies
that
make
critical
tools
to
allow
it
to
manufacture
the
most
advanced
chips
in
the
world.

Foxconn
and
Vedanta’s
effort
appeared
to
rely
heavily
on


STMicro,
but
once
the
European
company
bailed,
the
joint
venture
was
without
much
expertise
in
semiconductors.

“Both
companies
…
lacked
the
core
competency
of
manufacturing
a
chip,”
Counterpoint
Research’s
Shah
said,
adding
that
they
were
dependent
on
third-party
technology
and
intellectual
property.

Foxconn’s
attempts
to
crack
the
semiconductor
space
highlight
how
difficult
it
is
for
a
new
entrant
to
do
so
—
even
for
a
$47.9
billion
giant.

“The
semiconductor
market
is
highly
concentrated
with
few
players
which
have
taken
more
than
two
decades
to
evolve
to
this
point,”
Shah
said,
adding
that
there
are
high
barriers
to
entry,
such
as
large
amounts
of
investment
and
specialized
labor.

“On
an
average,
it
takes
more
than
two
decades
to
be
at
the
level
of
skill
and
scale
to
be
a
successful
semiconductor
manufacturing
(fab)
company.”