How will the tie up Vedanta and Foxconn help microchips supply in India?

In last few years, the big challenge for electronics and auto industry has been getting adequate semiconductor chips at the right quality and the right price. That is because, most of the modern appliances from cars to white goods to mobile phones are based on intelligent chips. These chips / semiconductors not only store data in memory and processing instructions, but enables machines to even act smartly like humans.

Thanks to the pandemic; people splurged on electronic items. Also, with greater focus on online learning, online meetings, video conferences etc, the demand for laptops, smart phones and PCs shot up sharply. Today, almost everything from cars to shavers to grinders are becoming smarter, so they all need chips. However, the challenge is that chip making is capital intensive, specialized and takes 4 to 5 years to bring production on stream.

It is in this context that the recent joint venture between Vedanta group and Foxconn of Taiwan will manufacture semiconductors (microchips) in India. This JV will fully leverage the allocation PLI scheme of the government of India for microchips. GOI has targeted outlay of Rs.76,000 crore or $10 billion over next 5 years purely on the strength of the PLI incentives. The JV between Vedanta and Foxconn is the first of its kind JV in chip making in India.

Vedanta plans to invest over $15 billion in India in making semiconductors but the current capital infusion is expected to be quite low. In the proposed JV, Vedanta will be the majority partner while Foxconn of Taiwan will be the minority partner. Foxconn is a global giant in EMS (electronic manufacturing services) with a market share of 40% globally. Foxconn is already one of the largest contractors for Apple products, including iPhones.

Chipmaking is a very complex business as it must be executed in fabs (fabrication units) that must be many times cleaner than a high-end biotech facility. Chip fabs are very capital intensive and the giants like Taiwan Semiconductors invest tens of billions of dollars in expanding capacity continuously. Anil Agarwal of Vedanta is expected to be the chairman of the joint venture entity. Foxconn already has a large presence in South India, albeit in some controversies.