Foxconn exits $19.5bn semiconductor JV with Vedanta: Here's why
What's the story
The semiconductor joint venture (JV) between Foxconn and Vedanta was expected to be the cornerstone of India's semiconductor aspirations.
However, that has become a pipe dream now, with Foxconn announcing its decision to pull out of the $19.5 billion JV.
The writing was on the wall for the partnership for a while. Let's see what led to the split.
Context
Why does this story matter?
Last year, Anil Agarwal's Vedanta and Taiwanese electronics giant Foxconn signed a memorandum of understanding (MoU) to set up a semiconductor manufacturing facility in Prime Minister Narendra Modi's home state of Gujarat.
It was a seen as big boost to India's 'Make In India' ambitions. The project's value was in Foxconn's expertise.
With that gone, there are doubts about its success.
Full ownership
Vedanta has taken full ownership of the JV
Foxconn's decision to dump the JV does not come as a surprise to most. Especially since last week when Vedanta took full ownership of the JV, Vedanta Foxconn Semiconductors Private Limited.
Twin Star Technologies, a Vedanta Group company, was the majority partner in the JV. Since then, it was only a matter of time before Foxconn made the split official.
Foxconn
Foxconn did not elaborate on why the JV ended
"Foxconn has determined it will not move forward on the joint venture with Vedanta," the company said.
It added, "Foxconn is working to remove the Foxconn name from what now is a fully-owned entity of Vedanta." The firm said it has no connection to the present entity.
Foxconn didn't elaborate on what caused the split but it said it was a mutual decision.
STMicro
Foxconn and Vedanta couldn't get STMicroelectronics on board
The JV has faced multiple setbacks since the beginning. Vedanta and Foxconn's plan was to involve European chipmaker STMicroelectronics as a partner.
STMicroelectronics was ready to license technologies. However, the Indian government wanted the European company to be a bigger partner.
STMicroelectronics was not keen on this proposal. As a result, it stepped away from the JV.
Financials
Government reportedly asked Foxconn to look for new partner
Last month, there were reports about Foxconn looking for a new partner upon the government's direction. The Indian government was reportedly concerned about Vedanta's financial stability.
It is true that the company has a debt problem and is trying to raise $2 billion to pay the debt.
Vedanta even approached its rivals to raise funds, inducing suspicion in government circles.
Differences
There were differences between companies over application for incentives
There were also differences between Foxconn and Vedanta about the strategic direction of the project. The companies were asked to resubmit their application for incentives under the India Semiconductor Mission (ISM).
However, they couldn't reach a consensus on what changes should be made to the application. It seems that the differences between them became too much.
Blow
Foxconn's decision is a blow to India's semiconductor aspirations
Foxconn's decision to exit the JV is a massive blow to India. The country expects its semiconductor market to be worth $63 billion by 2026, and the Foxconn-Vedanta JV was supposed to be the foundation of that.
Although Foxconn reiterated its support for India's ambitions, it is unclear what it plans to do.
It might get a new partner like the government suggested.