Recently, Indian mining giant Vedanta Resources announced that they signed a Memorandum of
Understanding with Taiwanese electronics assembler Foxconn to manufacture semiconductors in India.
They join some other companies in a run-off to build a credible semiconductor fab.
India imports almost all of the semiconductors that it uses. This foreign reliance has been
a cause for concern, so the Indian government has been looking to shore up those weaknesses.
In this video, we are going to look at what we know about the Vedanta-Foxconn
joint venture and some of the nitty gritty details.
## The Government Incentive
In December 2021, the Indian government adopted
a $10 billion incentive plan to promote semiconductor and display manufacturing.
The plan wants to set up at least two display factories and two semiconductor fabs.
For applicants found to be eligible, the government will provide up to 50% fiscal
support of their fab construction costs. I say up to, because 50% only applies to the
28 nm node or lower. 28 to 45 nanometers get 40%, and 45 to 65 nanometers get just 30%.
The government will also help provide land, semiconductor grade water, power, and logistics.
But I reckon many companies will strike their own deals with state and local governments too.
The plan also provides funding to help bring the venerable Semiconductor Laboratory or SCL
back to commercial viability. I covered SCL's story back in an earlier video.
And then there is some extra money allocated to help spur the setting up of advanced packaging
plants, MEMS fabs, and silicon photonics. Fifteen such fabs are expected to be built. I will set
those aside for now, though one should note that this area is where Tata Semiconductor is entering.
## Vedanta
Vedanta is a large natural resources giant founded by Anil Agarwal. It started out
as a scrap metals trading company that slowly expanded into mining and then energy generation.
Its 2021 revenues were about $12 billion
so this company is a step below giants like Tata and Reliance.
The joint venture will be within the Vedanta group's display and semiconductor business.
That segment's global managing director is Akarsh Hebbar, son-in-law to Vedanta head Anil Agarwal.
In an interview with the Economic Times, Hebbar discussed some of the joint venture's plans.
The Foxconn-Vedanta joint venture intends to target the 28 nanometer process node - the
node necessary to get the highest tier subsidy - and make smartphone and electronics chips.
Up to 70% of the fab's chips will be for the Indian domestic market, with the rest for export.
All semiconductor ventures roll out in phases. Counting up across its phases,
Vedanta intends to spend about $15 billion in displays and semiconductors,
with semiconductors receiving about $5 billion.
Reuters reported that in private discussions,
Vedanta is asking state governments for a 99-year lease on a thousand acres of land, free of cost.
This is in addition to whatever incentives the JV will receive from the Indian national government.
In return, the venture will bring $2.2 billion in tax revenues over the next 20 years
and create an estimated 100,000 direct and indirect jobs.
I want to note that this 100,000 jobs number sounds like a lot to me.
TSMC helped anchor the Tainan Southern Science Park two decades ago, but they're not the only
companies in the area. And today, the park still only employs about 65,000 people.
## Inexperienced?
Okay, other than that. When I first heard about this joint venture announcement,
the first thing I thought was: Is Foxconn really a chipmaker?
Foxconn is most well known for being the main contract assembler for Apple.
Their job has traditionally been to help with sourcing and putting together electronics goods
for consumer electronics brands.
Foxconn has a big and growing presence in India. Recently they have started
assembling iPhones 13 at their assembly plant in the Southern Tamil Nadu state.
There might have been a few bumps along the road,
but Foxconn's electronics assembly expertise in India has been proceeding very quickly.
But do they have any experience in semiconductors?
When asked about this, Habbar cited that while Foxconn does not have a 28 nanometer
semiconductor fab up and running right now, they use billions of dollars of chips themselves and
"have started 28 nanometer chips in 7-8 factories globally". So their experience is good.
This rather vague answer is incorrect. In recent years,
Foxconn has been pulling together a semiconductor division of its own
and we will talk about that but it doesn’t have 7-8 fabs starting a 28 nanometer process node.
## Foxconn's Semiconductor Division
Electronics assembly is a brutal, low-margin business. One of Foxconn's core strategies
for making money while still maintaining low prices has been to own as much of the
supply chain as possible. Especially in parts where the components are the most expensive.
Displays have traditionally been one of the most expensive parts of a particular gadget.
So that is why Foxconn bought big stakes in display-makers Innolux and Sharp.
With semiconductor costs rising and presenting challenges in the supply chain,
Foxconn has been working to gain expertise in that area as well.
The company has long been pulling together an in-house semiconductor division.
First, they partnered with ARM in 2016 to set up a chip design center in Shenzhen.
That design center is for making display driver ASICs.
That same year, they completed their acquisition of a majority share
of the Japanese electronics company Sharp Corporation.
The acquisition first began with a minority stake in 2012 but took four years to complete.
It has always been challenging for foreign companies to acquire Japanese companies - and the
Sharp Corporation acquisition was no different. It was a long fight. But it not only gave Foxconn
an iconic name brand and display business, but also its first legitimate semiconductor fab.
The majority of Sharp's factories in Japan, China, and Vietnam are geared to make display panels.
But it also has a 200-millimeter wafer fab located in Fukuyama City in the Hiroshima prefecture.
This fab runs a 130 nanometer process and produces LCD driver microcontrollers,
image sensors and certain analog integrated circuits. Per an environmental report, it has
been around since 1985 and underwent several expansions over the years.
Foxconn Founder Terry Gou - at the time still in charge - mentioned that one of the reasons the
company wanted to acquire Sharp was to combine the two companies' semiconductor expertise.
## Further Additions
Then Foxconn's efforts in the semiconductor industry sort of relaxed for a little while.
But they kicked up again after the start of the pandemic and the chip shortage.
In late November 2020, the company spent about $25 million USD to purchase a small share of
the majority owner of the Malaysian semiconductor fab Silterra. It was later reported that the two
companies were discussing capital expenditures to expand the fab's 200-millimeter fab capacity.
Then in 2021, Foxconn spent nearly $100 million to purchase a six-inch logic wafer fab in Hsinchu
from memory-maker Macronix. At the time, Foxconn said that they would
convert this small fab from making logic chips to silicon carbide semiconductors.
Tesla shook the EV industry in 2018 when they adopted an STMicroelectronics silicon
carbide inverter for their Model 3. Silicon carbide semiconductors
can operate at higher voltages and frequencies than traditional silicon.
It has allowed Tesla to shrink one of an EV's most critical components - the
inverter - in half. A very big deal and I should do a video about it someday.
Foxconn is right now working on the conversion process, and hopes to produce 15,000 wafers a
month by 2024. The first chips are scheduled to arrive sometime in the first half of 2022.
So there you have it. Two fabs - a 130 nanometer logic fab in Japan
and a silicon carbide fab in Taiwan that hasn’t started yet.
Foxconn is involved in a few other chip design ventures.
In December 2021 they announced they were working with Stellantis,
the automotive company owning Fiat and PSA, on automotive chip design.
However, those two fabs are the extent of what I can find
in Foxconn's semiconductor *manufacturing* experiences.
## A Financial Backwater
Financially, Foxconn's semiconductor division - labeled as Business Group
S - has been showing above-average growth, albeit from a tiny tiny base.
In 2021, Group S generated about $2.4 billion in revenue.
And that number is expected to rise to $3.4 billion next year in 2023.
It sounds like a lot. For instance, Taiwanese DRAM-maker Nanya Technology is ranked as the
43rd largest semiconductor company and they generated about $3 billion revenue in 2021.
So Group S might be a top-50 semiconductor company in the world right now.
But Foxconn made $215 billion revenue in 2021,
so Business Group S makes up less than 2% of their portfolio.
So yeah, Foxconn is indeed building a semiconductor division. And their efforts so
far has gone further than one might have expected and they have invested real money into it.
But it is also a small part of the Foxconn empire. And the chips they seem to want to make are older,
cost relatively little - about $2 - and seem to be primarily geared to EVs not mobile phones.
## Competitors
The Vedanta-Foxconn joint venture joins others
vying for subsidies from the Indian national government.
One consortium is ISMC Digital. ISMC is a joint venture between Israel-based
Tower Semiconductor - now owned by Intel - and a venture capital fund called Next Orbit Ventures.
ISMC in May 2022 signed a memorandum of understanding for a $3 billion 65 nanometer
plant in the southern state of Karnataka. According to the news release, the plant will
take 7 years to build - probably due to water and power connections - and generate about 1,500 jobs.
Tower had been in discussions for an Indian fab for a while.
However, things stalled for a little bit and in September 2021,
the company threatened to pull the plug unless national subsidies arrived.
Another significant player is IGSS Ventures in Singapore.
The company owns a small silicon photonics foundry called CompoundTek
but it markets itself as sort of like an advanced factory consulting outfit.
They will take over a plant and help improve its output.
It also seems like they offer a Build-Operate-Manage transfer model where
they set up a plant for you, do all the work, and then transfer it to the final owner's hands.
## The Process
The three applicants will be evaluated by a government agency - the India
Semiconductor Mission - appraising their technical chops and financial wherewithal.
The government is looking to choose at least two applicants for the scheme.
Applicants have to have operational experience. That means directly running a
65/45/28 nanometer node fab. Or having access to a license for a 28 nanometer process node
with a demonstrated roadmap to something more advanced.
I don't believe either of Foxconn's fabs are up to 65 nanometers just yet.
But Tower Semiconductor would qualify under this criteria - their fabs can go up to 45 nanometers.
So I reckon that ISMC - having already announced their fab to be moving forward
and with the Intel name silently backing it - will receive those subsidies in good time.
Foxconn on the other hand might be good at putting together supply chains for electronics
but jumping to 40,000 wafers at 28nm is a big ask and the company has reneged on promises before.
So it will be seen whether the joint venture can match up with IGSS for the second slot.
## Conclusion
The Indian government has released
a pair of vision documents outlining their policy goals for increasing the amount of
Indian electronics exports and how making semiconductors will contribute to that.
The vision documents have a heavy focus on mobile phones as one of their core policy points.
They note that India used to make their own handsets until Nokia closed their
manufacturing site in 2014. The loss of the Indian smartphone market to foreign competitors
is one deeply felt by Indian policymakers. More so as recent technical developments
like cheap mobile data and UPI have made smartphones even more important to Indians.
In 2017, the Indian government began an import substitution scheme to generate domestic
manufacturing capacity. This now changes to a production-linked incentive scheme
with the goal of producing items for export: "Make in India for the World".
This policy follows the path of countries like Thailand - which has since become a
dominant automotive exporting power. It worked for them, so let us see how it does for India.