Foxconn Pulls out of $19.5 Billion Chip Deal in Setback for Narendra Modi’s Tech Agenda

foxconn pulls out of 195 billion chip deal in setback for narendra modis tech agenda
Prakash Singh/Bloomberg via Getty Images

Taiwan-based tech giant Foxconn announced Monday its withdrawal from a $19.5 billion joint semiconductor manufacturing deal with Indian metal and energy company Vedanta.

The deal’s collapse is a setback for Indian Prime Minister Narendra Modi’s plan to make India a leading source of computer chips and a personal disappointment because the Foxconn-Vedanta plant would have been located in Modi’s home state of Gujarat.

Foxconn said it began negotiations with Vedanta over a year ago to bring “a great semiconductor idea to reality,” but both companies have agreed the venture cannot move forward.

Vedanta said it would continue the project without Foxconn’s involvement and has already “lined up other partners to set up India’s first foundry.” Both companies said they remain committed to Modi’s agenda for the Indian semiconductor industry.

“A source familiar with the matter said concerns about incentive approval delays by India’s government had contributed to Foxconn’s decision to pull out of the venture. New Delhi had also raised several questions on the cost estimates provided to request incentives from the government,” Reuters reported on Tuesday.

India’s NDTV pointed out that neither Foxconn nor Vedanta has any experience in manufacturing semiconductors. The two companies had always planned to bring in a third partner to handle it, and according to NDTV, their difficulty in locking down a mutually agreeable technology partner was one reason the joint venture fell apart. Both Foxconn and Vedanta have reportedly found different tech partners they feel comfortable with.

The Times of India (TOI) also cited sources who said the difficulty settling on a tech partner was a major reason the venture failed after more than a year of development. Some of these sources suggested Foxconn wants to make different types of computer chips than Vedanta, with more of a focus on smartphones, an industry Foxconn serves as a major supplier.

The Verge noted Foxconn, whose proper incorporated name in Taiwan is Hon Hai Precision Industry, has developed a habit of pulling out of big manufacturing deals after lining up large incentives from local governments:

Foxconn’s Vedanta deal is only its latest to go south. As Wisconsin has learned the hard way, throwing $4 billion in incentives at Foxconn is not enough to get the company to build a factory. And it’s currently being sued in the US by ailing EV [electric vehicle] automaker Lordstown Motors due to alleged “fraud and willful and consistent failure to live up to its commercial and financial commitments.”

The Indian opposition, particularly the India National Congress Party (INC), taunted Modi over the dissolution of the Foxconn-Vedanta deal, which Modi and his Bharatiya Janata Party (BJP) heavily touted when it was announced a year ago.

“Whether the Gujarat Model or ‘New India,’ never trust the manufactured headlines,” INC chortled. The Gujarat Model refers to Modi’s economic agenda, which is ostensibly based on the successful development of his home state into an industrial powerhouse. “New India” is Modi’s slogan for developing India as a technological power without losing its traditions and culture.

“Remember the publicity at the time of announcing the project?” INC General Secretary Jairam Ramesh said on Twitter. “The Gujarat Chief Minister even claimed 1 lakh jobs [100,000 jobs] will be created!”

“This has been the fate of many MOUs [Memorandums of Understanding] signed in Vibrant Gujarat summits year after year, and will be the fate of other such copycat summits like Global Investor Summits in Uttar Pradesh,” he predicted.

“Vibrant Gujarat,” or the Vibrant Gujarat Global Summit (VGGS), is a biennial investor summit that is scheduled to return in January 2024 after a five-year hiatus. The Uttar Pradesh Global Investors Summit is a similar event that was last held in February 2023.

Ramesh contrasted the failure of the Foxconn-Vedanta deal with a plan by U.S. chip company Micron to set up a facility in Gujarat that will “assemble, package, and test” chips the company fabricates in the United States and China. 

The Micron deal, announced during Modi’s recent visit to the United States, is much lower profile than the full-blown chipmaking Foxconn and Vedanta were planning, and Ramesh noted that Micron needed heavy subsidies from the Indian central government (the “Center”) and Gujarat officials to build even that limited assembly and testing facility.

“Micron, though, is putting up just 30% of the $2.75 billion, with 50% coming from the Center and 20% from the Gujarat government. By any standards this appears to be a hugely hefty subsidy to an American company,” Ramesh said.

Authored by John Hayward via Breitbart July 11th 2023