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Hon Hai announced this week plans to build a chip factory in partnership with Indian natural resource group Vedanta, becoming the first large foreign technology manufacturer to move chip production to India in response to India's transfer of chip production to India. However, Hon Hai's plan to invest only $118.7 million in a new project with a 40% stake does not seem to be a major advance in India's promotion of indigenous semiconductor manufacturing, let alone that the project is only a "memorandum of understanding" and does not make any commitments to either party.
If hon Hai's 40% stake of US$118.7 million is converted, the total investment in the project is only about US$300 million. For semiconductor manufacturing with a large investment scale, it seems to be just a "name" to the Indian government's "chip manufacturing localization" strategy.
Founded in 1965, Vedanta is one of the Indian multinational groups with operations on 6 continents and 25 countries, with revenues of $17 billion in 2021. The group has more than 200 companies, including telecommunications engineering companies, glass substrate factory AvanStrate and optical fiber company Sterlite, with electronic parts manufacturing capabilities and more than 100,000 employees worldwide. Vedanta Ltd is currently listed on the Mumbai Exchange (BSE) and the National Exchange of India (NSE) with a market capitalization of over $20 billion. Vedanta is also India's largest aluminium producer, a major supplier of oil and gas, and also has a presence in the telecommunications sector. It and Hon Hai lack industry background and sufficient technology accumulation in the semiconductor field. But the Modi government's ambitions in semiconductor manufacturing have given them an unusual opportunity.
Indian Prime Minister Narendra Modi Source: Nikkei
Earlier this year, Indian Prime Minister Narendra Modi announced an incentive program of Rs 760 billion ($10.2 billion) for global chipmakers. The new package covers up to half of the initial cost of setting up a chip manufacturing center in the country, including front-end processes for wafer fabrication. The Indian government will work with state authorities to establish high-tech industrial parks equipped with clean water, adequate power and logistics infrastructure, demonstrating its strong desire to move up the value chain from simple assembly to more technologically advanced semiconductor manufacturing. A statement issued by the Indian government showed that it would provide financial support of up to 50% of the project cost to eligible enterprises.
The Indian government has also approved another incentive program to support 100 local companies to design integrated circuits and chipsets. India's largest business conglomerate, Tata Group, is preparing to start an investment company for the semiconductor industry. The group is in contact with three states with plans to invest up to $300 million in chip assembly and test plants.
In the middle of last year, India also announced plans to invest $20 billion and formulate related investment incentive plans to promote the development of the local LCD panel industry chain.
Vedanta Group then announced in January that it plans to invest $15 billion in India over the next five years to make displays and semiconductor chips. In December 2017, it acquired AvanStrate, a Japanese glass substrate manufacturer, from the Carlyle Group. As a result of the lucrative Electronics Manufacturing and Production Incentive Scheme (PLI) program, several chipmakers, notably Intel, TSMC and UMC, have expressed interest in expanding their semiconductor manufacturing facilities in India.
In the field of panels, Hon Hai has a wealth of experience. Gou orchestrated the acquisition of Sharp in 2016, turning the fortunes of the troubled Japanese panel company around in just a few years. In the field of semiconductor manufacturing, Hon Hai's Foxconn is very fast in semiconductors, not long ago Foxconn Qingdao high-end packaging and testing project officially held a commissioning ceremony, completed the construction of the packaging and testing plant; last August also acquired Wanghong 6-inch wafer factory, layout of vehicle silicon carbide (SiC) chips. However, the challenges of semiconductor manufacturing are not the same as in the field of smartphone assembly and panels, and the short-lived industry experience alone is far from enough to deal with.
Hon Hai's initial $118.7 million may be more than enough to form a chip design team, but it can be said to be a drop in the bucket for investing in fabs with billions or even tens of billions of dollars. Even though Vedanta may offer up to 10x the investment, even $1 billion isn't enough to start semiconductor manufacturing from scratch. The joint venture between the two sides, whether it is doing wafer foundry for external customers or producing chips of their own design, may face huge challenges, especially the foundry market has been occupied by TSMC, UMC, GF companies occupy the vast majority of the share, and in addition to TSMC, the rest of the foundries in most normal industry cycles (in addition to the current super shortage cycle) can not guarantee that they will always be profitable.
If the joint venture is positioned as ANM, it will need to form two design and manufacturing divisions at the same time.
At present, no more details have been announced in the joint statement between the two sides, and we may understand that the two companies have expressed their intention to enter semiconductor manufacturing in response to the government's call to seek huge financial subsidies.
To be sure, Vedanta's local presence combined with Hon Hai's "technical" prowess has resulted in a company that looks extremely attractive. But for now, this adventure looks like a castle in the air.
Good high-flying Indian "core" road
Over the past year or so, the global lack of cores has had a huge impact on the automotive, smartphone, computer and other industries. Especially under the trend of geopolitical rise, after realizing the importance of local chip manufacturing, the European Union, the United States, Japan, India and other countries and regions have introduced relevant incentives. For example, the European Union recently announced a 43 billion euro (about $4.86 billion) chip supply chain development plan; the US government has issued a huge incentive bill, planning to invest $52 billion in chip manufacturing and semiconductor research and development centers.
For India, the desire to introduce semiconductor manufacturing has a long history. While many of the semiconductor giants now have branches in India, AMD has opened a new ESDM design center in HITEC, Hyderabad; Arm, in addition to operating the VLSI business in Bangalore, has also set up a new design center in Noida, Uttar Pradesh, responsible for the graphic and FinFET CMOS technology of its physical IP division; and Cadence, Qualcomm, Intel and other companies have set up locations in India. 23 of the world's top 10 chip design companies and 25 top 25 semiconductor suppliers have set up offices in India, but these businesses are mainly chip design, research and development and customer service, software departments, and chip manufacturing is still highly dependent on imports.
As the world's second largest consumer market after China, the Indian semiconductor market has great potential. Taking the smartphone market as an example, data from the research agency Canalys shows that the total shipment of smartphones in India last year reached 162 million units, an increase of 12% year-on-year, a huge market, low labor costs, attracted xiaomi, OPPO, vivo, TRANSSION and other mobile phone manufacturers to set up OEM factories in India, which also led to the overall migration of the mobile phone industry chain to India.
The boom in the electronics industry has increased its semiconductor consumption from $10.02 billion in 2013 to $52.58 billion in 2020, relying almost entirely on imports. According to a report released by IESA (Indian Electronics and Semiconductor Association) in collaboration with market research firm MarketsandMarkets, the Indian semiconductor component market is expected to be worth $32.35 billion by 2025, with a compound annual growth rate of 10.1% from 2018 to 2025. This is one of the reasons why the Indian government is desperately trying to develop semiconductors, hoping that the industry will upgrade from low-end assembly to high-end chip manufacturing.
But this grand plan has been shouted for so many years, and so far it has been lacking in demand, and the reason is that India is difficult to meet in terms of high-quality talent base, infrastructure, water/electricity resources, transportation and logistics, and business environment.
India's "Business Standards Newspaper" commented that India has many problems in terms of power supply, and other obstacles include adequate water supply, transportation infrastructure, and mature workers. For more than two decades, India has been dreaming of attracting semiconductor manufacturing giants to build factories in India and embark on the road to becoming a chip power, but India's dream has never happened.
If the Indian government cannot reasonably plan the development strategy of the semiconductor industry according to the actual situation of the country and enter the semiconductor manufacturing industry overnight, then its ambition may still be reduced to a means of public opinion stimulation before another general election. For India in particular, this is already its third attempt in 20 years, after several failures, each at a cost of around $5 billion.
Interestingly, Tower Semiconductor submitted a letter of intent (EOI) to the Indian government last year, but due to government delays, the application has not been approved for the past nine months. To this end, Tower Semiconductor wrote to Indian Prime Minister Modi, saying, "We ask you to immediately clarify and communicate the restrictions of the Indian government and its stakeholders, otherwise we will say that we cannot continue to actively participate in this project in the near future." "Now that Tower Semiconductor has been acquired by Intel, even if the approval is passed, it may not be useful. (Proofreading/Aaron)