Foxconn insists on making chips on cow dung

Original debut | Golden Horn Finance (ID: F-Jinjiao)

Author | East Fence

On July 10, Foxconn officially announced its "breakup" with Indian metal oil group Vedanta, and the semiconductor joint venture factory with a scale of up to 19.5 billion US dollars (about 140 billion yuan) that had been preparing for nearly one and a half years was aborted. As a result, Foxconn's early investment was lost, and India's core manufacturing industry also suffered a heavy blow.

In May, India boasted that it would become the world's largest semiconductor manufacturing base in the next four to five years. The chip manufacturing plant, which Foxconn provides financial and technical support, is an "important step" in driving India's chip manufacturing ambitions. According to the memorandum of cooperation signed by the two parties, the two parties will jointly invest 19.5 billion US dollars to build a 12-inch wafer fab with 28nm process and supporting packaging and testing plants, which are expected to be officially put into use in 2025.

The latest news shows that after the failure of the above cooperation, Foxconn quickly launched a plan to set up four to five new chip production lines in India, and is expected to submit their final application to the government within 45 to 60 days and find the best partner.

This is undoubtedly to the world that Foxconn's dream of developing semiconductors and moving towards high-end manufacturing in India has not come to an end.

"Tens of billions of subsidies" in the semiconductor industry

As the global "king of foundry", Foxconn has not hidden its ambition to make high-end manufacturing in recent years, and after a deep pocket "buy, buy, buy", Foxconn's semiconductor business has covered wafer foundry, packaging and testing, and chip design, mainly focusing on mature process fields such as analog, power semiconductor, and automotive chips.

Generally speaking, 28nm is regarded as the dividing line between advanced semiconductor processes and mature processes, with the strong growth of the 28nm market, especially in the field of automotive chips, coupled with the intensification of competition in the domestic foundry market, Foxconn's decision to bet on chip manufacturing in India is reasonable.

At the same time, India is very "on top" for the development of its own chip industry. Changes in the international situation and increased supply chain risks in recent years have made India's desire to develop indigenous chip manufacturing capabilities more urgent. So in 2018, India proposed the goal of achieving the localization of all chips in 2 years.

In the end, India did not meet these targets in 2020. That year, although India's chip market reached $15 billion, the chips used were basically imported, 65% of which came from China, and the radical chip localization strategy failed.

In October 2020, India's "National Cattle Committee" released a high-profile "10 cm cow manure chip".

The group's president claims that if you put the chip in your phone, you can drastically reduce radiation, and "using the chip can protect humans from viruses." It plans to export to the U.S. on a large scale.

In December 2021, India announced the approval of a $10 billion chip industry incentive program to provide financial support of up to 50% of the project cost to eligible display and semiconductor manufacturers, and opened applications in January of the following year, with the joint venture between Foxconn and Vedanta being one of the three companies that initiated the application.

In addition to the government's financial support, India's own cheap land and labor prices are highly attractive to foundries such as Foxconn, and India has made achievements in the field of chip design and is expected to give Foxconn more support.

It is understood that ARM, Qualcomm, Intel, Cadence and Texas Instruments and other world-famous semiconductor companies have established design centers in India, and Bangalore, India is also one of the world's largest chip design centers.

At the same time, India's large local chip market ensures the basic disk on the demand side.

India's semiconductor market was about $15 billion in 2020 and is expected to reach around $63 billion in 2026, according to India's Ministry of Electronics and Information Technology.

This is because India has a large number of domestic automotive and electronics manufacturing industries, and in 2019 became the world's second largest mobile phone manufacturer. With the implementation of the new "Digital India" plan launched in 2023, the degree of digitalization in all towns and villages in India will further increase to more than 80%, and India's chip consumption will continue to rise.

While divesting, investing at the same time

Foxconn's exit from its joint venture with Vedanta does not mean a break with India, on the contrary, Foxconn now needs India more than ever to stabilize the big picture.

As a major foundry of Apple's mobile phones, Foxconn has followed Apple's footsteps to India since 2015, and even did not hesitate to transfer its 300 billion yuan of production capacity to India.

In March, rumors swirled that Foxconn planned to invest about $200 million in Telangana to build a new factory. At the same time, there were also news that Foxconn planned to invest $700 million to build an iPhone parts factory in Karnataka, India, which could be used to assemble iPhones or produce parts for Apple's burgeoning electric vehicle business.

However, Foxconn's attitude is a bit "ambiguous", first saying that it has not signed a "final agreement" on any new investment, and then changing its words to commit to fulfilling the agreements signed with the two states.

As the proportion of Apple products made in India increases, Foxconn has begun to use India as the next bridgehead for development out of customer and own needs.

However, India's lack of rule of law and legal awareness made Foxconn and other companies choose to withdraw. For the Indian government, the law is only an instrument of domination, so it can be changed at will for its own economic and political interests. Affected by this, India's industrial policy is often contradictory, on the one hand, it hopes to spend huge amounts of money to attract foreign enterprises and support joint ventures, on the other hand, it wants to both want and want, the surprise and arbitrariness of law enforcement is too strong, so that multinational companies in India are seriously insecure, not to mention the huge investment in the chip manufacturing industry.

According to Indian government data, more than 2,700 multinational companies have left India in the past decade, including Ford and GM in the automotive industry, Metro, Carrefour and Wal-Mart in the retail industry, and Citibank and Bank of Scotland in the banking industry.

The official announcement of Foxconn's withdrawal of investment is widely believed to be due to the uncertainty of Indian government subsidies. Bloomberg information shows that the factory cannot receive subsidies of up to billions of dollars because it does not meet the technical standards of the Indian government. The Indian government had asked the joint venture to reapply for incentives.

It turned out that Vedanta and Foxconn had no chip manufacturing experience, and India was a chip design "single-subject specialist" and lacked chip manufacturing technology and talents, so it hoped to introduce the technology licensing of STMicroelectronics, one of the three major European chip manufacturing giants, and the Indian government clearly expressed its hope that STMicroelectronics could have more participation, such as holding shares in partnerships, but STMicroelectronics did not intend to do so, and negotiations were stalled.

Although Vedanta recently said that it had obtained a production license for the 40nm process from a world-class manufacturer, this was far from the originally planned 28nm process, so the Indian government delayed the approval of the incentive funds. In addition, the Indian government has raised some questions about the cost estimates it provides to the government to obtain incentives. Coming and going, for the Indian chip project with high investment and high risk, Foxconn retreated in his heart.

Another fundamental and important point is that the semiconductor industry has a large demand for water resources, and at the same time requires an extremely stable power supply, as well as a lot of land and strong infrastructure, but India is full of problems in these areas.

Unsurprisingly, several other companies that applied with Foxconn and Vedanta did not make significant progress in chip investment and factory construction, and the Indian government had to open applications again until the $10 billion incentive program ran out.

The future in India?

Today's Foxconn is like coming to two ends of the scale, on the one hand, low-end manufacturing based on OEM, on the other hand, high-end industries with high added value and strong competitiveness, and now both converge in the same country India, Foxconn is weighing the pros and cons.

Since investing in Chinese mainland in 1988, Foxconn's core business has been the OEM of electronic products, creating a vertically integrated eCMMS business model (similar to one-stop ordering). Even if Foxconn becomes the king of global foundry with extreme efficiency, it is still difficult to ensure a stable future.

Taking Apple as an example, behind each iPhone are suppliers across the world, and the number of suppliers involved in the entire "fruit chain" is as many as 186. As the designer and seller of products, Apple has a great say in front of suppliers. On the one hand, it is constantly compressing the profit margins of suppliers, on the other hand, it is introducing new suppliers, "supporting spare tires", and every year there will be a purposeful kick out of some partners, through such competition and "knocking" to make suppliers profit.

In recent years, Apple's shrinking orders, the decline in foundry gross profit and the rapid rise of competitors such as Luxshare Precision have also made Foxconn realize that it cannot stop there, and needs to carry out business in the fields of industrial Internet, semiconductors, and new energy vehicles.

It just so happens that Foxconn is investing in building foundries in India while developing the semiconductor industry, which can not only further reduce production costs and improve foundry competitiveness, but also cut into the Indian market and transform high-end manufacturing.

According to Semiconductor Industry Watch, Foxconn aims to build its own factories in India in manufacturing machinery and precision machinery, electric vehicles, IC (integrated chip) design and semiconductors, and has even said it will build its own factories even without any government incentives. Quite a bit of a desperate determination.

Joining the global value chain in the form of OEM, accumulating technical and management experience, and then gradually progressing to high value-added industrial links and both ends of the smile curve has been verified by BYD, Huawei and other enterprises as a feasible way out. However, the difficulties cannot be underestimated, and the conditions such as capital, technology, talents, and infrastructure are also indispensable.

Today's Foxconn is facing the challenges of declining performance, exploration of new ways and increasingly involution in the foundry market. Although Foxconn has a unique advantage in foundry, it is still in its infancy in chip manufacturing, and it is still unknown to cut into high-end manufacturing with India.

Resources:

Make up for a knife "Foxconn made a big move in India? 》

IT boss "Foxconn withdraws, Indian manufacturing suffers heavy setback"

Semiconductor Industry Watch "Foxconn, Grab Chips"

Tiger Sniff Technology Group "Foxconn defeated India, who pit whom"? 》

Global Times "Replacing China"? What is happening behind India's "chip ambition"? 》

China Business Daily "The King of OEM" Foxconn's bumpy growth road"