Foxconn pulled out of its joint venture with Vedanta earlier this month. Foxconn said in a statement at the time that the two sides “mutually agreed to part ways.”
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Foxconn is best known as the primary assembler for Apple’s iPhone. However, the Taiwanese company has been making inroads into semiconductors in recent years, betting that the rise of technologies such as artificial intelligence will increase demand for semiconductors.
But Foxconn’s semiconductor foray got off to a rocky start, highlighting the difficulty of new entrants entering a market dominated by incumbents with vast experience and highly complex supply chains.
“The industry has high barriers to entry for new entrants, primarily due to high levels of capital concentration and access to coveted intellectual property,” Gabriel Perez, an ICT analyst at BMI, a division of Fitch Group, told CNBC in an email.
“Like an established player TSMCsamsung or micron It takes decades of R&D, process engineering, and trillions of dollars of investment to reach today’s capabilities. “
Why is Foxconn getting into semiconductors?
Foxconn, formally known as Hon Hai Technology Group, is a contract electronics manufacturer that assembles consumer products such as the iPhone. Over the past two years, however, the company has increased its presence in the semiconductor space.
In May 2021, we established a joint venture with Yageo Corporation, which manufactures various electronic components.That same year, Foxconn acquired a chip factory from a Taiwanese chipmaker. macronics.
The biggest step up in efforts came last year when Foxconn agreed to set up a semiconductor and display manufacturing plant in India as part of a $19.5 billion joint venture with Indian metal-oil conglomerate Vedanta.
Neil Shah, vice president of research at Counterpoint Research, said Foxconn’s move into the semiconductor sector was aimed at diversifying its business and the company’s decision to launch a semiconductor business. electric car unit is part of that plan. Shah said the company’s goal is to be a “one-stop-shop” for electronics and auto companies.
If Foxconn could assemble electronics and manufacture chips, it would be a very unique and competitive business.
why india?
Foxconn is considering a joint venture with Vedanta in India because the government has the following goals: Boost the domestic semiconductor industry And bring manufacturing to land.
“Foxconn’s decision to establish a joint venture in India responds to two key trends: the market’s increasing role as a consumer electronics manufacturing hub, and the second, India’s ambition to develop its domestic semiconductor industry through public subsidies and regulatory incentives, mirroring other major markets such as the US, EU and mainland China,” said Mr Perez of BMI.
What was the problem for Foxconn?
Foxconn pulled out of its joint venture with Vedanta earlier this month. Foxconn said in a statement at the time that the two sides “mutually agreed to part ways.”
“There was a perception on both sides that the project wasn’t moving fast enough, that there were difficult gaps that weren’t smoothly overcome, and that there were external issues unrelated to the project,” Foxconn said.
Stalled negotiations with European chipmaker STMicroelectronics, the technology partner for the project, was one of the main reasons for the failure of the venture. Reuters reported this month.
Foxconn and Vedanta wanted to license technology from STMicro, and India wanted STMicro to invest in the joint venture, but European chip makers declined, Reuters reported.
Hard to get into chip manufacturing
Foxconn’s hurdle points to a broader problem. It is difficult for new entrants to enter semiconductor manufacturing.
Chip manufacturing is dominated by one company, Taiwan Semiconductor Manufacturing Company (TSMC), which has a 59% market share in the foundry sector, according to Counterpoint Research.
TSMC does not design its own chips. Instead, they manufacture these components for other companies such as Apple. TSMC brings his 20+ years of experience and billions of dollars in investments. to get there.
TSMC also A company’s complex supply chain We manufacture the critical tools that enable the production of some of the world’s most advanced chips.
Foxconn and Vedanta’s efforts appear to rely heavily on: ST MicroBut when the European company was bailed out, the joint venture didn’t have much expertise in semiconductors.
“Both companies … lacked core competencies in chip manufacturing,” said Shah of Counterpoint Research, adding that both companies relied on third-party technology and intellectual property.
Foxconn’s attempt to crack a crack in the semiconductor space highlights how difficult it can be for new entrants, even for the $47.9 billion behemoth.
“The semiconductor market is very concentrated and there are few players that have taken more than 20 years to evolve to this point,” Shah said, adding that barriers to entry are high, including heavy investment and specialized labor.
“On average, it takes more than 20 years to reach the level of skill and scale to be a successful semiconductor manufacturing (fab) company.”
