Apple supplier Foxconn's failed India chip venture shows how tough it is for new players

Foxconn is champion known arsenic the main assembler of Apple's iPhones. But successful past mates of years, the Taiwanese steadfast has made a propulsion into semiconductors, betting that the emergence of technologies similar artificial quality volition boost request for these chips.

But Foxconn's semiconductor foray has had a pugnacious start, highlighting the trouble for caller players to participate a marketplace dominated by established firms with immense acquisition and a highly intricate proviso chain.

"The manufacture presents newcomers with precocious barriers to entry, chiefly precocious levels of superior strength and entree to coveted intelligence property," Gabriel Perez, ICT expert astatine BMI, a portion astatine Fitch Group, told CNBC via email.

"Established players specified arsenic TSMC, Samsung oregon Micron number with respective decades of R&D (research and development), process engineering and trillions of dollars successful concern to scope their existent capabilities."

Foxconn, officially known arsenic Hon Hai Technology Group, is simply a declaration electronics shaper that assembles user products similar iPhones. But successful the past 2 years, it has stepped up its beingness successful semiconductors.

In May 2021, it formed a associated task with Yageo Corporation, which makes assorted types of physics components. That aforesaid year, Foxconn bought a spot works from Taiwanese chipmaker Macronix.

The biggest ramp-up successful effort came past twelvemonth erstwhile Foxconn agreed with Indian metals-to-oil conglomerate Vedanta to acceptable up a semiconductor and show accumulation works successful India arsenic portion of a $19.5 cardinal associated venture.

Neil Shah, vice president of probe astatine Counterpoint Research, said Foxconn's propulsion into semiconductors is astir diversifying its business, and the company's determination to motorboat an electrical car unit is portion of that plan. Its purpose is to go a "one halt shop" for electronics and automotive companies, Shah said.

If Foxconn could assemble electronics and manufacture chips, it would beryllium a precise unsocial and competitory business.

Foxconn looked to India for its associated task with Vedanta due to the fact that the country's authorities is looking to boost its home semiconductor industry and bring manufacturing connected shore.

"Foxconn's determination to found a JV successful India responds to 2 cardinal trends – 1 of them being the market's increasing relation arsenic a user electronics manufacturing hub, the 2nd 1 being India's ambitions – mirroring different large markets specified arsenic the US, the EU and Mainland China - to make its home semiconductor manufacture done nationalist subsidies and regulatory incentives," BMI's Perez said.

This month, Foxconn pulled retired of its associated task with Vedanta. The 2 sides "mutually agreed to portion ways," Foxconn said successful a connection astatine the time.

"There was designation from some sides that the task was not moving accelerated enough, determination were challenging gaps we were not capable to smoothly overcome, arsenic good arsenic outer issues unrelated to the project," Foxconn said.

Deadlocked talks with European chipmaker STMicroelectronics, which was the exertion spouse for the project, was 1 large crushed for the venture's failure, Reuters reported this month.

Foxconn and Vedanta wanted to licence the exertion from STMicro and India wanted the steadfast to person a involvement successful the associated venture, but the European chipmaker did not, Reuters reported.

Foxconn's hurdles constituent to a broader contented — it's hard for newcomers to get into semiconductor manufacturing.

The manufacturing of chips is dominated by 1 subordinate — Taiwan Semiconductor Manufacturing Company, amended known arsenic TSMC — which has a 59% marketplace stock successful the foundry segment, according to Counterpoint Research.

TSMC doesn't plan its ain chips. Instead, it makes these components for different companies similar Apple. TSMC has had much than 2 decades of acquisition and billions of dollars of concern to get to wherever it is.

TSMC besides relies connected a complex proviso concatenation of companies that marque captious tools to let it to manufacture the astir precocious chips successful the world.

Foxconn and Vedanta's effort appeared to trust heavy connected STMicro, but erstwhile the European institution bailed, the associated task was without overmuch expertise successful semiconductors.

"Both companies ... lacked the halfway competency of manufacturing a chip," Counterpoint Research's Shah said, adding that they were babelike connected third-party exertion and intelligence property.

Foxconn's attempts to ace the semiconductor abstraction item however hard it is for a caller entrant to bash truthful — adjacent for a $47.9 cardinal giant.

"The semiconductor marketplace is highly concentrated with fewer players which person taken much than 2 decades to germinate to this point," Shah said, adding that determination are precocious barriers to entry, specified arsenic ample amounts of concern and specialized labor.

"On an average, it takes much than 2 decades to beryllium astatine the level of accomplishment and standard to beryllium a palmy semiconductor manufacturing (fab) company."