This month, Foxconn withdrew from its joint venture with Vedanta. Foxconn said in a statement at the time that the two parties had “unanimously agreed to part ways.”
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Foxconn Best known as the main assembler of Apple’s iPhone. But over the past few years, the Taiwanese company has moved into semiconductors, betting that the rise of technologies such as artificial intelligence will increase demand for those chips.
But Foxconn’s semiconductor foray has gotten off to a rocky start, underscoring how difficult it is for new players to break into a market dominated by established players with deep experience and highly complex supply chains.
“The industry offers high barriers to entry for new entrants, primarily a high level of capital intensity and access to coveted intellectual property,” Gabriel Perez, an ICT analyst at BMI, part of Fitch Group, told CNBC via email.
“Veteran players such as TSMCSamsung or Micron Current capabilities have been achieved through decades of R&D, process engineering, and trillions of dollars in investment. “
Why did Foxconn enter the semiconductor field?
Foxconn, formally known as Hon Hai Technology Group, is an electronics contract manufacturer that assembles consumer products such as iPhones. But in the past two years, it has strengthened its presence in semiconductors.
In May 2021, a joint venture was established with Yageo Corporation to produce various electronic components.That same year, Foxconn bought a chip factory from a Taiwanese chipmaker Macronix.
Foxconn’s biggest effort came last year when it struck a deal with Indian metals and oil group Vedanta to build a semiconductor and display production plant in India as part of a $19.5 billion joint venture.
Neil Shah, vice president of research at Counterpoint Research, said Foxconn’s move into semiconductors was an attempt to diversify its business, and the company’s decision to launch an electric vehicle unit was part of that plan. Shah said the aim is to be a “one-stop shop” for electronics and automotive companies.
If Foxconn could assemble electronics and make chips, it would be a very unique and competitive business.
Why India?
Foxconn wants to set up joint venture with Vedanta in India as the country’s government seeks Revitalize the domestic semiconductor industry and move manufacturing to shore.
“Foxconn’s decision to establish a joint venture in India responds to two major trends, one of which is the market’s growing role as a manufacturing hub for consumer electronics, and the second is India’s ambition – to emulate other major markets such as the US, EU and mainland China – to develop a domestic semiconductor industry through public subsidies and regulatory incentives,” said BMI’s Perez.
What happened to Foxconn?
This month, Foxconn withdrew from its joint venture with Vedanta. Foxconn said in a statement at the time that the two parties had “unanimously agreed to part ways.”
“Both parties recognize that the project is not moving fast enough, there are challenging gaps that we cannot successfully overcome, and external issues unrelated to the project,” Foxconn said.
Stalemate in talks with European chipmaker STMicroelectronics, the project’s technology partner, was one of the main reasons for the joint venture’s failure. Reuters reported this month.
According to Reuters, Foxconn and Vedanta wanted to license technology from STMicroelectronics, and India wanted the company to take a stake in the joint venture, but the European chipmaker has not done so.
Breaking into chip manufacturing is hard
Foxconn’s hurdles point to a broader problem — the difficulty for newcomers in semiconductor manufacturing.
Chipmaking is dominated by one company, Taiwan Semiconductor Manufacturing Company, or TSMC, which has a 59% market share in the foundry sector, according to Counterpoint Research.
TSMC does not design its own chips. Instead, it makes those components for other companies like Apple.TSMC has more than two decades of experience and billions of dollars in investment to get to where it is.
TSMC also relies on a complex supply chain of companies that produce key tools that allow it to manufacture the world’s most advanced chips.
Foxconn and Vedanta’s efforts appear to rely heavily on STMicroelectronicsBut once the European companies pulled out, the joint venture lacked expertise in semiconductors.
“Both companies … lack the core capabilities to make chips,” said Counterpoint Research’s Shah, adding that they both rely on third-party technology and intellectual property.
Foxconn’s foray into semiconductors underscores how difficult it is for new entrants to do so — even for a giant with a market capitalization of $47.9 billion.
“The semiconductor market is highly concentrated with few players and it took more than two decades to develop to this point,” Shah said, adding that barriers to entry are high, such as large investments and specialized labor.
“On average, it takes more than two decades to reach the level of technology and scale to become a successful semiconductor manufacturing (fab) company.”
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