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This month, Foxconn pulled out of its joint venture with Vedanta. Foxconn said in a statement at the time that the two sides had “mutually agreed to separate”.
Soba photos | Light Rocket | Getty Images
Foxconn It is known as the main assembler of Apple’s iPhones. But in the past two years, the Taiwanese company has been making a push into the semiconductor industry, betting that the rise of technologies like artificial intelligence will boost demand for these chips.
But Foxconn’s foray into semiconductors has had a rocky start, highlighting the difficulty of entering new players into a market dominated by established companies with vast experience and a highly complex supply chain.
“The industry presents new entrants with high barriers to entry, particularly high levels of capital intensity and access to desirable intellectual property,” Gabriel Perez, an ICT analyst at BMI, a unit of the Fitch Group, told CNBC by email.
Established players like TSMCor Samsung or micron They rely on several decades of R&D (research and development), process engineering, and trillions of dollars in investment to reach their current capabilities.”
Why is Foxconn entering the semiconductor industry?
Foxconn, formally known as Hon Hai Technology Group, is a contract electronics manufacturer that assembles consumer products such as iPhones. But in the past two years, it has strengthened its presence in semiconductors.
In May 2021, it formed a joint venture with Yageo Corporation, which manufactures various types of electronic components. In the same year, Foxconn bought a chip factory from a Taiwanese chip maker macronics.
The biggest surge in efforts came last year when Foxconn agreed with Indian metal-to-oil specialist Vedanta to set up a semiconductor plant and display production in India as part of a $19.5 billion joint venture.
Neil Shah, vice president of research at Counterpoint Research, said Foxconn’s push into semiconductors is about diversifying its business, and the company’s decision to launch an electric car unit is part of that plan. Its goal, Shah said, is to become a “one-stop shop” for electronics and automotive companies.
If Foxconn can assemble the electronics and manufacture the chips, it will be a unique and very competitive business.
Why India?
Foxconn is looking to India for its joint venture with Vedanta because the country’s government is looking forward to it Promote the domestic semiconductor industry and bring manufacturing to shore.
“Foxconn’s decision to establish a JV in India responds to two major trends – one is the market’s growing role as a consumer electronics manufacturing hub, and the second is India’s ambitions – mirroring other key markets such as the US, EU and mainland China – to develop the domestic semiconductor industry through public subsidies and regulatory incentives,” said BMI’s Perez.
What went wrong with Foxconn?
This month, Foxconn pulled out of its joint venture with Vedanta. Foxconn said in a statement at the time that the two sides had “mutually agreed to separate”.
“There was recognition on both sides that the project was not moving fast enough, there were difficult gaps that we could not bridge smoothly, as well as external problems unrelated to the project,” Foxconn said.
The stalled talks with European chip maker STMicroelectronics, which was the technology partner for the project, was one of the main reasons for the failure of the project, Reuters reported this month.
Reuters reported that Foxconn and Vedanta wanted to license the technology from STMicro and India wanted the company to have a stake in the joint venture, but the European chipmaker did not.
It’s hard to break into the chip industry
Foxconn’s hurdles point to a broader problem — it’s difficult for new entrants to get into the semiconductor industry.
Chip manufacturing is dominated by one player — Taiwan Semiconductor Manufacturing Company, better known as TSMC — which has 59% market share in the foundry segment, according to Counterpoint Research.
TSMC does not design its own chips. Instead, they make these components for other companies like Apple. TSMC has more than two decades of experience and billions of dollars in investment to get to where he is.
TSMC also relies on a complex supply chain of companies that make critical tools to allow it to manufacture the world’s most advanced chips.
Foxconn and Vedanta’s efforts seem to be counting heavily on ST Microbut once the European company was bailed out, the joint venture was without much semiconductor experience.
“The two companies … lack the core competence to manufacture the chip,” said Shah of Counterpoint Research, adding that they were reliant on third-party technology and intellectual property.
Foxconn’s attempts to break into the semiconductor space highlight just how difficult it is for a newcomer to do so — even for a $47.9 billion behemoth.
“The semiconductor market is highly concentrated with a few players that have taken more than two decades to develop to this point,” Shah said, adding that there are significant barriers to entry, such as large amounts of investment and specialized labor.
“On average, it takes more than two decades to reach the level of skill and scale to be a successful semiconductor manufacturer.”
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