Taiwan's Foxconn has withdrawn from a $19.5 billion semiconductor joint venture with Indian metals-to-oil conglomerate Vedanta, it said on Monday in a setback to Prime Minister Narendra Modi's chipmaking plans for India.
Foxconn, the world's largest contract electronics maker, and Vedanta signed a pact last year to set up semiconductor and display production plants in Modi's home state of Gujarat.
The company said it had worked with Vedanta for more than a year to bring "a great semiconductor idea to reality", but they had mutually decided to end the joint venture and it will remove its name from an entity that is now fully owned by Vedanta.
Vedanta and India's IT ministry did not reply immediately to requests for comment.
Modi has made chipmaking a top priority for India's economic strategy in pursuit of a "new era" in electronics manufacturing and Foxconn's move represents a blow to his ambitions of luring foreign investors to make chips locally for the first time.
“This deal falling through is definitely a setback for the ‘Make in India’ push,” said Neil Shah, Vice President of research at Counterpoint, adding that it also does not reflect well on Vedanta and "raises eyebrows and doubts for other companies".
Foxconn is best known for assembling iPhones and other Apple (AAPL.O) products but in recent years it has been expanding into chips to diversify its business.
Most of the world's chip output is limited to a few countries, such as Taiwan, with India a late entrant. The Vedanta-Foxconn venture announced its chipmaking plans in Gujarat last September, with Modi calling the project "an important step" in boosting India's chipmaking ambitions.
But his plan had been slow to take off. Among problems encountered by the Vedanta-Foxconn project were deadlocked talks to involve European chipmaker STMicroelectronics (STMPA.PA) as a tech partner, Reuters has previously reported.
While Vedanta-Foxconn managed to get STMicro on board for licensing technology, India's government had made clear it wanted the European company to have more "skin in the game", such as a stake in the partnership.
STMicro was not keen on that and the talks remained in limbo, a source has said.
The Indian government has said it remains confident of attracting investors for chipmaking. Micron last month said it it will invest up to $825 million in a chip testing and packaging unit, not for manufacturing. With support from India's federal government and the state of Gujarat, the total investment will be $2.75 billion.
India, which expects its semiconductor market to be worth $63 billion by 2026, last year received three applications to set up plants under a $10 billion incentive scheme.
These were from the Vedanta-Foxconn joint venture, Singapore-based IGSS Ventures and global consortium ISMC, which counts Tower Semiconductor (TSEM.TA) as a tech partner.
The $3 billion ISMC project has stalled, too, owing to Tower being acquired by Intel, while another $3 billion plan by IGSS was also halted because the company wanted to re-submit its application.
