Vedanta is one of the first companies to enter the semiconductor manufacturing business after the Indian government announced a massive incentive scheme. The company recently signed a Memorandum of Understanding (MoU) with Taiwan's Foxconn for this.
Digitmes Asia caught up with Akarsh Hebbar, global managing director of Vedanta Group's Display and Semiconductor Business, to understand how this joint venture would unfold.
4 reasons to choose Foxconn
A key question that several analysts have asked is why Vedanta decided to tie up with Foxconn and not the top players like TSMC and UMC. Acknowledging the significance of this and pointing out that they have been in talks with several Taiwanese firms, Hebbar gave three major reasons.
"We have been talking to Taiwanese players; Foxconn has been one of our top choices, and we decided to go ahead with them for four main reasons," Hebbar said. "The first reason is that Foxconn is a large and strong company that understands this whole ecosystem. They have a $200 billion market cap, and they themselves use about $30-$40 billion worth of semiconductor chips. They have massive factories in seven or eight different international locations where they actually have expertise on how to make these ships."
The second, and perhaps the most important reason, is that Foxconn has acquired the IP for 28-nanometer chips. Hebbar believes that the 28 to 65 nanometer is now the sweet spot for the Indian market.
"About 90 percent of the mobile phones sold in India come under the $100 range," Hebbar said. "These phones and other electronic consumer goods like TV and laptops use this nanometer chip. There are other areas like automobile and defense as well. So, we are in that sweet spot."
The third reason to choose Foxconn is the company's connections with the ecosystem, which is integral to the success of such a project. Hebbar is very clear that the success of such a massive project depends heavily on collaboration and partnerships with different market players.
"Because this project requires two things—people and the ecosystem," Hebbar said. "When we are building fabs, we need people who can offer the balance IP or process know-how or even equipment with the licensing that is required for this."
Finally, a key reason for Vedanta's choice of Foxconn is its presence in India. Working in India is challenging for many international companies. Foxconn understands the Indian context, knows Vedanta, and how it works with the Indian government.
The MoU and roadmap ahead
In a statement released just after signing the MoU with Foxconn, Vedanta had said that they are currently in discussions with several state governments to finalize the location of its semiconductor manufacturing plant.
"We are going with phase one of a $7-$8 billion semiconductor plant that would produce 28-nanometer chips at about 60,000 per month capacity," Hebbar said. "We want to capture about 30-35 percent of the Indian market. And while we are moving towards a definitive agreement, the broad contours are that we are taking 60 percent and Foxconn 40 percent."
Speaking of the roadmap ahead, Hebbar said that Vedanta has some key short-term and long-term plans. The first step is to sign a definitive agreement.
"We have to sign the definitive agreement and then make sure we have the site, space, and conditions we need for this," Hebbar said. "Then, we need to create a roadmap that decides how the know-how and equipment come into our country and how the logistics will be. We envisage that the scheme should be awarded within three to six months. After that, we have to break ground by the end of this year. By 2024-25, we want to see the factory built with another six to eight months as ramp-up time."
Possibility of more partnerships ahead
Vedanta plans to build an ecosystem, not just a semiconductor chip factory. This would inevitably require tying up with several components and knowledge partners.
"Right now, it is Foxconn," Hebbar said. "If we need any balance equipment to make sure that this stays within India and that we build the whole technology within India, then we will do tie-ups. The balance equipment may not take as long as this plant is set up, and so we still have time to get into them while we work on building this."
These further tie-ups could include OSAC players, companies engaged in SMTP, polarizers, certain design chips, or raw materials. Vedanta expects the JV to bring in other companies in this regard, although they aren't finalized yet.
"The nucleus will be this fab, and we will start adding in the supply chain elements as and when required," Hebbar added. "We also have some MoUs with suppliers who are willing to come here. Foxconn has a solid relationship with their supply system, and, essentially, they will be bringing them. They could bring two or three big companies that could further help them make these chips."
Confidence high on Vedanta's second attempt
This is Vedanta's second foray into the chip manufacturing business, and it inevitably prompts comparisons with the first attempt around five years ago. Hebbar explains that they have been working on this for about ten years. With the right market demand and government support, now is the best time to do it.
"In the last five years semiconductor sector has doubled in our country from around $10-$12 billion to $25 billion now," Hebbar said. "The display sector was about $2-$3 billion at that time. It didn't make viable sense then. Our country did not have an understanding of what it would take to do something like this either."
The government support is strong today, and there is more clarity on the importance of local chip making. Both domestic and international companies are keen to grab a share of the pie. It would be interesting to see how things pan out in the next few years.
