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

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In this article 2317-TW Follow your favorite stocks CREATE FREE ACCOUNT This month, Foxconn pulled out of its joint venture with Vedanta. The two sides "mutually agreed to part ways," Foxconn said in a statement at the time. Sopa Images | Lightrocket | Getty Images Foxconn is best known as the main assembler of Apple's iPhones. But in last couple of years, the Taiwanese firm has made a push into semiconductors, betting that the rise of technologies like artificial intelligence will boost demand for these chips. But Foxconn's semiconductor foray has had a tough start, highlighting the difficulty for new players to enter a market dominated by established firms with huge experience and a highly intricate supply chain. "The industry presents newcomers with high barriers to entry, mainly high levels of capital intensity and access to coveted intellectual property," Gabriel Perez, ICT analyst at BMI, a unit at Fitch Group, told CNBC via email. "Established players such as TSMC , Samsung or Micron count with several decades of R&D (research and development), process engineering and trillions of dollars in investment to reach their current capabilities." Why is Foxconn getting into semiconductors? Foxconn, officially known as Hon Hai Technology Group, is a contract electronics manufacturer that assembles consumer products like iPhones. But in the last two years, it has stepped up its presence in semiconductors. In May 2021, it formed a joint venture with Yageo Corporation, which makes various types of electronic components. That same year, Foxconn bought a chip plant from Taiwanese chipmaker Macronix . The biggest ramp-up in effort came last year when Foxconn agreed with Indian metals-to-oil conglomerate Vedanta to set up 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 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 aim is to become a "one stop shop" for electronics and automotive companies, Shah said. If Foxconn could assemble electronics and manufacture chips, it would be a very unique and competitive business. Why India? Foxconn looked to India for its joint venture with Vedanta because the country's government is looking to boost its domestic semiconductor industry and bring manufacturing on shore. "Foxconn's decision to establish a JV in India responds to two key trends – one of them being the market's growing role as a consumer electronics manufacturing hub, the second one being India's ambitions – mirroring other major markets such as the US, the EU and Mainland China - to develop its domestic semiconductor industry through public subsidies and regulatory incentives," BMI's Perez said. What went wrong for Foxconn? This month, Foxconn pulled out of its joint venture with Vedanta. The two sides "mutually agreed to part ways," Foxconn said in a statement at the time. "There was recognition from both sides that the project was not moving fast enough, there were challenging gaps we were not able to smoothly overcome, as well as external issues unrelated to the project," Foxconn said. Deadlocked talks with European chipmaker STMicroelectronics, which was the technology partner for the project, was one major reason for the venture's failure, Reuters reported this month. Foxconn and Vedanta wanted to license the technology from STMicro and India wanted the firm to have a stake in the joint venture, but the European chipmaker did not, Reuters reported. It's hard to break into chipmaking