This month, Foxconn pulled out of a three way partnership with Vedanta. The 2 parties “mutually agreed to part ways,” Foxconn said in a press release on the time.
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Foxconn is best often known as the fundamental assembler for Apple’s iPhones. But over the past few years, the Taiwanese company has bet on semiconductors, assuming that the event of technologies reminiscent of artificial intelligence will increase the demand for these chips.
But Foxconn’s foray into semiconductors had a rough start, highlighting the issue of new entrants entering a market dominated by established corporations with vast experience and a highly complex supply chain.
“The industry presents newcomers with high barriers to entry, mainly high levels of capital intensity and access to desirable mental property,” Gabriel Perez, an ICT analyst at BMI, a Fitch Group unit, told CNBC.
“Acclaimed players like TSMCSamsung or Micron counts on a long time of research and development (research and development), process engineering and trillions of dollars value of investments to achieve its current capabilities.”
Why does Foxconn take care of semiconductors?
Foxconn, officially often known as Hon Hai Technology Group, is a contract electronics manufacturer that assembles consumer products reminiscent of iPhones. But in the past two years, it has increased its presence in semiconductors.
In May 2021, it formed a three way partnership with Yageo Corporation, which produces various kinds of electronic components. That very same 12 months, Foxconn bought a chip factory from a Taiwanese chip maker Macronix.
The most important boost in efforts got here last 12 months when Foxconn agreed with Indian semiconductor and display manufacturing conglomerate Vedanta in India in a $19.5 billion three way partnership.
Neil Shah, vice chairman of research at Counterpoint Research, said Foxconn’s give attention to semiconductors is to diversify its business, and the corporate’s decision to launch an electrical automobile unit is a part of that plan. Its goal is to turn out to be a “one-stop-shop” for electronics and automotive corporations, Shah said.
If Foxconn could assemble electronics and produce chips, it can be a really unique and competitive business.
Why India?
Foxconn has sought a three way partnership with Vedanta in India because the country’s government wants to boost the country’s semiconductor industry and move production ashore.
“Foxconn’s decision to establish a three way partnership in India responds to two key trends – one is the market’s growing role as a consumer electronics manufacturing hub, and the opposite is India’s ambition – mirroring other major markets reminiscent of the US, EU and mainland China – to develop the country’s semiconductor industry through public subsidies and regulatory incentives,” said Perez of BMI.
What went incorrect at Foxconn?
This month, Foxconn pulled out of a three way partnership with Vedanta. The 2 parties “mutually agreed to part ways,” Foxconn said in a press release on the time.
“It was realized on each side that the project wasn’t moving fast enough, there have been difficult gaps that we weren’t able to seamlessly bridge, and external issues unrelated to the project,” said Foxconn.
The deadlock in talks with the European chip manufacturer STMicroelectronics, which was the technology partner of the project, was certainly one of the fundamental reasons for the failure of the project, Reuters reported this month.
Foxconn and Vedanta wanted to license the technology from STMicro, and India wanted the corporate to have a stake in the three way partnership, however the European chipmaker didn’t, Reuters reported.
It’s hard to break into chip production
Foxconn’s hurdles point to a broader problem – it’s hard for newcomers to get into semiconductor manufacturing.
Chip manufacturing is dominated by one player – Taiwan Semiconductor Manufacturing Company, higher often known as TSMC – which has a 59% market share in the foundry segment according to Counterpoint Research.
TSMC doesn’t design its own chips. As an alternative, it manufactures these components for other corporations reminiscent of Apple. TSMC has over 20 years of experience and billions of dollars invested to get where it is.
TSMC also relies on a fancy supply chain of corporations that manufacture critical tools to produce the world’s most advanced chips.
Foxconn and Vedanta efforts seemed to rely heavily on STMicrobut when the European company collapsed, the three way partnership didn’t have much experience in semiconductors.
“Each corporations … had no core competency to produce chips,” said Counterpoint Research’s Shah, adding that they were depending on third-party technology and mental property.
Foxconn’s attempts to break into the semiconductor industry show how difficult it is for a new entrant – even a $47.9 billion giant.
“The semiconductor market is very concentrated, and few players have evolved to this point in greater than 20 years,” Shah said, adding that there are high barriers to entry reminiscent of large investments and a specialized workforce.
“On average, it takes greater than 20 years to reach the extent of skill and scale to be a successful semiconductor company.”