How Vedanta’s weak semiconductor proposal has emerged as a promising one

India’s semiconductor policy hasn’t been off to a flying start. While the government hoped to receive applications from leading fabs, such as Global Foundries, Intel, TSMC, and Samsung, among others, all it received were semiconductor fab applications from three consortiums. Surprisingly, the Indian mining conglomerate Vedanta, led by Anil Agarwal, was keen to enter the semiconductor space. It had teamed up with Taiwan’s Foxconn to apply for the Semiconductor Scheme. And even though the India Semiconductor Mission (ISM) has yet to approve the application, Vedanta has already shortlisted Prime Minister Narendra Modi’s home state, Gujarat, for setting up its semiconductor and display fab and is fast progressing with its plan. Vedanta’s proposal, from being the weakest last year, has finally emerged as the most promising of the three applications.

Setting up a semiconductor fab is a multi-year project involving colossal capital and expertise. So the Indian government, or any government offering financial incentives, must carefully scrutinise the proposals received before approving them. This task was a little more challenging for India, given that none of the leading foundries had applied under the scheme. And while there is a wide range of parameters on which these applications are evaluated, the four primary ones are manufacturing grade technology (license), manufacturing (fab) expertise, funds and getting business for fabs. Vedanta Foxconn joint venture scored on the last two but lacked in the first two.

Manufacturing Grade Technology License for Fabs

One of the prerequisites for the project approval and qualifying for the incentive was to have a license-grade semiconductor technology manufacturer with sufficient experience in chip manufacturing. And neither Vedanta nor Foxconn had one.

Vedanta is a mining and metals company primarily producing zinc, lead, silver, copper, iron ore, aluminium, and oil and gas. On the other hand, Foxconn is the leading multinational electronics contract manufacturing company based in Taiwan, manufacturing for Apple, Amazon, and Dell, to name a few. In mid-2021, Foxconn did announce its plan to enter semiconductor production and expand into supplying chips for electric vehicles (EVs) and electronics equipment used for healthcare. It even acquired Macronix 6-inch Wafer Fab for US$90.8mn in August 2021. But this still does not qualify for a manufacturing-grade license for fabs.

Former RBI governor Raghuram Rajan, who recently questioned the proposal for the lack of semiconductor expertise, wasn’t completely wrong. Even the Ministry of Electronics and IT and India Semiconductor Mission (ISM) have been concerned about this. Since day one, the latter has asked the consortium to submit more details, including the production-grade technology license.

“Acquiring the right technology and making it work in a new fab is a complex process. Many discussions are going on (Vedanta-Foxconn JV) with various technology providers, and a solution may emerge soon,” explains Satya Gupta, President, of VSLI society and former head of IESA. But if rumours are to be believed, Vedanta-Foxconn JV is close to partnering with European chipmaker STMicroelectronics for the chip manufacturing unit. If the deal goes through, this will solve one of the biggest hurdles in Vedanta’s semiconductor proposal.

Expertise in setting fab

Setting up a fab is not easy and requires expertise. Vedanta, who holds the larger share in the JV, has solved this problem by hiring David Reed as the CEO of the semiconductor business. A veteran, with 35 years in the semiconductor industry, Reed has worked at NXP, Global Foundries and Texas Instruments and will be responsible for setting up a state-of-the-art semiconductor fab unit and semiconductor assembling and testing unit for Vedanta in India. Industry experts believe Reed can help close Vedanta’s discussions with leading fabs for production-grade licenses.

Funds

Setting up a semiconductor fab is a high capital investment. Significant capital investment goes into purchasing and maintaining state-of-art equipment, constructing cleanroom facilities, and hiring highly skilled engineers and technicians. Depending upon the technology, a single fabrication plant can cost anywhere between $2 billion to upwards of $20 billion with a 40,000-wafer capacity. But this doesn’t seem a problem as both Vedanta and Foxconn have deep pockets to invest in building a state-of-art fab in Inia.

Filling the Fab

Once a fab is built, it has to run at over 90 per cent capacity to be profitable. While Vedanta lacks expertise on this front, Foxconn has a significant role to play. Taiwan’s Foxconn works closely with the world’s leading technology hardware giants, and it will be easy for it to obtain orders. Foxconn also has multiple manufacturing plans in India.

While the Vedanta Foxconn semiconductor proposal is gradually emerging as the most promising one, some industry veterans fear the first round of applications might end up under legal scrutiny. “Closing the silicon and display fab schemes for new applicants and then making modifications to the scheme (September 2022), allowing applicants to tweak applications (for example, to add technology partners at a later stage) are thereby potentially running the risk of legal scrutiny on the scheme,” says independent semiconductor analyst Arun Mamphazy.

The Vedanta Foxconn joint venture had signed an agreement with the Gujarat government to invest Rs 1,54,000 crore to set up a semiconductor plant and has now finalised Dholera Special Investment Region near Ahmedabad for setting up the factory.

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