Foxconn exits US$19.5 billion venture with India’s Vedanta

The backstory: India has been on a mission to amp up its chip production and stop relying so much on foreign manufacturers like the US and China. The nation even created a US$10 billion fund to attract investors to the sector. It's all part of Prime Minister Narendra Modi's "Make in India" campaign that kicked off back in 2014. The goal? To turn heads, attract investments and give India the extra oomph it needs to be a global exporting powerhouse. And it seems like several companies are interested and making plans to set up semiconductor factories in India.

More recently: Foxconn is the Taiwanese manufacturing giant behind Apple products. Last September, Indian conglomerate Vedanta announced it would partner with Foxconn to build display and chipmaking facilities in India’s Gujarat. But their plans hit a hurdle during negotiations with European chipmaker STMicroelectronics, which they were trying to bring in as a partner

A few weeks ago, Vedanta was fined by India's market regulator for violating disclosure rules. Basically, Vedanta got into trouble by making it seem like it was teaming up directly with Foxconn when the deal was actually being handled by Vedanta's holding company, Volcan Investments.

The development: Foxconn just announced that it’s pulling out of the joint venture. It said that it had been collaborating with Vedanta for over a year, working on semiconductor ideas. But both companies mutually decided to end the joint venture, and now Vedanta will own it completely, as it’s taking it over from its holding company.

Vedanta, on the other hand, is still committed to the project and said it’s already lined up new partners to make it happen. Sources familiar with the matter suggested to Reuters that Foxconn's decision was because of concerns over government incentives taking a long time to approve. The Indian government had questions about the cost estimates provided, which may have been one reason for Foxconn pulling out.

Key comments:

"Foxconn has determined it will not move forward on the joint venture with Vedanta," said Foxconn in a statement.

“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."

“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,” said Foxconn in a statement.