Foxconn, HCL Group team up on chip-packaging and testing factory in India

Taiwanese technology manufacturer Foxconn is partnering with Indian software and engineering firm HCL Group to set up a semiconductor packaging and testing venture in India in a deal worth $37.2 million.

The move, revealed in a regulatory filing with Taiwan’s stock exchange, comes about six months after Foxconn — also known as Hon Hai Precision — pulled out of a planned semiconductor fabrication joint venture with Indian firm Vedanta Group.

Under the terms of the deal, Foxconn’s Hon Hai Technology India Mega Development unit will get a 40% stake in ajoint chip packaging and testing venturem — known colloquially as OSAT — with HCL Group.

In a statement, Foxconn said it looks forward to setting up the operations in India with HCL Group. “Through this investment, the partners aim to build an ecosystem and foster supply chain resilience for the domestic industry,” Foxconn said. The company also will deploy its build-operate-localize, or BOL model, to support local communities in the region.

Diversifying operations

Foxconn’s largest customer is Apple, for which it fabricates iPhones and myriad other widely sold products. In fact, Foxconn is India’s leading manufacturer of iPhones and is responsible for 68% of production.

The deal shows Foxconn trying to pivot to new markets as it aims to cement its place in India’s evolving semiconductor ecosystem, said Gaurav Gupta, vice president analyst in Gartner Group’s emerging tends and technologies team.

“Foxconn is known more as an EMS [electronic manufacturing services]/ODM [original design manufacturer] company, and they are trying to diversify,” Gupta said.

Foxconn has gained unwanted publicity over the years due to inhumane working conditions in the Chinese factories that produce Apple products — reports that have negatively affected Apple and raised tensions.

The companies have since started moving production out of China to gain more of a foothold in India. As part of this, Foxconn last year committed to investing $500 million in setting up a new Apple AirPod manufacturing unit in the Indian state of Telangana.

Changing directions in India

Now, Foxconn is eyeing an investment in India’s burgeoning semiconductor market, which was buoyed by its previous proposed deal with Vedanta to set up a chip fabrication plant in Gujarat.

The company’s India plans seemed to go off the rails after Foxconn pulled out, citing a change in the company’s strategy after its initial application and plan for developing 28-nanometer chips with Vedanta didn’t go through, an industry analyst said at the time.

Plans seem back on track now that the company has found a well-established Indian tech partner in HCL Group. Moreover, setting up an OSAT is a smaller, less ambitious investment than the original Vedanta deal, making it “a low-barrier entry for Foxconn,” Gupta said.

“India has a strong consumer base and with a large population, it is a big market for electronics, so entering India is a strategic move to be closer to end-market and consumers,” he said.

It will also give Foxconn a getter foothold in the global chip market. “It’s not just India’s evolving semiconductor ecosystem, but they also want to establish their presence in the overall semiconductor industry,” Gupta said.

For India, the deal is a boon for its efforts to grow its domestic chip ecosystem through various government incentives, he said. HCL Group — which has a semiconductor arm that provides design services —a lso can grow and diversify its business by leveraging government support, Gupta added.