India’s Adani Group has paused discussions with Israeli firm Tower Semiconductor over a $10 billion semiconductor manufacturing project. According to a Thursday Reuters exclusive, two people familiar with the matter said the project’s commercial viability was dismissed after internal valuations.
The planned facility, previously approved by the state of Maharashtra in September, was expected to produce 80,000 semiconductor wafers per month and create 5,000 jobs.
One source with direct knowledge of the matter, Adani’s leadership, argued that the proposed collaboration with Tower did not currently align with the group’s strategic and commercial priorities.
“It was more of a strategic decision. Adani evaluated it and decided, let’s wait,” the source told Reuters, adding that discussions could resume at a later date.
The second source claimed the negotiations stalled due to the low level of financial commitment Tower Semiconductor was prepared to make. Tower was set to provide technical know-how for the plant, but Adani reportedly felt the Israeli firm lacked sufficient financial investment in the partnership.
“Adani wanted Tower to have more skin in the game,” they noted. Both sources asked not to be named as the decision to pause the talks has not been publicly disclosed.
Modi’s chipmaking plans faces production issues
The shelved discussions could significantly dent Prime Minister Narendra Modi’s “Make in India” initiative, particularly its focus on semiconductor manufacturing.
Modi had placed semiconductor production efforts at the top of his political agenda, wanting India to compete with China in the global electronics supply chain. However, the country has yet to establish a functioning semiconductor fabrication plant, which could make it tougher for tech companies like Apple that plan to start manufacturing electronics in the country.
In July 2023, a proposed $19.5 billion venture between Indian conglomerate Vedanta and Taiwan’s Foxconn collapsed after Indian authorities questioned the project’s costs and the delayed approval of government incentives.
With Adani’s project now in limbo, the most active semiconductor ventures in India include a $11 billion chipmaking and testing facility by the Tata Group and a $2.7 billion chip packaging plant being developed by US-based Micron Technology.
Concerns about domestic demand
Adani Group’s decision to pause production was also based on diminishing domestic demand for semiconductor products. The group reportedly concluded that the Indian market may not yet be sufficient to absorb the full production output of such a plant.
“The group was of the view the project required further evaluation about how does India make sure chips manufactured are sold in India,” one of the anonymous sources asserted. “The market is still nascent.”
According to UBS data, India currently accounts for just 6.5% of global semiconductor end-use demand. At the same time, the United States and China together comprise more than half of the market, with a combined 54% share.
For Adani, the prospect of manufacturing semiconductors, packaging them, and then finding enough or more local buyers is a risk. The group concluded that the state of the Indian market warranted a more cautious approach.
Meanwhile, the Adani Group’s logistics arm, Adani Ports and Special Economic Zone Ltd. reported better-than-expected earnings for the quarter ending March 31.
The company, India’s largest private port operator, posted a consolidated net profit of 30.14 billion rupees ($356 million), beating analyst estimates compiled by LSEG, which had forecast a profit of 25.71 billion rupees.
Adani saw an 8% increase in cargo volumes, which reached 118 million metric tonnes during the fourth quarter. Construction activity contributed to a 24% surge in revenue to 84.88 billion rupees. Analysts had predicted a more modest revenue increase of around 16.5%.
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