EXPLAINED: WHY VEDANTA-FOXCONN’S SEMICONDUCTOR PLANT WILL REDUCE THE COST OF TECH, BUT NOT BY 60 PER CENT

In a significant step for Make In India, Vedanta and Foxconn will set up a semiconductor factory in Gujarat for Rs 1.54 lakh crore. Speaking to CNBC-TV18 about the development, Vedanta Chairman Anil Agarwal stated that ‘Made in India’ semiconductors could significantly impact the prices of finished products.

We then went on to say that once the glass or displays currently made in Taiwan and South Korea start getting manufactured in India, the price of a dead laptop that costs about Rs 1,00,000 today would then cost Rs 40,000. That’s a reduction of 60 percent.

India will emerge as one of the world’s most powerful silicon chips and semiconductors contributors in the future. It is not a question of if but when. However, it will take a considerable time for the prices of finished tech products to fall by 60 percent. Moreover, it will take a large volume.

Developing new products is expensive, even if it uses tech and components that have been around for a while. The sheer number of R&D, marketing research, and licensing fees that go into making a smartphone or a laptop are mindboggling. The cost of raw materials, components, and labor to put everything together are significantly less when considering the price per unit.

Then, there’s the fact that tech companies often don’t plan on relinquishing their profit margins, even if the manufacturing costs come down. Let’s take Apple as an example.

It takes Apple about $570 or roughly Rs 45,000a to make one iPhone 13 Pro. This includes the raw material, labor, shipping, and marketing. Apple sold the 128GB variant of the iPhone 13 Pro in India for about Rs 1,20,000. That same iPhone 13 Pro would have cost $899 or Rs 72,000 in the US or Canada.

In April, Apple started making the iPhone 13 in India at the Foxconn factory in Tamil Nadu. Theoretically, Apple should have offered a discount, or better yet, reduced the price of the iPhone 13 in India, now that the device was not subject to the same number of taxes as before.

However, we are only seeing a discount on the iPhone 13 series now, after the launch of the iPhone 14, and the fact that many e-commerce platforms are trying to sell their stock around the festive season.

Continuing with Apple, let’s look at another example. The iPhone 14 Pro costs about $999 in the US, whereas in India, it starts at Rs 1,29,900. In about a month, Apple will start making the iPhone 14 Pro in India and the rest of the iPhone 14 series. Will Apple revise the price of the iPhone 14 Pro and sell it for cheaper? Or will Apple start providing a discount on the iPhone 14 Pro? Not likely.

India-made semiconductors and displays will surely drive down costs by a significant margin. Tech companies can quickly reduce their input costs by up to 15-20 percent. If the proposed semiconductor factory hits the economies of scale early on, tech companies may even be able to drive down input costs by up to 30 percent.

The costs of finished tech products will go down significantly, but it is unlikely to be by 60 percent. The larger question, however, is whether or not end consumers are passed on this benefit.

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