Zoho Halts $700M Chip Project: A Setback for India’s Tech Ambitions?

Indian software giant Zoho has suspended its $700 million semiconductor manufacturing project in Karnataka, marking a significant blow to Prime Minister Narendra Modi’s vision of turning India into a global chipmaking hub. The decision, confirmed by sources close to the company, underscores the challenges of building advanced manufacturing capabilities in a country lacking existing semiconductor infrastructure.

Zoho’s retreat, first reported in May 2024, stems from an inability to secure a critical technology partner to guide its compound semiconductor production efforts. The project, which included plans for a $400 million facility in Mysuru, aimed to produce specialized chips for electric vehicles, renewable energy systems, and advanced computing. While the company had received state-level approvals and formed a governing board for the venture, the absence of a reliable partner with expertise in semiconductor fabrication proved insurmountable.

The suspension is the latest in a string of setbacks for India’s semiconductor ambitions. In 2023, the government unveiled a $10 billion incentive package to attract global chipmakers, but progress has been uneven. Billionaire Gautam Adani’s $10 billion semiconductor joint venture with Israel’s Tower Semiconductor, for instance, was paused earlier this year after internal reviews raised concerns about technical and financial risks.

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The semiconductor industry’s complexity—requiring advanced technical know-how, massive capital investments, and geopolitical diplomacy—has long been a barrier for newcomers. For India, the stakes are high: its $63 billion semiconductor market (projected by 2026) remains almost entirely reliant on imports. Zoho’s withdrawal highlights the gap between India’s aspirations and its current capabilities.

Zoho’s decision also raises questions about its broader strategy. The $12 billion SaaS firm, which competes with Microsoft in cloud-based tools, had framed the semiconductor project as a move toward vertical integration. Co-founder Sridhar Vembu had emphasized the national importance of semiconductor self-sufficiency. Yet the project’s suspension suggests that diversifying into hardware requires more than ambition—it demands partnerships with established global players.

Despite the setback, Zoho’s subsidiary Silectric Semiconductor Manufacturing has not entirely abandoned the sector. In September 2024, it proposed a ₹3,034 crore ($360 million) silicon carbide (SiC) plant in Odisha, targeting EV and renewable energy applications. However, Vembu clarified that the proposal remains pending federal approvals, underscoring the regulatory hurdles facing foreign and domestic investors alike.

The broader implications for investors are clear: India’s semiconductor ambitions are fraught with risks. While the government’s push to attract capital is aggressive, execution depends on overcoming technical, financial, and bureaucratic challenges. For now, Zoho’s suspension serves as a cautionary tale—highlighting that even tech-savvy firms face steep hurdles in building advanced manufacturing ecosystems from scratch.

Conclusion
Zoho’s retreat from chipmaking underscores India’s uphill battle to establish itself as a semiconductor powerhouse. With no operational facilities to date and high-profile projects faltering, the nation’s reliance on imports remains unaddressed. However, the $63 billion semiconductor market opportunity—and the strategic imperative to reduce geopolitical risks—ensures that investors and policymakers will persist. For now, though, the path forward is littered with obstacles:

• Technical Gaps: India lacks domestic expertise in semiconductor fabrication, requiring reliance on global partners.
• Capital Intensity: Semiconductor projects require sustained funding—$700 million is modest compared to the $30 billion needed for a single advanced chip factory.
• Regulatory Uncertainty: Delays in approvals, as seen in Zoho’s Odisha proposal, deter investors.

While Zoho’s pause is a setback, it’s not a death knell. The company’s persistence in seeking alternatives, coupled with global trends toward reshoring and regional supply chains, suggests that India’s ambitions may yet succeed—but only with sustained investment in partnerships, infrastructure, and policy clarity. For investors, the sector remains high-risk, high-reward: success hinges on resolving these foundational challenges.