Zoho halts $700m chipmaking project in Karnataka, citing technology partner constraints

What Happened to Zoho’s Semiconductor Project in Karnataka?

Zoho Corporation, the Chennai-headquartered software company, has suspended its $700 million semiconductor manufacturing project in Mysuru, Karnataka, following difficulties in securing a global technology partner. The move was first reported by Reuters, citing individuals familiar with the matter who confirmed that the company’s board voted to halt progress due to unresolved technical dependencies.

The project, which had received in-principle backing from the Karnataka government and was expected to generate at least 460 jobs, was a central part of India‘s ongoing strategy to bolster domestic semiconductor production. Zoho had previously announced its intent to invest $400 million initially, later scaled to $700 million, in building a chip fabrication facility in Mysuru.

The suspension adds to a growing list of delayed or cancelled semiconductor ventures in India, despite the Centre’s $10 billion incentive scheme to establish the country as a semiconductor manufacturing destination.

Why Did Zoho Suspend Its Semiconductor Initiative?

Company co-founder and Chief Technology Officer Sridhar Vembu reportedly advised that Zoho would not proceed with the capital-intensive fabrication project in the absence of technological certainty. According to sources close to the company, Zoho had been unable to secure a technology partner capable of providing the necessary process expertise and intellectual property critical for setting up a semiconductor fab.

In internal discussions cited by media sources, Vembu was said to have stressed that “proceeding without confidence in the technology path would be an irresponsible use of public and private capital.” The decision was framed as a safeguard against deploying resources prematurely in a domain as complex and sensitive as chip fabrication.

Zoho’s retreat reflects both the technological hurdles and ecosystem deficiencies India currently faces in establishing end-to-end semiconductor manufacturing capabilities. While chip design and outsourced packaging have seen growth, full-scale fabrication continues to be hampered by a lack of technical depth, trained personnel, and global partnerships.

How Does This Affect India’s Semiconductor Mission?

India’s semiconductor mission—spearheaded by the Ministry of Electronics and Information Technology under the India Semiconductor Mission (ISM)—has struggled to see major fabrication projects take off. Despite the announcement of several joint ventures, including Vedanta-Foxconn and Adani-Tower Semiconductor, none have proceeded to the construction phase.

The Indian government launched a $10 billion (₹76,000 crore) production-linked incentive (PLI) scheme in late 2021 aimed at catalysing chip fabrication, packaging, and design. While the scheme successfully attracted packaging firms and design houses, fabrication projects have faced regulatory, technical, and supply chain-related bottlenecks.

Zoho’s exit from this space follows the earlier pause by Adani Group in its $10 billion JV with Israel’s Tower Semiconductor. Vedanta‘s partnership with Foxconn was dissolved last year due to disagreements over technical execution and capital responsibilities. These back-to-back withdrawals suggest a more systemic issue tied to India’s current readiness for high-end semiconductor manufacturing.

What Was the Scope of the Zoho Chip Fab Plan?

Zoho’s plan entailed setting up a greenfield semiconductor facility in Mysuru’s industrial corridor, aiming to produce silicon carbide-based chips for power management and industrial applications. The company had earmarked an investment of $400 million in the first phase, with a vision to expand to $700 million depending on technological feasibility and capacity expansion.

The Karnataka government had reportedly extended administrative support and fast-track approvals to facilitate land acquisition and utility provisioning. The facility was expected to create over 400 direct jobs and hundreds of ancillary employment opportunities in and around Mysuru.

The Indian Ministry of Electronics had not formally approved incentives for Zoho’s plan under the semiconductor policy, with officials indicating the proposal was still at a pre-evaluation stage. Sources suggest that a lack of demonstrated technical capability and absence of a global technology partner were significant limiting factors.

How Has Zoho Framed Its Decision?

In indirect comments attributed to company executives, Zoho’s board was described as committed to prudent capital allocation, especially in sectors outside its core competency. Sridhar Vembu had earlier emphasised in public forums that while the company supported India’s hardware self-reliance push, it would only proceed with semiconductor investments if it could ensure long-term sustainability without relying heavily on taxpayer support.

By voluntarily withdrawing from the incentive process, Zoho has avoided the risks associated with politically sensitive funding or project underperformance. Analysts viewed this decision as a realistic, if disappointing, acknowledgment of the current limitations in India’s semiconductor capabilities.

Zoho has clarified that the chipmaking suspension is temporary and subject to re-evaluation in the future, should a credible technology collaboration materialise.

What Is the Government’s Response?

As of the last update, neither the Ministry of Electronics and Information Technology nor the Karnataka state government had issued a formal comment on the suspension. However, sources within the ISM team acknowledged the decision and reaffirmed that the government remains open to working with credible domestic and international players under the existing PLI scheme.

Officials have consistently maintained that India’s semiconductor roadmap is a long-term effort, spanning several investment cycles and requiring deep strategic cooperation with global chipmakers. According to industry experts, the Indian semiconductor strategy must now shift focus from headline announcements to creating foundational infrastructure—such as chip-grade water supplies, precision engineering clusters, and a skilled technical workforce.

What Are the Broader Implications for India’s Semiconductor Ecosystem?

Zoho’s withdrawal highlights the persistent technology gap that India faces in semiconductor manufacturing. Building a wafer fab is a multibillion-dollar effort requiring not just capital, but also process IP, supplier networks, regulatory clarity, and ecosystem resilience.

Industry watchers have noted that even seasoned chipmakers like Intel, TSMC, and Samsung set up fabs only after multiple years of feasibility assessments, government coordination, and guaranteed offtake arrangements.

In India, the confluence of regulatory ambiguity, lack of skilled labour, insufficient raw materials, and absence of ecosystem partners (such as toolmakers and wafer suppliers) creates a high barrier to entry for first-time fab builders.

While some observers had hoped Zoho’s entry could pave the way for other software majors to diversify into semiconductors, the company’s retreat may now reinforce perceptions that only state-backed or deeply experienced global players can succeed in this capital- and technology-intensive industry.

What Happens Next for Zoho and India’s Chip Aspirations?

Zoho is expected to continue expanding its software and cloud businesses while exploring less capital-intensive hardware segments, possibly in chip design or AI accelerators. Company insiders suggest that Zoho could revisit the fab plan in the future, especially if a viable technology partner emerges or if India makes substantial progress in easing semiconductor project execution.

India’s semiconductor ambitions, while facing another delay, are not entirely derailed. The Centre has expressed interest in revisiting its incentive structure, possibly to attract more experienced international firms under revamped terms. New policy mechanisms, including risk-sharing joint ventures, sovereign tech funds, and dedicated fab parks, are also being considered.

The current suspension may serve as a necessary pause for introspection, leading to more robust project frameworks in the future.