*

Company struggled to find tech partner, source says

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Zoho's pause includes $400 million chip plant in Karnataka

state

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Decision is further blow to India's semiconductor

ambitions

(Updates with confirmation from Zoho co-founder)

By Munsif Vengattil and Sai Ishwarbharath B

NEW DELHI, May 1 (Reuters) - Indian software firm Zoho

has suspended its year-long pursuit of a $700 million plan to

expand into chip manufacturing, its co-founder said on Thursday,

confirming a Reuters story and dealing another blow to the

Indian government's semiconductor plans.

Zoho struggled to find the right technology partner required

to advise on complex chipmaking processes, one source familiar

with the matter told Reuters earlier.

Reuters reported on Wednesday that Indian billionaire Gautam

Adani's group has also paused discussions with Israel's Tower

Semiconductor for its $10 billion chip project

following an internal evaluation by the Indian group.

Zoho, valued at around $12 billion, offers cheaper

alternatives to cloud-based software tools made by the likes of

Microsoft ( MSFT ). Its billionaire co-founder Sridhar Vembu is known for

his popular and unconventional approach of locating business

operations in rural villages.

Vembu confirmed the decision after the Reuters story was

published, saying "we did not have that confidence in the tech,"

in a social media post.

"Since this business is so capital intensive it requires

government backing, we wanted to be absolutely sure of the

technology path before we take taxpayer money," he said.

In a bid to diversify, Zoho had planned to invest $400

million in a semiconductor facility in Karnataka state in south

India.

The entire chipmaking plan, first reported by Reuters in May

2024, has for now been suspended, two sources familiar with the

matter told Reuters earlier, declining to be named.

Representatives for Karnataka state did not respond to a

request for comment.

Zoho's retreat will be a setback to Prime Minister Narendra

Modi who has for several years tried to lure companies in his

pursuit to make India a global chip manufacturing hub.

India does not have a single operational chipmaking

facility.

Zoho, established in 1996, offers software and related

services on subscription to businesses in 150 countries and has

over 18,000 employees and more than 120 million users.

Zoho's Silectric Semiconductor Manufacturing last year made

a handful of hires and formed a board to oversee chipmaking

efforts, the source who gave the reason for the failed plan

said.

The Karnataka government said in December it had given

landmark approval to Zoho's planned $400 million facility in

Mysuru region, which would have generated 460 jobs and been the

first such project in the state.