Foxconn Technology Group, the biggest assembler of Apple Inc. iPhones, is in talks with Saudi Arabia about jointly building a $9 billion multipurpose facility that could make microchips, electric-vehicle components and other electronics like displays, according to people familiar with the matter.

The Saudi government is reviewing an offer from the company, formally known as Hon Hai Precision Industry Co., to build a dual-line foundry for surface-mount technology and wafer fabrication in Neom, a tech-focused city-state the...

Foxconn Technology Group, the biggest assembler of Apple Inc. iPhones, is in talks with Saudi Arabia about jointly building a $9 billion multipurpose facility that could make microchips, electric-vehicle components and other electronics like displays, according to people familiar with the matter.

The Saudi government is reviewing an offer from the company, formally known as Hon Hai Precision Industry Co. , to build a dual-line foundry for surface-mount technology and wafer fabrication in Neom, a tech-focused city-state the kingdom is developing in the desert, the people said. Discussions over the project started last year, they said.

The Saudis are conducting due diligence and benchmarking the offer against others that Foxconn has made for similar projects globally, one of the people said.

Besides Saudi Arabia, Foxconn is also talking with the United Arab Emirates about potentially siting the project there, one of the people said.

The Taiwan-based company has looked to diversify its manufacturing sites amid rising tensions between China and the U.S. that put it in a potentially vulnerable spot.

Riyadh wants the company to guarantee that it would direct at least two-thirds of the foundry’s production into Foxconn’s existing supply chain, one of the people said, to ensure there are buyers for its products and the project is ultimately profitable.

Foxconn is seeking large incentives including financing, tax holidays and subsidies for power and water in exchange for helping set up a high-tech manufacturing sector in the kingdom, the people said, as Saudi Arabia seeks to diversify its economy away from oil.

The Saudis could offer direct equity co-investment, industrial development loans, low-interest debt from local banks and export credits to compete with other jurisdictions that Foxconn might consider, said another person familiar with the talks.

Saudi authorities and Foxconn didn’t respond to requests for comment.

People worked in 2018 at a Chinese facility run by Taiwan-based Foxconn, which has eyed more manufacturing sites globally amid tensions between Washington and Beijing.

Photo: Aleksandar Plavevski/EPA/Shutterstock

Foxconn has looked to diversify its business beyond Apple products in recent years, including by expanding its activities in EVs. It has joined with auto makers such as Jeep and Chrysler maker Stellantis NV and Los Angeles-based electric-vehicle startup Fisker.

Foxconn has also purchased semiconductor facilities, including one owned by Taiwan-based Macronix International, seeking to become a contract manufacturer of EVs for global brands. Last year it scaled back plans for a liquid-crystal-display project in Wisconsin after agreeing to invest $10 billion and hire 13,000 people to qualify for $2.85 billion in incentives.

The company said last year that it is planning to build an EV project in the Middle East, focusing on software and cloud infrastructure for passenger cars.

Saudi Arabia is trying to establish an industrial sector as part of Crown Prince Mohammed bin Salman’s plans to reshape the economy by establishing new industries to complement oil income as the world transitions to renewable energy.

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The kingdom has used its $500 billion sovereign-wealth fund to drive that effort. In 2019, it took a majority investment in

Lucid Motors Inc., which recently signed a deal to open its first manufacturing plant outside the U.S. in Saudi Arabia.

As Western companies pulled back from the kingdom after the 2018 killing of journalist Jamal Khashoggi, Saudi Arabia has struggled to reform its business climate to attract foreign investment. It wants to relocate international supply chains to the kingdom and acquire a market share in supply-chain components. But that effort has been complicated by the kingdom’s small domestic market, high labor costs and unpredictable operating environment.

Final Saudi approval for the Foxconn deal rests with Prince Mohammed. He has been pushing for several years for the company to establish a presence in Neom but has faced skepticism over the site’s limited logistics and access to power and water.

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—Yang Jie contributed to this article.

Write to Stephen Kalin at stephen.kalin@wsj.com and Summer Said at summer.said@wsj.com