Mavenir may be saved by Saudis with $1B Aramco investment – reportMavenir may be saved by Saudis with $1B Aramco investment – report

Since 2021, investors have collectively fed about $830 million into the ravenous maw of Mavenir, a US software company with ambitions in 5G. Yet they have little to show for it. In October, after an earlier downgrade by Moody's and a report saying Mavenir had missed interest payments on debt, S&P Global warned of imminent default or restructuring. Mavenir, it said, had insufficient funds to cover looming debt obligations.

But the Texas-based company may have found a savior among the Saudis. Aramco Digital, the tech-focused subsidiary of oil giant Saudi Aramco, is poised to pipe $1 billion into Mavenir for a significant minority stake in the business, according to a Reuters report (paywall applies) that appeared late Friday, citing people familiar with the matter. The deal, if it goes ahead, would value Mavenir at about $3 billion.

Mavenir declined to comment on the report and Aramco Digital had not responded to a Light Reading approach at the time of publication. But the deal would obviously be a lifeline for Mavenir, which has struggled to break into the market for 5G radio access network (RAN) products despite several years of trying. Aramco Digital has previously downplayed its interest in becoming a RAN vendor, but a move for Mavenir would give it part-ownership of one of the best-known challengers to the giants of Ericsson, Huawei and Nokia.

From a classic investor perspective, it would be a headscratcher. For starters, the RAN market has been shrinking for about two years and no analyst who covers the sector envisages a dramatic turnaround next year. In 2023, RAN product revenues fell 11%, to about $40 billion, according to Light Reading sister company Omdia. This year, Omdia forecasts a decline of between 10% and 15%.

The market is also notoriously conservative and dominated by those previously mentioned giants. Together, Ericsson, Huawei and Nokia served about 75% of it last year, and their share has not weakened despite the apparent enthusiasm of some telco technology executives for the concept of open RAN. With its standardized interfaces between different components, that was supposed to give telcos the ability to build a mobile site with parts from multiple suppliers. Before, they would have had to buy a fully integrated set of products from one vendor's system.

The travails of open RAN

Open RAN, it was hoped, would allow telcos to make direct use of specialists. And with its RAN software focus, Mavenir did fit the description. But the biggest telcos have continued to prefer single-vendor deals, while Mavenir was unable to establish many partnerships with makers of low-cost radios. Both factors drove it to expand into hardware production, which has inevitably gobbled resources. The $500 million Mavenir secured from Koch Industries in 2021 was "to build our own radios," CEO Pardeep Kohli told Light Reading last year.

That sum, though, was equal to Mavenir's total revenues in 2022, when Kohli last shared results on LinkedIn, and it was about five times what Mavenir made in RAN product sales that year. A massive MIMO radio built in partnership with chipmaker Qualcomm was admired by Vodafone, but the hardware diversification has probably not given Mavenir the portfolio breadth it needs to attract much business with Tier 1 telcos. Its only notable deal is a software contract with Dish Network, an ailing "greenfield" telco in the US. Operators in India, the last big country to award 5G licenses, preferred Ericsson, Nokia and Samsung to Mavenir when handing out jobs.

As noted by S&P Global, Mavenir cannot slash spending on research and development (R&D) without risking a loss of competitiveness. And the demands are high. Together, Ericsson and Nokia are thought to spend about $5 billion each year on R&D for RAN products. Matching that is easily doable for a company like Aramco, which reported sales of about $495 billion in 2023. But it could not be a one-off contribution, and the Saudi company is unlikely to see a return for many years.

For evidence of that, check out Samsung. The South Korean electronics giant is the world's fifth-biggest RAN vendor and has had a presence in the sector since the days of 4G. Yet its market share was just 7.6% in 2022, and that slid to 6.1% last year, when revenues at the Samsung Networks business came to just $2.7 billion. Aramco, moreover, is not a big spender on R&D, investing just $1.4 billion in it last year.

Mavenir's current financial predicament is bound to make prospective telco customers feel jittery, and an Aramco investment would certainly help to soothe the nerves. It could set Mavenir up for a juicy contract with Vodafone, which is due to announce the winners of a tender covering more than 100,000 sites in Europe and Africa. About 30% of the work has been reserved for open RAN providers, and the main candidates appear to be Mavenir and Samsung. A partnership with Cohere Technologies, a capacity-boosting software developer that Vodafone looks desperate to use in commercial networks, is another big tick mark for Mavenir.

Most other telcos, though, are likely to stick with their current vendors unless they are forced to switch or upgrading to a new generation of mobile, and 6G remains at least five years away. It's unclear if a deal for a few percentage points of the Vodafone footprint, plus perhaps one or two contracts with other service providers, would be sufficiently transformative. Mavenir registered an $81 million net loss on sales of $427.4 million for the fiscal year to January 2020, according to a SEC filing.

The push into radios and systems integration that has happened since then will have been expensive, as Kohli himself indicated with his comments about the $500 million investment from Koch. Even the giants are being squeezed. Ericsson reported an operating margin of just 11.9% for its recent third quarter, down from 15.7% for the same period of 2021.

Make Saudi Arabia great again

Aramco might see Mavenir as a long-term bet. The introduction of artificial intelligence into the network "edge," where RAN software is hosted, could provide a spur if the economics look viable. Tareq Amin, who left Rakuten's telecom business to lead Aramco Digital, is an AI enthusiast, and he worked on a major Japanese rollout of open RAN during his time at Rakuten.

For Saudi Arabia's rulers, eager to move their economy beyond the drill for oil, the market for network products offers an opportunity for diversification in a sector of growing geopolitical importance. Amid a worsening trade war between China and the US, governments are increasingly worried about security and even self-reliance. Owning a network vendor has obvious attractions.

But the involvement of Saudi Arabia in Mavenir – whose biggest investors today are Siris Capital and Koch – may concern other countries alarmed about its poor record on human rights and authoritarianism. In 2022, US President Joe Biden opted for an awkward fist bump with Saudi Crown Prince Mohammed bin Salman, rather than a warm handshake, following US criticism of Saudi Arabia over the murder of Jamal Ahmad Khashoggi, a Saudi journalist and dissident.

The return to the presidency next year of Donald Trump, who seems on much better terms with the House of Saud, will probably be welcomed by Mavenir's bosses. But the company at one time was seen as a US-grown and US-owned answer to Ericsson and Nokia. A Mavenir part-controled by Aramco does not sound very MAGA.