Mavenir borrows $95M as radio R&D costs rise, Open RAN

It’s starting to feel like crunch time for some of the more established Open RAN vendors. Just weeks after it was announced that Parallel Wireless had laid off a significant number of employees. With the market for disaggregated Radio Access Network (RAN) systems not performing as expected, one of its main open RAN software competitors, Mavenir, has turned to the capital markets to borrow $95 million to fund its ongoing operations .

The move was written down by rating agency Moody’s, which reported that Mavenir arranged a $95 million loan to meet “anticipated cash burn due to significant research and development (R&D) spending – which is increasing significantly (based on Moody’s forecasts) – a higher working capital requirement, and a softer revenue growth forecast.”

The agency notes that Mavenir’s costs have so far been borne by its private equity sponsors and other strategic investors: Siris Capital Group is the majority owner, while Koch Strategic Platforms took one Minority stake in seller for $500 million in April 2021, about six months after Mavenir abandoned its plan to go public.

“This shift in the funding mix with significant debt issuance is it [a] significant break with the sponsor’s track record over the past four years, in which all negative cash flows were offset by equity, which was a key factor in the credit profile,” noted Moody’s, which downgraded Mavenir’s credit rating from B2 to B3 but kept its outlook as stable .

Mavenir’s Senior Vice President Maryvonne Tubb, Marketing and Corporate Communications, confirmed the company had raised $95 million to “fund our growth in radio as we expand our R&D and other functions in radio.”

The company has historically specialized in software, but as part of its effort to pack everything into the burgeoning sector of Open RAN technology, Mavenir added a selection of radios to its portfolio earlier this year. called OpenBeamto accommodate multiple use cases. This move follows the $15.6 million acquisition of small cell provider ip.access in late 2020 – see Mavenir buys ip.access to expand Open RAN enterprise portfolio.

This is a market where there is a lot of competition, not only from the big incumbent RAN equipment vendors, but also from a variety of specialists including Baicells, Benetel, Comba, Fujitsu, Gigatera, NEC and more, so investing in R&D is important to differentiate, hence Moody’s view that R&D spending is “rising substantially.”

There have also been multiple media reports of job cuts at Mavenir, which perhaps wouldn’t be too surprising given the shift in its funding profile. However, this cannot be directly equated to Parallel Wireless’ position as Mavenir has a much broader portfolio than just Open RAN products, including cloud-enabled converged packet core/IMS capabilities, OSS and BSS tools, messaging and Unified Communications Platforms , and has established revenue-generating customers for its core messaging and packet products.

Marketing director Tubb noted in her email response to questions that the company “needs a lot more people with RAN and packet core backgrounds. As a result, we’re making some small changes in our staff,” with cuts in some areas (including some in marketing, it seems) and additions in other areas, which isn’t uncommon in the vendor world.

“Overall, we’ve grown from 3,200 employees in March 2020 to over 6,000 in May 2022…we expect to remain at the same overall level,” adds Tubb. Of course, that’s a lot of people that will cost a lot in operating expenses, so naturally Mavenir will be looking for a return on its R&D investments and its employees.

Currently, Mavenir is a mid-tier player in terms of size: Moody’s estimates the seller’s annual revenue at less than $700 million and notes that its “revenue growth is strong, driven by long-term relationships (12 years, average length). with a large number (325+) of customers, including 17 of the top 20 carriers. Good geographic diversity, a large target market with strong demand drivers, the company’s strong niche position in leading technology software and services, and strong engineering talent and patent portfolio also support the credit profile. Moody’s expects Mavenir to maintain adequate liquidity over the next 12 months,” the rating agency concludes.

And, of course, Mavenir is betting on growth in the Open RAN sector, which is progressing either faster than expected or much slower than expected, depending on the interlocutor in the industry.

So, it’s worth reminding us that while there’s been a lot of hype surrounding Open RAN in recent years (as there always is with a disruptive technology trend), there’s never been much expectation for immediate massive sales. Ericsson CEO Börje Ekholm already stated at the end of 2020 that the Swedish provider did not expect to have any significant impact on the market and its own revenues until 2023 and it could easily be argued that the prediction has been correct so far – see Ericsson CEO sees impact of Open RAN from 2023.

The Open RAN market already exists, of course, but it is mainly tied to two markets. In Japan, Rakuten Mobile has used some Open RAN elements in its 4G and initial 5G rollouts; while NTT Docomo and KDDI have also incorporated Open RAN technology into their production networks. And in the US, 5G newcomer Dish Network (a Mavenir customer). started its service with an Open RAN based network.

Many other big names including the European quintet from Deutsche TelekomOrange, Telecom Italia (TIM), Telefónica and Vodafoneare supporters and are either in the very early stages of initial deployment or still in the testing and testing phase, but have not yet made any major deployment investments.

Research house The Dell’Oro Group has been tracking the dynamics and changes in the RAN market and lately revised its Open RAN market forecast to reflect better-than-expected investments and “enhanced momentum”. It now expects Open RAN equipment (radio and baseband products, but not related professional services) to be worth nearly $20 billion in 2022-26; and for Open RAN products, accounting for approximately 15% of the total RAN market by 2026, which (according to TelecomTV’s calculation on the back of the cover) would value the market at $6-$6.5 billion by then.

“The Open RAN movement continues to move in the right direction,” said Stefan Pongratz, Vice President and Analyst at Dell’Oro Group. “At the same time, we currently have three separate waves of Open RAN and they are not all moving at the same pace – greenfields and early brownfield adopters are aggressively adopting Open RAN, while the remaining brownfields, which also make up most of the market, remain more careful in navigating this transition,” he noted in this announcement.

Having put years of effort and development into its Open RAN plans, Mavenir will want to be in the game for the long term and hope to receive a decent chunk of the investment that, if all goes according to plan, should see the Telco Capex Pipe starting next year. Panda Anku