L3Harris: Anti-Drone Radio Software and Solid Rocket Motor Expansion Signal a Company Repositioning Around the Next Decade of Defense Spending
Bernstein 42nd Annual Strategic Decisions Conference, May 27, 2026 — Chairman and CEO Chris Kubasik and new CFO Ken Sharp lay out the growth case
L3Harris Technologies used its appearance at Bernstein's Strategic Decisions Conference to deliver two genuinely new and important disclosures: a software-defined anti-drone jamming capability being rolled out across its existing base of over one million deployed radios, and a detailed operational update on the $3 billion solid rocket motor capacity expansion that is now consuming significant management bandwidth — including 24/7 production operations and the groundbreaking of a new PAC-3 Patriot facility in Camden, Arkansas, slated to open in July 2027. Against a backdrop of a defense budget that CEO Chris Kubasik believes will settle "between $1.1 and $1.5 trillion," the company says it will exceed every financial target set at its December 2023 Investor Day and is now working toward an 8% top-line CAGR through 2028.
The Radio That Can Now Kill Drones: A Potentially Significant New Revenue Stream
The most consequential disclosure of the session was one the company described as "breaking news" — a software update that enables soldiers already carrying L3Harris radios to scan the frequency spectrum, identify an incoming drone's control signal, and jam it with a single button press. "Within the last mile or 2, they can scan the frequency spectrum to identify the frequency on an incoming drone and hit a button and jam that frequency and watch the drone fall to the ground or sometimes it goes back to where it was launched from," Kubasik said. He called it "a huge deal," noting there is no impact on battery life or radio performance — it is simply a software download onto existing hardware.
With more than one million radios already deployed and hundreds of thousands being manufactured annually, the addressable market for this software license is immediately large. Kubasik was explicit about the economics: "The software will have like a 95% margin." The company developed this capability entirely with its own funding, without a government request or RFP. The commercial and operational implications are significant — this is not a future program, it is a capability being rolled out now across existing platforms and new production. CFO Ken Sharp, presenting publicly in this role for the first time, referenced the product under its internal name "Rate Shield" and noted the engineering team developed it proactively, which he said exemplifies the company's "trusted disruptor" culture.
Solid Rocket Motors: The Pentagon Is a Co-Investor, Capacity Expansion Is Accelerating
On the missile propulsion side, Kubasik confirmed that the $1 billion equity investment from the Department of Defense, structured as preferred stock that converts to common stock upon IPO, arrived in April. This is, as Bernstein analyst Doug Harned noted, an arrangement with no recent precedent. Kubasik framed it plainly as a creative financing solution: "Going and buying another — borrowing 3 more, 4 more billion dollars, just didn't seem like a smart move based on our leverage and our credit rating." L3Harris will retain 80% or more ownership of the missile business post-IPO, treating it as a separate segment.
The physical expansion is already well underway. The company has committed to building 60 new facilities, has designed 50, and has broken ground on 30. The newest announced building is a PAC-3 Patriot production facility in Camden, Arkansas, expected to open July 2027 and designed to double production capacity for that program. Kubasik described operations at the existing plants in Canoga Park, California; Camden, Arkansas; Huntsville, Alabama; and Orange, Virginia as running 24/7. Employment in Camden has grown by 500 last year and several hundred more already this year, creating enough demand for workers that the state of Arkansas and Governor Sanders are now coordinating on schools, shopping centers, and apartment construction to support the local workforce. "We have employees making how are the employees driving 90 minutes each way to and from work. I mean that's not sustainable," Kubasik said.
The medium-term financial target for the segment is a 120% capacity increase between now and the 2028 framework, with a $3 billion total capital investment. Kubasik was careful to explain the structural protection the company is negotiating with the government: multi-year contracts of five to seven years with explicit termination liability provisions that would allow L3Harris to recover a portion of its capital investment if production rates are later cut. "If we invest $3 billion assuming this rate of production over 7 years and someone changes the rate to a lower amount, we find a way to recover some of that $3 billion," he said. The new facilities are also being designed as multi-program capable, allowing the same mixers and infrastructure to be redirected between Standard Missiles, THAAD, PAC-3, and other programs as demand shifts — a deliberate departure from the historically siloed program structure that has limited flexibility across the sector.
Budget Outlook: $1 Trillion Base Is the Floor That Matters
Kubasik offered a structured view of the proposed $1.5 trillion defense budget that is more nuanced than the headline number suggests. He divided it into three buckets: the base budget, which he expects to settle around $1 trillion to $1.1 trillion; the $350 billion Reconciliation Act, which he described as politically uncertain and noted the prior-year reconciliation funds have been slow to be deployed; and a potential supplemental that he views as the fallback if reconciliation fails. "Somehow when the dust settles, it is probably going to be between $1.1 and $1.5 trillion," he said.
On the risk of a continuing resolution — which Harned flagged as potentially problematic since a CR based on prior appropriations would actually represent a funding decline relative to current plans — Kubasik was relatively relaxed, pointing to the company's $40 billion backlog against $23 billion in annual revenue. "There's no 2026 revenue in our guidance tied to anything we just talked about. That's more '27 and '28," he said. He also noted that national security anomalies embedded in CRs have historically allowed for some program continuations even under budget freezes.
Radio Business: Continuous Modernization, Not a Replacement Cycle
On the core radio business, Kubasik pushed back against the commonly held view that the Army modernization program represents a finite opportunity that ends around 2031. "In 2031, the men and women that got their radios in 2020 would appear to have 11-year-old radios — and when was the last time anyone in this room had an 11-year-old iPhone?" The argument is that radio modernization is structurally continuous, not episodic, and that the company would prefer this model to a lump procurement cycle precisely because it generates more predictable, sustained demand.
Internationally, the business is growing strongly. L3Harris has executed hundreds-of-millions to billion-dollar multi-decade deals in Germany, the Netherlands, and several other European NATO allies. Sharp noted that the radio segment grew 3% in the first quarter and is expected to accelerate through the year. On the Next Generation Command (NGC 2) program, Kubasik's message was that the budget lines are confusing but the aggregate funding is higher than a year ago, and that L3Harris has already won some early awards. His preferred outcome is a competitive evaluation in a contested jamming environment — the same type of live demonstration that gave Harris its original win on the Handheld Manpack program. "Jamming is the number one issue for COM. So everybody bring what they have. Let's go to an environment, let's jam them. Some will work, buy them, the ones that don't, send them home," he said.
On the question of whether the next contract cycle will retain the commercially structured, fixed-price model that has made Communication Systems L3Harris's highest-margin segment at approximately 25% operating margins, Kubasik was dismissive of the risk. "People have been saying that for decades. The trend and the tailwind is more and more commercial." He acknowledged that some dilutive cost-plus wins, such as the Next-Gen Jammer development program for the F-18 at high-single-digit margins, are deliberately taken to open production and export pathways. "If you can get a $1 billion cost-plus job at 9% margin, which is dilutive to 25, even I can figure that out — you take it every day of the week. It's like infinite ROIC."
Space: Growth Is Real, Margins Are Not Yet a Differentiator
The space and mission systems segment delivered 24% growth in the first quarter, and management guided to approximately 8% growth for the full year, implying a deceleration across the remaining three quarters. Sharp suggested this segment may have room to outperform on revenue. Kubasik acknowledged that satellite margins in the current competitive environment are consistent with prime contractor levels — likely in the low-to-mid teens — rather than the 25% profile of Communication Systems. He argued that over time, speed of production will become the key competitive variable: "Who can get these satellites in 18 months?" and that cost efficiency built on design-for-manufacturing and AI-assisted engineering will ultimately allow better economics for the most capable producers.
L3Harris has won on every tranche of the Tracking Layer constellation, holds the HBTSS program, and has proactively built two production facilities — a 100,000 square foot facility in Fort Wayne, Indiana, and one in Florida — ahead of contract awards, which Kubasik noted is now a de facto requirement: "You're not going to win without a building." An HBTSS follow-on award is expected and is described as a meaningful growth driver for the segment. A substantial portion of the space segment remains classified, which constrains granularity on growth drivers.
Free Cash Flow and Capital Allocation: Growth Is the Priority Over the Guide
L3Harris has guided to $3 billion in free cash flow for 2026. The company was slightly negative in the first quarter, consistent with its historical pattern of cash generation weighted toward the second half of the year. Kubasik was candid about where the incremental dollar goes: "If there was a trade on the, say, 3.1 to 3, we'd probably spend another $100 million to drive more growth at the end of the day and keep it to $3 billion." In other words, the company will not optimize the cash flow number at the expense of capacity investment in this environment. Sharp noted that research and development spending is up year-over-year, reflecting continued investment in both Vampire counter-drone systems and next-generation radio capabilities.
Assessment
This was a substantively informative event. The anti-drone radio software announcement is genuinely new information with a clear revenue and margin opportunity across a large installed base — it was not previously public and is the kind of capability that validates the commercial model that makes the radio business exceptional. The PAC-3 facility timeline in Arkansas, the specifics of the termination liability negotiations with the Pentagon, and the clarity on how multi-program flexible facilities will be structured are all more granular than what had been disclosed before. The fundamental concern for investors remains execution: the $3 billion missile capacity investment is being made ahead of contractual certainty, the supply chain remains a single-source bottleneck across several programs, and the IPO of the missile segment introduces a process that management is legally constrained from discussing. The combination of a generational defense budget tailwind, a unique government co-investment structure, and a new software-defined product line that can generate 95% margin software revenue from an already-deployed hardware base makes L3Harris's positioning arguably stronger today than it was six months ago — but the pace of execution on the physical side will determine whether the 2028 financial framework proves conservative or aspirational.
L3Harris Technologies Deep Dive
Business Model and Value Proposition
L3Harris Technologies operates as a Tier 1 aerospace and defense prime contractor, functioning fundamentally as a business-to-government systems integrator and technology provider. The company generates revenue by designing, manufacturing, and servicing technologically advanced solutions across the space, airborne, maritime, and cyber domains. Unlike legacy defense primes that rely heavily on heavy platform manufacturing such as fighter jets or submarines, L3Harris focuses on the mission-critical subsystems, sensors, communications, and propulsion mechanisms that enable these larger platforms to function in modern, network-centric warfare. The company positions itself as a trusted disruptor, aiming to bridge the gap between the scale of traditional defense behemoths and the agile innovation cycles of commercial technology firms. Its business model relies on securing long-term, high-margin government contracts, ranging from fixed-price development prototypes to cost-plus production runs, while increasingly emphasizing proprietary software-defined architectures.
At the start of 2026, management executed a major structural realignment, consolidating the business from four segments into three distinct units to better align with the evolving demands of modern warfare and the Pentagon's Joint All-Domain Command and Control initiatives. The first segment, Space and Mission Systems, integrates satellite payloads, missile warning architectures, and classified intelligence programs. The second, Communications and Spectrum Dominance, consolidates the company's legacy strengths in resilient tactical radios, broadband data links, and electronic warfare capabilities. The third, Missile Solutions, houses the advanced propulsion, hypersonics, and solid rocket motor assets largely acquired through the Aerojet Rocketdyne integration. This streamlined structure is designed to collapse decision-making timelines, optimize capital allocation, and create cross-selling synergies among common technical capabilities.
Customer Base and Competitive Landscape
The core of the L3Harris customer base is highly concentrated, with the United States Department of Defense and associated intelligence agencies accounting for approximately 73 percent of its $21.9 billion annual revenue. This deep structural integration with the U.S. government provides immense revenue visibility, underscored by a contractual backlog approaching $40 billion in early 2026. International military sales represent roughly 21 percent of annual revenue, driven by robust demand from NATO allies and Indo-Pacific partners seeking interoperability with U.S. forces. The remaining 6 percent of revenue stems from commercial aerospace customers, including satellite operators and aviation original equipment manufacturers.
The competitive landscape is fiercely contested, characterized by a mix of massive aerospace primes and specialized defense electronics firms. L3Harris frequently competes against, and occasionally partners with, heavyweights such as Lockheed Martin, Northrop Grumman, Raytheon, and General Dynamics. In the tactical communications and electronic warfare arenas, the company battles BAE Systems, Thales, and Elbit Systems. L3Harris often serves as a primary subcontractor to the larger primes, providing the indispensable sensory and communication organs for platforms built by Lockheed or Boeing. As the industry shifts toward space-based architectures and software-defined networks, the competitive dynamics are evolving, forcing L3Harris to continuously defend its incumbency against both traditional peers and aggressively funded commercial space entrants.
Market Share and Competitive Advantages
L3Harris enjoys formidable market share in several niche but critical defense electronics categories. The company holds a dominant position in the United States Department of Defense tactical radios market, capturing an estimated 45 percent market share. This dominance provides a vast installed base that generates recurring revenue through software upgrades, maintenance, and generational hardware refreshes. Furthermore, the 2023 acquisition of Viasat's Tactical Data Links business for $1.96 billion cemented L3Harris's control over Link 16, the standard tactical data network backbone for the U.S. military and NATO. Owning the proprietary hardware and waveforms that power allied battlefield communications creates an extraordinarily wide economic moat characterized by high switching costs and extreme barriers to entry.
The firm's competitive advantage is augmented by its formidable scale and operational discipline. As the sixth-largest U.S. defense contractor, L3Harris wields the balance sheet capacity to self-fund critical research and development ahead of government demand, a key differentiator when competing for rapid-prototyping contracts. This scale is matched by an aggressive internal efficiency initiative known as LHX NeXt, which generated over $800 million in cost savings through facility consolidation and supply chain optimization by 2025. These efficiencies are clearly reflected in the company's financial profile, driving adjusted segment operating margins toward 15.7 percent and generating highly resilient free cash flow. Additionally, the deep integration of Aerojet Rocketdyne into the L3Harris portfolio provides a unique competitive edge in the highly constrained solid rocket motor market, giving the company pricing power and strategic leverage across the missile defense supply chain.
Industry Dynamics: Opportunities and Threats
The macroeconomic and geopolitical environment presents a highly favorable structural backdrop for defense technology firms. Escalating great-power competition, particularly in the Indo-Pacific and Eastern Europe, has triggered a secular upcycle in global defense spending. For L3Harris, the most significant opportunity lies in the Pentagon's pivot toward space resilience and interconnected battle networks. The shift from vulnerable, multi-billion-dollar legacy satellites toward proliferated constellations of smaller, cheaper satellites perfectly aligns with the company's capabilities in sensor miniaturization and rapid manufacturing. Moreover, the urgent need to replenish allied munitions stockpiles offers a massive tailwind for the Missile Solutions segment, which is expanding production capacity for solid rocket motors to meet sustained global demand.
However, the industry is not devoid of structural threats. Defense contractors remain uniquely exposed to the vagaries of political dysfunction, including congressional budget impasses, continuing resolutions, and shifting procurement priorities. Additionally, the Pentagon's increasing reliance on firm-fixed-price development contracts has introduced severe margin risks across the sector, punishing companies that underestimate the engineering complexities of next-generation systems. Supply chain fragility also remains a pervasive threat. Advanced electronic components, critical minerals, and specialized engineering talent are in structural deficit, constraining revenue growth and pressuring margins. L3Harris must navigate these bottlenecks meticulously to maintain its delivery schedules and protect its profitability.
Growth Drivers: Next-Generation Technologies
L3Harris has successfully positioned several next-generation technologies to serve as meaningful growth engines over the latter half of the decade. Chief among these is the Viper Shield electronic warfare suite, designated as the AN/ALQ-254(V)1. Developed specifically for the global F-16 fleet, this fully digital, software-defined system recently cleared its production readiness review and has entered low-rate initial production. With 219 systems already on order across seven allied nations through foreign military sales, Viper Shield is rapidly taking market share in the airborne electronic warfare space. Its open-system architecture and podded variant options provide immense flexibility, ensuring legacy F-16s can operate securely in highly contested electromagnetic spectrum environments.
Space-based missile tracking is another explosive growth vector. The Space Development Agency is constructing a multi-layered, low-Earth orbit constellation known as the Proliferated Warfighter Space Architecture, designed to track and target advanced hypersonic threats. L3Harris has established itself as a premier prime contractor for the agency's Tracking Layer. Building upon successful prototype deliveries, the company recently secured a $919 million contract for 18 satellites in Tranche 2 and an $843 million contract for another 18 satellites in Tranche 3. This rapid, spiral-development procurement model provides highly visible, recurring revenue streams and solidifies L3Harris as a dominant force in the militarization of low-Earth orbit. The company is actively investing hundreds of millions to expand its space manufacturing facilities to meet the rapid deployment schedules demanded by this architecture.
The Threat of Disruptive Entrants
The defense sector is currently experiencing an unprecedented influx of venture-backed entrants aiming to disrupt the lethargic procurement cycles of legacy primes. Companies like Anduril Industries, Palantir Technologies, and SpaceX are fundamentally altering the competitive landscape by prioritizing software-defined architectures, artificial intelligence, and autonomous systems. Anduril, for example, is aggressively encroaching on the electronic warfare and counter-unmanned systems markets with AI-powered products like Pulsar, while Palantir is setting new standards for battlefield data integration. SpaceX is not only dominating the launch market but is also proving the viability of massive satellite constellations, indirectly accelerating the Department of Defense's shift toward the proliferated architectures that L3Harris now serves.
These new entrants pose a credible threat because they operate with software-native DNA, funding their own research and development and iterating products on commercial timelines rather than waiting for multi-year government requirements processes. However, L3Harris has demonstrated a pragmatic awareness of this shifting paradigm. Rather than directly competing in software platform creation, L3Harris is leaning into its trusted disruptor strategy, seeking to become the hardware-software integration bridge. The company frequently partners with these emerging firms, embedding software solutions like Anduril's Lattice platform into its own sensory and communication hardware for programs like the Army's modernized helmet displays. This cooperative approach mitigates the disruptive threat while allowing L3Harris to retain its lucrative position as a prime integrator.
Management Track Record and Capital Allocation
Under the leadership of Chief Executive Officer Christopher Kubasik, management has demonstrated a ruthless commitment to portfolio shaping and aggressive capital allocation. Since taking the helm following the merger of L3 Technologies and Harris Corporation, Kubasik has systematically divested non-core, lower-margin assets to fund strategic acquisitions in high-growth vectors. The $4.7 billion acquisition of Aerojet Rocketdyne and the $1.96 billion purchase of Viasat's Link 16 business were bold, transformative moves that fundamentally enhanced the company's technological moats in space, propulsion, and tactical networking. Management's execution on post-merger integration has been highly effective, consistently achieving promised cost synergies and driving operating margin expansion despite a challenging inflationary environment.
In early 2026, management executed a series of highly unconventional and creative financial engineering maneuvers to optimize the balance sheet and accelerate capacity expansion. L3Harris secured a groundbreaking $1 billion investment directly from the Department of Defense in the form of convertible preferred securities to rapidly scale solid rocket motor production ahead of contract awards. Simultaneously, the company filed confidential paperwork for an initial public offering of the Missile Solutions segment, intending to maintain operational control while unlocking public market capital. In parallel, management divested a 60 percent stake in its legacy space propulsion and power systems business to private equity for $845 million. This clinical, shareholder-focused approach to capital allocation highlights a management team that is deeply focused on return on invested capital and unconstrained by defense industry conventions.
The Scorecard
L3Harris Technologies stands as a structurally advantaged defense prime, uniquely positioned at the intersection of modern warfare's most critical growth domains: space-based intelligence, secure tactical communications, and advanced munitions propulsion. The company has successfully built a wide economic moat through its near-monopoly in U.S. tactical radios, its ownership of the Link 16 data network, and its rapid ascendance as a premier supplier for the Space Development Agency's proliferated tracking architectures. Management's aggressive portfolio shaping, evidenced by the strategic integration of Aerojet Rocketdyne and highly creative financing maneuvers in 2026, demonstrates a rigorous focus on margin expansion and return on invested capital. The structural shift toward Joint All-Domain Command and Control perfectly aligns with the company's core competencies as a systems integrator.
However, navigating the next five years will require flawless execution amid tightening government budgets and the rapid proliferation of software-native defense disruptors. The company's reliance on fixed-price contracts in developmental space programs introduces execution risks that have historically plagued the sector, while chronic aerospace supply chain constraints remain a structural headwind to top-line acceleration. Despite these industry-wide challenges, L3Harris's massive $40 billion backlog, expanding mid-teens operating margins, and deeply entrenched relationships with the Department of Defense and international allies provide a highly durable foundation. The enterprise is fundamentally sound, operating with the agility of a technology disrupter and the entrenched stability of a legacy prime.