Motorola Solutions (MSI) Q3 2025: Backlog Hits $14.6B as Software and Defense Momentum Accelerate
Record backlog and double-digit orders growth underpinned Motorola Solutions’ Q3, as the company’s software and services and defense businesses both delivered standout performance. Sylvus, the recent acquisition, exceeded early expectations, and management signaled continued operating margin expansion despite tariff headwinds. Visibility into 2026 remains high, with multi-year contracts and product innovation fueling long-term growth.
Summary
- Software and Services Outperformance: Segment growth and record backlog reinforce the shift toward recurring revenue.
- Defense and Autonomous Systems Surge: Sylvus and unmanned systems are expanding MSI’s addressable market.
- Margin Expansion Commitment: Management targets further operating leverage despite tariff and macro pressures.
Performance Analysis
Motorola Solutions delivered another quarter of above-guidance growth, led by 11% expansion in software and services and solid 6% growth in products and systems integration (SI). Operating margins rose by 80 basis points, hitting record levels in both segments despite $70 to $80 million in second-half tariff headwinds. The company’s record Q3 operating cash flow of $799 million and free cash flow of $733 million highlight the business’s strong cash generation profile.
The software and services segment now commands $11 billion in backlog, a new high, with multi-year contracts and cloud adoption acting as key growth drivers. Products and SI, while facing some margin pressure from tariffs, benefited from robust demand for next-generation infrastructure and device upgrades, evidenced by large multi-year orders from U.S. states and international customers. International revenue outpaced North America, growing 13% versus 6%, reflecting both organic strength and the Sylvus acquisition’s contribution.
- Backlog Strength: Total backlog reached $14.6 billion, up $467 million YoY, supporting multi-year visibility.
- Acquisition Impact: Sylvus contributed $123 million in revenue and $200 million to backlog, with expectations raised for both revenue and earnings accretion.
- Cash Deployment: $182 million in dividends and $121 million in buybacks demonstrate balanced capital allocation alongside strategic M&A.
Operating leverage remains a central theme, with management reiterating its commitment to expanding margins and cash flow even as tariff costs persist into early 2026. The mix shift toward software and recurring services continues to support margin durability.
Executive Commentary
"We achieved record Q3 operating earnings in both segments, record Q3 operating cash flow of just under 800 million, record Q3 orders that included double digit growth in both segments, and record Q3 backlog of 14.6 billion. That puts us in a strong position as we move into next year."
Greg Brown, Chairman and Chief Executive Officer
"We continue to expect revenue of approximately 11.65 billion or 7.7% growth. Based on our year-to-date performance informed by a strong Q3, we are increasing our non-GAAP EPS guidance... We maintain significant balance sheet flexibility inclusive of the debt issued for Sylvus."
Jason Winkler, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. Software and Services as Growth Engine
The company’s pivot toward software-driven solutions is accelerating, with software and services revenue up 11% and backlog at a record $11 billion. Multi-year contracts, cloud-based command center solutions, and subscription models are deepening customer relationships and recurring revenue streams. The adoption of Apex Next applications, AI-enabled radio and workflow software, is outpacing expectations, with a projected installed base of 300,000 devices by year-end 2026, up from prior forecasts.
2. Defense and Autonomous Systems Expansion
The Sylvus acquisition, focused on mission-critical data for defense and unmanned systems, is already exceeding initial targets. Management raised 2025 revenue expectations for Sylvus to $500 million and sees continued 20%+ growth, with earnings accretion now expected at $0.30 to $0.40 per share. The integration opens new markets in defense, border security, and autonomous drone infrastructure, with international demand leading early momentum. Military programs like Next Generation Command and Control and Soldier-Born Mission Command are key future growth vectors.
3. Margin Expansion and Operating Discipline
Despite $70 to $80 million in tariff costs in the second half, MSI expanded operating margins through higher-value product mix, cost controls, and software leverage. Management stressed ongoing discipline in expense management and the use of AI for operational efficiency. The company expects further margin gains in 2026, citing the durability of multi-year contracts and the continued shift to higher-margin software and services.
4. Product Innovation and Customer Retention
New product introductions, such as the SVX body-worn AI assistant and D-Series infrastructure, are strengthening MSI’s competitive position. The SVX device, integrating real-time translation and AI-driven reporting, is gaining rapid adoption, with 70 police departments onboarded since launch. Infrastructure upgrades are driving multi-year deployments with major U.S. states, and the installed base for next-gen devices and applications is still early in its penetration cycle, supporting long-term replacement and upsell opportunities.
5. Capital Allocation and M&A Strategy
Management is balancing organic investment with targeted acquisitions, as evidenced by the Sylvus deal and ongoing buybacks and dividends. The balance sheet remains flexible, with no major maturities until 2028, enabling continued pursuit of strategic M&A in adjacent markets.
Key Considerations
Motorola Solutions’ Q3 underscores a business model increasingly anchored in software, services, and high-value defense solutions, supported by a robust balance sheet and a disciplined approach to capital deployment.
Key Considerations:
- Recurring Revenue Momentum: Backlog and multi-year contracts in software and services are driving visibility and margin stability.
- Defense Tailwinds: Sylvus and unmanned systems expand MSI’s reach into fast-growing, high-barrier defense markets.
- Tariff Management: Tariff headwinds are being offset by product mix, pricing actions, and supply chain agility, but will persist into early 2026.
- Innovation-Driven Differentiation: AI-enabled products and cloud video solutions are deepening customer stickiness and expanding wallet share.
- Capital Flexibility: Strong cash flow and limited near-term debt maturities provide room for both organic and inorganic growth initiatives.
Risks
Prolonged U.S. government shutdowns could delay federal orders, though management expects any timing impacts to shift demand into future quarters rather than reduce it. Tariff pressures remain a cost headwind, with Q1 and Q2 2026 facing continued impact before lapping the prior year. Execution risk exists in scaling Sylvus internationally and integrating new technologies, while competitive dynamics in body-worn and cloud video markets may intensify as adoption accelerates.
Forward Outlook
For Q4, Motorola Solutions guided to:
- Revenue growth of approximately 11%.
- Non-GAAP EPS between $4.30 and $4.36 per share.
For full-year 2025, management raised guidance:
- Revenue of approximately $11.65 billion (7.7% growth).
- Non-GAAP EPS of $15.09 to $15.15 per share (up from prior $14.88 to $14.98).
Management highlighted several factors that support the outlook:
- Record backlog and double-digit orders growth in both segments.
- Continued strength in public safety, defense, and international markets.
Takeaways
Motorola Solutions is executing on a multi-year transformation toward higher-margin, recurring revenue streams, while leveraging product innovation and strategic M&A to expand its addressable market.
- Backlog and Orders Visibility: Multi-year contracts and record backlog provide strong revenue and cash flow visibility into 2026 and beyond.
- Software and Defense Mix Shift: The pivot toward software, services, and defense is accelerating, supporting both growth and margin expansion.
- Execution Watchpoints: Pace of Sylvus integration, tariff mitigation, and competitive response to new products will be key for sustaining momentum.
Conclusion
Motorola Solutions delivered a strategically robust quarter, with record backlog, software and defense tailwinds, and disciplined execution on margin and cash flow. With strong visibility and a balanced capital strategy, the company is well positioned for continued growth and operating leverage into 2026.
Industry Read-Through
MSI’s results signal sustained demand for public safety, defense, and autonomous systems solutions globally, with government and critical infrastructure customers prioritizing multi-year technology upgrades. The mix shift toward cloud, AI-driven workflows, and integrated communications platforms is increasingly central to competitive positioning across the sector. Peers in communications, security, and defense technology should expect continued customer preference for bundled, software-enabled solutions and rising barriers to entry in unmanned and autonomous platforms. Tariff and supply chain management remain sector-wide challenges, but margin resilience is possible for those with strong recurring revenue and innovation pipelines.