IBM says 15 contracts impacted by DOGE cost cuts, shares drop

The Star

24-04-2025

FILE PHOTO: A view shows the IBM Australia building in Melbourne, Australia, March 24, 2025. REUTERS/Hollie Adams/File Photo
(Reuters) -International Business Machines said 15 of its government contracts were shelved under a cost-cutting drive by the Trump administration, a setback that eclipsed its upbeat revenue forecast and dragged its shares down over 5% after hours.
The federal consulting businesses of Big Blue's rivals such as Accenture have also taken a hit from belt-tightening efforts by the U.S. administration and its Department of Government Efficiency (DOGE).
The impacted contracts amounted to about $100 million, which was less than 1% of the order backlog in IBM's consulting unit, finance chief James Kavanaugh told Reuters on Wednesday.
Still, some analysts said the cancellations fanned uncertainty for the company at a time when U.S. tariffs cloud the global economic outlook.
To bolster investor confidence, IBM broke from its long-standing practice of not issuing quarterly forecasts. It also reported better-than-expected first-quarter earnings and maintained its target of achieving at least 5% revenue growth on a constant currency basis in 2025.
"We've chosen now, in light of the very unprecedented dynamic of uncertainty going on in the market, to give a second-quarter revenue guidance range," Kavanaugh said. "We felt incumbent upon ourselves to give as much transparency as possible to our investor group."
IBM shares have gained 12% so far this year, outperforming the benchmark S&P 500 index, which has declined nearly 9%.
The company forecast June-quarter revenue between $16.40 billion and $16.75 billion, above analysts' average estimate of $16.33 billion, according to data compiled by LSEG.
In the first quarter, its revenue rose 1% to $14.5 billion. Consulting revenue fell 2% to $5.1 billion, roughly in line with estimates.
Some investors may focus more on the contract cancellations, given the economic uncertainty, said Michael Ashley Schulman, chief investment officer at Running Point Capital.
"In a world wobbling on policy pivots and macro murk, IBM's mostly good quarter may not be enough to assuage all the negative macro sentiment."
Adjusted profit stood at $1.60 per share, compared with estimates of $1.40 per share, helped by growth in the high-margin software segment.
IBM's AI Book of Business — a combination of bookings and actual sales across various products — stood at more than $6 billion inception-to-date, up about $1 billion from the previous quarter.
(Reporting by Arsheeya Bajwa in Bengaluru and Juby Babu in Mexico City; Editing by Alan Barona and Devika Syamnath)