IBM says 15 contracts impacted by DOGE cost cuts, shares drop
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 per cent 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 per cent 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 per cent 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 per cent so far this year, outperforming the benchmark S&P 500 index, which has declined nearly 9 per cent.
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 per cent to $14.5 billion. Consulting revenue fell 2 per cent 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.
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