IBM puts on a brave face as US government cuts hit 15 contracts

IBM has revealed 15 contracts agreed with the US government have been shelved amid a cost-cutting drive implemented by the Trump administration.

The tech giant said the dropped contracts were worth about $100 million in total, less than 1% of its consulting group's planned work, according to Reuters.

IBM CEO Arvind Krishna said in a call with investors: "Consulting is also more susceptible to discretionary pullbacks and DOGE-related initiatives."

Since the beginning of Trump's second term, the administration has sought to slash spending, led by Elon Musk's Department of Government Efficiency (DOGE). Those cuts, alongside global tariffs, have hit the US tech industry particularly hard.

Despite the contract situation, IBM reported a slight rise in revenue for its quarterly results, up 1% to $15.5 billion — better than expected. But it raised eyebrows by issuing a forecast for the second quarter, something the company normally doesn't include with its results.

That forecast was positive — revenue between $16.40 billion and $16.75 billion, above analysts' expectations — and was intended to calm nerves amid the tumult caused by government cuts and trade disruption initiated by the administration.

"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," CFO James Kavanaugh said.

"We felt incumbent upon ourselves to give as much transparency as possible to our investor group."

However, despite the positive results, IBM's shares slid 5%.

Big tech gets political

Krishna made sure to thank the US administration despite the market turmoil, saying the company appreciated the focus on economic growth and rational regulation.

"We believe this will result in long-term value creation and make it easier for technology to contribute to economic growth," he said in an investor call after the results were announced.

Kavanaugh noted that goods imported to the US make up less than 5% of IBM's overall spend, so the tariff policy will have a minimal impact on the company, though it is seeking alternative sources where possible.

Forrester senior analyst Dario Maisto said that IBM's technology and services was diversified, so the impact of US tariffs, and retaliation against them, would differ across its portfolio:

"Guidance for the second half of the year will take tariffs and other countermeasures into account,” he said. “In general, the big tech play is becoming increasingly political.”

"For example, the fact that entire industries and countries depend on US-owned cloud infrastructures gives ample room for negotiation to both the US administration and its overseas counterparts,” Maisto added.

“Big Tech is not sitting idle either and we will see more measures put in place to reassure non-US clients on business continuity and resilience despite any geopolitical tension moving forward."

IBM results

For the first quarter, IBM posted $14.5bn in revenue, $1.7bn in operating pre-tax income, and generated $2bn in free cash flow, which Kavanaugh said was IBM's highest in the first quarter for many years.

"While sentiment and the operating environment have been rapidly shifting, our performance reflects the continued success of our focus strategy around hybrid cloud and AI, especially where clients are looking for cost savings, productivity gains, and trusted partners to help them move fast and scale," Krishna said in the investor call.

He added that IBM's book of business — which includes sales and future bookings — now holds $6 billion in pending work, up $1bn this quarter.

"Approximately one-fifth of this book of business comes from software and the remaining four-fifths is consulting," he added.

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