Prime Highlights
- IBM contributes $100 million to U.S. federal contract cancellations resulting from Department of Government Efficiency (DOGE) budget reductions.
- Company assures investors that the cancelled contracts are under 1% of its consulting backlog.
Key Facts
- The 15 cancelled contracts were largely USAID and non-core federal initiatives.
- IBM Q1 revenue rose 1% to $14.5 billion, adjusted EPS at $1.60, exceeding estimates.
Key Background
IBM reported in its Q1 2025 earnings that 15 federal contracts worth an estimated $100 million were terminated as a result of the budget cuts ordered by the U.S. Department of Government Efficiency (DOGE). The majority of the contracts were connected to the U.S. Agency for International Development (USAID) and involved support systems like veterans’ services and government procurement.
Even with cancellations, IBM insisted that the transactions are a small piece—a fraction below 1%—of its enormous consulting backlog worth more than $30 billion. The Chief Executive, Arvind Krishna, said that the heart of IBM’s federal business is still intact and that most of the impacted engagements were non-essential in the context of government services.
Financially, IBM held firm. It posted Q1 total revenue of $14.5 billion, up 1% from last year. Though consulting revenue fell 2% to $5.1 billion, solid software performance was enough to offset overall performance. Adjusted earnings per share were $1.60, significantly above expectations. IBM guided Q2 revenue of $16.4 billion to $16.75 billion in Q2, beating analysts’ estimates.
Shares dropped over 5% after the close following initial investor reaction to the contract news but IBM’s shares are still up 12% through the year, outperforming the S&P 500’s drop of 9%. The company is being boosted by expansion of its AI-driven services. Its Book of Business on AI topped $6 billion and increased by $1 billion during the last quarter alone. IBM also plans to acquire HashiCorp for $6.4 billion, boosting its hybrid cloud and AI offerings.
The deal, fueled by enterprise demand for AI and solid finances, is the latest in IBM’s continued departure from legacy infrastructure and toward new technologies. Although the short-term challenges, IBM is on track to its fiscal-year goal of 5% revenue growth.
