IBM has recently felt the impact of budget cuts from the Department of Government Efficiency (DOGE), leading to the cancellation of 15 federal contracts in the first quarter of 2025. Reports from Reuters and Bloomberg reveal these terminations will result in a loss of approximately $100 million in future earnings. Federal contracts contribute to around 5% to just under 10% of IBM’s consulting segment, which made up 34% of the company’s revenue in this quarter.
During an earnings call, IBM’s CEO, Arvind Krishna, pointed out that the cancellations were tied to budget reductions at USAID. Despite the cancellations, both Krishna and CFO James Kavanaugh sought to minimise concerns regarding the potential adverse effects on IBM’s overall business. Kavanaugh emphasised that while these contracts might seem significant, they represent only a small fraction of the company’s substantial $30 billion consulting backlog. He reassured stakeholders by stating, “This is like less than $100 million of backlog over a duration of multiple years,” highlighting that the company remains vigilant and cautiously optimistic about its consulting prospects for the year.
Krishna reaffirmed that most of IBM’s government consulting work is centred on critical functions, mentioning they handle vital operations such as veteran benefits claims processing and procuring for the General Services Administration. He stressed that these services are essential, with only a few peripheral areas being deemed discretionary.
In terms of performance, IBM’s consulting revenue saw a slight decline of 2% in Q1, totalling just over $5 billion. Despite this downturn, Krishna believes the company’s diverse portfolio equips it well to navigate current market challenges. He remains confident about IBM’s future growth trajectory and looks forward to updating stakeholders on the company’s development as the year progresses.
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