IBM Dragged Down By DOGE Contract Cancellation Roulette

IBM beat Wall Street's expectations for both revenue and income in the first quarter of 2025, but its stock price still dropped more than six percent in after-hours trading.

Some share of the blame for the dip may belong to DOGE, the US government data-scouring, cost-trimming operation unofficially overseen by Tesla and SpaceX oligarch Elon Musk.

IBM CFO Jim Kavanaugh told the media DOGE recommendations to the White House caused 15 of its contracts with government agencies to be cancelled, paused, or suspended, amounting to about $100 million in future payments.

IBM's consulting business is more susceptible to discretionary pullbacks and DOGE-related initiatives

During Big Blue’s quarterly earnings conference call with Wall Street, he revised those remarks, referring to "a handful of contracts" and cited a financial impact of less than $100 million.

Also on the call, CEO Arvind Krishna acknowledged "a couple of contracts" were impacted in Q1, such as the IT giant's deal with USAID – the foreign aid agency gutted by DOGE. But he downplayed the impact of contract cancellations even as he declined to make predictions about future quarters.

Among clients directly affected by current government policies, slower spending may follow, said Krishna, adding that IBM's consulting business "is also more susceptible to discretionary pullbacks and DOGE-related initiatives."

More generally, Krishna said that uncertainty over President Trump's on-off-on-off import tariffs and government upheaval may cause customers to pause spending.

Overall revenues rose one percent year on year to $14.5 billion, with consulting revenue ($5.1 billion) down two percent for the quarter and software revenue ($6.3 billion) up seven points, according to IBM's financial statement for the quarter.

Big Blue's infrastructure segment – the hoary old mainframe, midrange server, and storage business – reported revenues of $2.9 billion, down six percent.

"We exceeded expectations for revenue, profitability and free cash flow in the quarter, led by strength across our Software portfolio," said Krishna in a statement. "There continues to be strong demand for generative AI and our book of business stands at more than $6 billion inception-to-date, up more than $1 billion in the quarter."

He added that IBM is sticking with its revenue growth expectations.

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Q1 saw the settlement of a long-running lawsuit with Global Foundries, the acquisition of HashiCorp, and the announcement of plans to acquire DataStax.

IBM also took $300 million in workforce balancing charges, compared to $400 million in Q1 2024. Company insiders told The Register last month that thousands of US jobs have been cut. ®

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