By Arsheeya Bajwa, Juby Babu
(Reuters) -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 6% 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.
The impacted contracts amounted to about $100 million, which was less than 1% 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% 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 is minimally impacted under current U.S. tariff policies, Kavanaugh said on a call with analysts. It has limited direct exposure outside the U.S. and is evaluating alternatives to mitigate levies.
IBM’s shares have gained 12% so far this year, outperforming the benchmark S&P 500 index, which has declined nearly 9%.
The company forecast June-quarter revenue between $16.40 billion and $16.75 billion, above the analysts’ average estimate of $16.33 billion, according to data compiled by LSEG.
In the first quarter, its revenue rose 1% to $14.5 billion. Consulting revenue fell 2% 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.
(Reporting by Arsheeya Bajwa in Bengaluru and Juby Babu in Mexico City; Editing by Alan Barona and Devika Syamnath)
