- Cancellations and pauses by federal budget cuts amount to approximately $100m.
International Business Machines Corp (IBM) reported first-quarter earnings that surpassed market expectations, offering a counter-narrative to prevailing anxieties surrounding economic volatility fueled by tariffs and federal budget cuts.
The company’s reported sales increase of almost one per cent, reaching $14.5 billion, coupled with a profit of $1.60 per share, exceeded analyst projections and demonstrated the robustness of IBM’s business model in a turbulent economic landscape.
This performance is particularly noteworthy given the prevailing concerns voiced by investors and business leaders regarding the potential ramifications of evolving US government policies, including broad tariffs and reductions in federal spending.
Maintains full-year forecast
The anticipated sales range of $16.4 billion to $16.8 billion for the period ending in June, surpassing the average analyst projection of $16.3 billion, underscores this assurance. Moreover, IBM maintained its full-year forecast of approximately $13.5 billion in free cash flow and at least 5 per cent revenue growth in constant currency.
This forward-looking stability has resonated positively with investors, as evidenced by the company’s stock performance, which has demonstrated resilience amidst a broader market selloff.
While the impact of federal cost cuts on IBM’s government contracts cannot be disregarded, with cancellations and pauses amounting to approximately $100 million in future payments, Chief Financial Officer Jim Kavanaugh emphasised that federal sales constitute less than 5 per cent of the company’s overall revenue. This suggests a degree of diversification that mitigates the potential negative impact of government spending reductions.
Crucially, IBM’s success is rooted in its ongoing transformation from a traditional computer company to a provider of high-growth software and services. Strategic acquisitions, such as the recent takeover of HashiCorp Inc. and the 2023 purchase of Apptio, have significantly expanded the company’s product portfolio and service offerings.
Furthermore, the surge in bookings for AI consulting and software, exceeding $6 billion since mid-2023, highlights the company’s strategic focus on emerging technologies and its ability to capitalise on the growing demand for AI solutions.
While software remains IBM’s fastest-growing segment, the consulting unit’s performance, albeit with a revenue decline, remains significant, contributing substantially to AI-related bookings.