Elon Musk’s Efforts Cause IBM to Lose Millions in Contracts, Still Beats Analysts’ Expectations for the Quarter

IBM reported financial results for the first quarter of 2025, which ended March 31. Although the company’s revenue and profit beat Wall Street analysts’ expectations, its shares fell 6%, partly due to the loss of several contracts that were canceled or postponed by Elon Musk’s Department of Government Effectiveness (DOGE).

IBM CFO Jim Kavanaugh told Bloomberg that DOGE’s recommendations led to the cancellation or suspension of 15 government contracts worth about $100 million. However, as The Register reports, he said on a conference call with Wall Street analysts that only “a few contracts” had been canceled, resulting in losses of less than $100 million. IBM CEO Arvind Krishna said that DOGE’s efforts had only canceled “a couple of contracts” in the first quarter, including a deal with USAID, which Musk’s agency closed. He called the impact of the cancellations minor, but declined to make any predictions about them for future quarters.

Source of images: IBM

The company’s GAAP net income was $1.06 billion, or $1.12 per share, down from $1.61 billion, or $1.72 per share, a year earlier. Adjusted non-GAAP net income of $1.60 per share was below the year-ago figure of $1.68, but beat analysts’ estimates of $1.40, according to CNBC. Revenue rose 0.6% for the quarter from $14.46 billion a year earlier to $14.54 billion in the reported quarter, compared with estimates of $14.4 billion.

Software development revenue, meanwhile, grew 7% to $6.34 billion, in line with the consensus forecast of analysts surveyed by StreetAccount. The hybrid cloud software category, which includes Red Hat, grew 12%, up from 16% in Q4 — the seventh consecutive quarter of continued revenue growth for the division. Automation revenue increased 14% year-on-year, while data and AI revenue increased 5%.

IBM’s consulting unit brought in $5.07 billion in revenue, down 2% year over year and slightly above the StreetAccount analyst consensus of $5.05 billion. Revenue in IBM’s consulting segment was nearly flat as “clients delay decisions on discretionary projects,” Cavanaugh said. IBM forecasts its consulting business will grow 5% to 6% annually for the foreseeable future and sees strategic value in its ability to drive infrastructure sales.

The company’s infrastructure unit reported revenue falling 6% to $2.89 billion, above analysts’ consensus estimate of $2.76 billion. The decline was largely due to lower sales of the z16 mainframe, which is nearing the end of its life cycle. Earlier this month, IBM introduced its replacement, the z17. Krishna said the z17 delivers improved AI capabilities through multimodality, new security features to protect data, and tools that use AI to improve usability. It’s also more energy efficient and performant, he added. Hybrid infrastructure revenue also fell 9%, distributed infrastructure revenue fell 5%, and support infrastructure revenue fell 3%.

«“We exceeded revenue, profitability and free cash flow expectations, driven by the strength of our entire software portfolio,” Krishna said. “Demand for generative AI remains strong, with our order book now over $6 billion year-to-date, up over $1 billion in the quarter,” he added. Kavanaugh noted that the company has implemented AI in over 70 workflows and reduced costs by over $1 billion through supply chain efficiencies.

To bolster investor confidence, IBM broke its long-standing practice of not issuing quarterly guidance and provided guidance for the second quarter. “We have decided to provide revenue guidance for the second quarter at this time in light of the unprecedented dynamics of uncertainty occurring in the marketplace,” Kavanaugh said. “We felt it was our responsibility to provide as much transparency as possible to our investor group.”

IBM forecast second-quarter revenue of $16.4 billion to $16.75 billion. The midpoint of the range, $16.58 billion, beats the $16.33 billion consensus of analysts surveyed by LSEG. IBM also reiterated its 2025 outlook for free cash flow of $13.5 billion and revenue growth of at least 5%. IBM shares are up nearly 12% year to date, while the S&P 500 has fallen more than 8%.

IBM executives say the company is well-positioned to weather a trade war because only 5% of its spending comes from imported goods, SiliconANGLE reports. Federal government contracts also account for less than 5% of the company’s revenue.