Importance Score: 45 / 100 🔵
Technology and consulting giant IBM faced reductions in its government agreements due to the Department of Government Efficiency’s (DOGE) cost-cutting measures.
IBM Hit by Federal Contract Cancellations Amid DOGE Cuts
IBM experienced the cancellation of 15 of its federal contracts in the first quarter of 2025 due to DOGE-driven cutbacks. These cancellations represent approximately $100 million in potential future revenue. Notably, these federal contracts constitute between 5% and just under 10% of IBM’s consulting division.
Executives Downplay Impact of Government Efficiency Measures
During IBM’s earnings call on Wednesday, CEO Arvind Krishna addressed questions regarding the cancellations, clarifying that they stemmed from cutbacks at USAID. Both Krishna and CFO James Kavanaugh subsequently minimized the anticipated effect of DOGE on the company’s future operations.
“We’ve had a handful of contracts, either statement of work, or cancel and on our annualized backlog of over $30 billion in total consulting,” Kavanaugh stated. “This is like less than $100 million of backlog over a duration of multiple years. So while no one’s immune, we are absolutely focused on monitoring the identify dynamic process. We’re prudently cautious around consulting for the year.”
IBM’s Consulting Arm Remains Significant
IBM’s consulting business accounted for 34% of the company’s total revenue in the first quarter. Krishna emphasized that the company’s federal government consulting contracts are largely concentrated in essential sectors.
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Focus on Critical Services
“The vast majority is critical work — we actually process veterans benefit claims,” Krishna explained. “We help process how the [General Services Administration] does procurement. We help implement payroll systems. I don’t think of these as optional. Now, are there some areas around the edges which could be viewed as discretionary? Yes. But in our case that is the minority of our business, not the majority.”
Q1 Revenue Results
According to IBM’s first-quarter results, the company’s consulting revenue decreased by 2% overall. Revenue from consulting in Q1 was slightly over $5 billion.
“The diversity across our business positions us well to navigate the current climate,” Krishna said. “Our portfolio and track record of execution reinforce my confidence on this next chapter of our growth. I look forward to sharing our progress as we move through the rest of the year.”