NEW YORK: International Business Machines Corp (IBM) has dropped in extended trading after its results weren’t strong enough to quell investors’ concerns that tariffs and federal cost cuts will dent the company’s business.
First-quarter sales increased almost 1% to US$14.5bil, IBM said Wednesday in a statement.
Profit, excluding some items, was US$1.60 per share.
Both results exceeded analysts’ average estimates, according to data compiled by Bloomberg.
“In the near term, uncertainty may cause clients to pause,” chief executive officer Arvind Krishna said on a conference call after the earnings announcement.
“Still, he said the company has “not seen a material difference in client buying behaviour.”
The shares declined about 6% in extended trading after closing at US$245.48.
Amid a broad market sell-off in recent weeks, IBM has been a relative safe haven.
The stock has jumped 12% this year, compared with an 8.6% decline in the S&P 500 Index.
IBM had “been a very nice outperformer over the last several weeks through the tariff noise,” Amit Daryanani, an analyst at Evercore ISI, said in a Bloomberg Television interview.
Thus, investors were expecting more of “picture perfect” results, he said.
Big Blue has worked to transform itself from a conventional computer company into one focused on high-growth software and services.
It has used acquisitions to expand the company’s products, including a takeover of HashiCorp Inc that was completed in February and the purchase of Apptio for US$4.6bil in 2023.
Bookings for artificial intelligence consulting and software have exceeded US$6bil since mid-2023, the Armonk, New York-based company said.
That is up from the US$5bil IBM disclosed during its last quarterly earnings report in January.
About 80% of the bookings come from the consulting unit, with the rest from software. Software continued to be IBM’s fastest-growing segment, with sales expanding 7% to US$6.3bil in the period ended March 31.
Revenue declined 2% to US$5.1bil in the consulting unit. Each was in line with estimates. Infrastructure sales dropped 6% to US$2.9bil.
Earlier this month, IBM unveiled its latest mainframe system, saying that some business data will remain on customer-owned servers and never be hosted on the cloud.
Chief financial officer Jim Kavanaugh said the quarterly earnings reflect the “durability and resiliency” of IBM’s business.
Still, the US government’s cost-cutting actions led by Elon Musk’s Department of Government Efficiency (Doge) are having an effect.
Kavanaugh said about 15 of IBM’s contracts with the federal government have been cancelled or paused, amounting to about US$100mil in future payments.
Federal sales amount to less than 5% of IBM’s overall revenue, Kavanaugh added.
IBM executives noted they are more cautious about the consulting unit this year.
The unit is “more susceptible to discretionary pullbacks and Doge-related initiatives,” Krishna said during the call.
But “management might not be baking in a worsening of economic conditions in its full-year view, which we believe will exert pressure, particularly on its consulting unit, pulling that segment’s revenue lower in 2025,” Anurag Rana and Andrew Girard, analysts at Bloomberg Intelligence, wrote in a note after the earnings were released.
IBM took the unusual step Wednesday of giving quarterly guidance, saying that sales will be about US$16.4bil to US$16.8bil in the period ending in June.
Analysts, on average, projected US$16.3bil.
The company maintained its full-year forecast of about US$13.5bil in free cash flow and at least 5% revenue growth in constant currency. — Bloomberg
