IBM effected by DOGE cuts, downplays impact during Q1 earnings call

Core Insights - IBM faced cancellations of 15 federal contracts due to cuts from the Department of Government Efficiency (DOGE), resulting in a loss of $100 million in future payments [1][2] - Federal contracts account for approximately 5% to just under 10% of IBM's consulting practice [1] - IBM's consulting business represented 34% of the company's revenue in Q1, with consulting revenue slightly over $5 billion, down 2% overall [3][4] Impact of Cancellations - CEO Arvind Krishna and CFO James Kavanaugh downplayed the potential impact of DOGE cuts on future business, emphasizing that the cancellations represent a small fraction of the company's annualized backlog of over $30 billion in consulting [2][3] - Kavanaugh noted that the $100 million backlog loss is spread over multiple years, indicating a manageable impact on the overall business [3] Nature of Federal Contracts - The majority of IBM's federal government consulting contracts involve critical work, such as processing veterans' benefit claims and implementing payroll systems, which are deemed essential rather than discretionary [4] - Krishna highlighted that only a minority of the business could be viewed as discretionary, reinforcing the importance of the remaining contracts [4] Business Outlook - Krishna expressed confidence in the company's diverse portfolio and execution track record, suggesting that IBM is well-positioned to navigate the current climate and looks forward to progress in the upcoming year [5]