IBM reported better-than-expected earnings and revenue for the first quarter on Wednesday.
Here’s how the company performed:
- Earnings per share: $1.60 adjusted vs. $1.40 expected
- Revenue: $14.54 billion vs. $14.4 billion expected
Revenue increased 0.6% in the quarter from $14.5 billion a year earlier, according to a statement. Net income slid to $1.06 billion, or $1.12 per share, from $1.61 billion, or $1.72 per share, in the same quarter a year ago. The company accelerated productivity efforts, Jim Kavanaugh, its finance chief, said on a conference call with analysts.
For 2025, IBM reiterated its expectation for $13.5 billion in free cash flow and at least 5% revenue growth at constant currency. At current exchange rates, currency will provide 150 basis points of benefit for 2025 growth, down from the company’s forecast of 200 basis points in January.
Management called for $16.4 billion to $16.75 billion in second-quarter revenue. The middle of the range, $16.58 billion, is ahead of the LSEG consensus of $16.33 billion. IBM has become more cautious about the contribution of consulting, Kavanaugh said on the conference call.
“While sentiment and the operating environment have been rapidly shifting, our performance reflects the continued success of our focused strategy around hybrid cloud and AI, especially where clients are looking for cost savings, productivity gains and trusted partners to help them move fast and scale,” IBM CEO Arvind Krishna said on the call.
“Those needs remain front and center in today’s market. Before going deeper into our results, let me start by saying that we appreciate the administration’s focus on economic growth and rational regulation, which will strengthen the US competitive position. We believe this will result in long-term value creation and make it easier for technology to contribute to economic growth.”
In the first quarter, software revenue rose 7% to $6.34 billion, in line with the consensus among analysts polled by StreetAccount. The hybrid cloud software category that includes Red Hat grew 12%, compared with 16% in the fourth quarter.
IBM’s consulting unit contributed $5.07 billion in revenue, which was down 2% and slightly above StreetAccount’s $5.05 billion consensus.
The company’s infrastructure division, which includes mainframe computers, posted a 6% decline in revenue to $2.89 billion, higher than the $2.76 billion consensus. Earlier this month, IBM introduced its z17 mainframe. Infrastructure revenue growth generally picks up as customers adopt the next generation and then drifts down late in the cycle.
During the first quarter, IBM said it had settled its lawsuits with chip manufacturer GlobalFoundries. IBM also closed its $6.4 billion acquisition of cloud software maker HashiCorp and announced plans to buy data storage software startup DataStax for undisclosed terms.
IBM has been an outperformer this year as the broader market has sold off due largely to concerns around President Donald Trump’s tariffs and their potential impact on the economy. As of Wednesday’s close, IBM shares were up 11%, while the Nasdaq was down almost 14%.
The stock slipped 6% in extended trading.
“In the near term, uncertainty may cause clients to pause and take a wait-and-see approach,” Krishna said, adding that buying behavior has not meaningfully changed so far in the second quarter.
No one is immune from fallout from President Trump’s tariffs on imported goods, Kavanaugh said in an interview with CNBC’s Jon Fortt. Under 5% of IBM’s spending comes from goods imported to the U.S, he said on the call.
IBM’s customers are prioritizing efficient spending and the preservation of cash, Kavanaugh told the Wall Street Journal. The U.S. Department of Governmental Efficiency had delayed or nixed 15 federal contracts, he told Bloomberg.
“Federal consulting is less than 10% of consulting,” Krishna said. Most of that federal consulting is critical rather than discretionary, he said.
Signings — an estimate of spending commitments under consulting contracts — would have been higher in the first quarter if not for clients hesitating before making buying decisions, Kavanaugh said on the conference call.
“There are areas of our portfolio that could see greater variability in the event that the macroeconomic environment deteriorates,” he said. “This includes consulting, which is more sensitive to discretionary pullbacks and DOGE-related initiatives, consumption-based services and software, including in Red Hat and areas of distributed infrastructure.”
WATCH: Uncertainty is the market is ‘short-term’, says IBM CEO Krishna