• IBM's shares fell over 5% after the cancellation of 15 government contracts.
• The suspended contracts amount to $100 million, less than 1% of IBM's order backlog.
• CEO Arvind Krishna emphasized that critical services remain unaffected despite the cancellations.

International Business Machines (IBM) has announced that 15 of its federal contracts were canceled under a cost-cutting drive by the Department of Government Efficiency (DOGE), led by Elon Musk. This move resulted in a significant drop in IBM's stock, with shares falling more than 5% after-hours trading. The affected contracts represent about $100 million in potential earnings, although this amount constitutes less than 1% of IBM's total order backlog in consulting, according to Reuters and Channel News Asia.

Despite the challenging situation, IBM's finance chief, James Kavanaugh, noted that the company is maintaining its revenue growth target of at least 5% on a constant currency basis through 2025. In its latest earnings report, IBM revealed a modest revenue increase of 1% for the first quarter, totaling $14.5 billion, while consulting revenue experienced a 2% decline to $5.1 billion, aligning with analysts' estimates, according to Channel News Asia and India Times.

IBM's CEO, Arvind Krishna, emphasized that the company derives 5-10% of its consulting revenue from federal contracts, which are primarily centered around essential services like processing veterans' benefits. He believes that the majority of IBM's federal engagements will remain intact even with these changes, suggesting that the cutbacks are more relevant to non-critical services. However, the cancellations have raised concerns about the overall stability of IBM's consulting business as the economy remains uncertain, according to Reuters and India Times.