IBM (IBM, Financial) experienced a 7% drop in after-hours trading following the release of its earnings report, which failed to fully alleviate investor concerns over tariffs and reduced U.S. federal government spending impacting its business. Despite a 1% increase in first-quarter sales to $14.5 billion and earnings per share of $1.60, both surpassing market expectations, uncertainties persist.
CEO Arvind Krishna noted potential short-term impacts on customer transactions but emphasized no significant changes in purchasing behavior. IBM's stock had risen 12% this year, contrasting with the S&P 500's 8.6% decline, positioning it as a relatively safe investment.
IBM continues to transition from a traditional computing company to a software and services-focused entity. Recent acquisitions, including HashiCorp Inc. and Apptio for $4.6 billion, have expanded its offerings. AI consulting and software orders have surpassed $6 billion since mid-2023, with 80% from consulting and the rest from software.
Software remains IBM's fastest-growing segment, with a 7% sales increase to $6.3 billion, while consulting sales fell 2% to $5.1 billion. The infrastructure segment saw a 6% decline to $2.9 billion. CFO Jim Kavanaugh highlighted the resilience of IBM's business despite U.S. government cost-cutting actions impacting contracts worth approximately $100 million.
IBM provided rare quarterly guidance, expecting second-quarter sales between $16.4 billion and $16.8 billion, exceeding analyst expectations. The company maintains its full-year guidance of at least 5% sales growth and $13.5 billion in free cash flow.
