International Business Machines Corporation, together with its subsidiaries, provides integrated solutions and services in the United States, Europe, the Middle East, Africa, Asia Pacific, and internationally. It operates through Software, Consulting, Infrastructure, and Financing segments.
IBM’s latest quarterly results have painted a mixed picture, with steady performance in key areas but growing concerns over broader economic headwinds and the potential impact of tariffs. The company’s reaffirmation of its 2025 growth targets and better-than-expected revenue guidance for the second quarter reflect confidence in its strategy, yet investors responded cautiously, with shares down 6% in extended trading.
First-quarter revenue edged higher by 0.5% year-on-year to USD 14.54 billion, just ahead of expectations. Software was once again the standout performer, delivering 7.4% revenue growth to USD 6.34 billion. This was supported by ongoing demand for hybrid-cloud solutions, boosted by recent acquisitions such as HashiCorp, which is expected to strengthen IBM’s position in the hybrid-cloud and automation space alongside Apptio and Red Hat.
However, the consulting division — a key component of IBM’s business — remains under pressure, with revenue falling 2.3% year-on-year to USD 5.07 billion. Management flagged that this segment could face further challenges throughout the year, particularly if discretionary IT spending weakens due to economic uncertainty and the unresolved US-China tariff situation. While the federal government represents less than 10% of IBM’s consulting sales, the pause or cancellation of several government contracts highlights the fragility of this part of the business in a tightening budget environment.
Operating earnings per share came in at USD 1.60, slightly below last year’s USD 1.68 but comfortably ahead of market expectations. Gross margins improved to 56.6%, helped by a favourable shift toward higher-margin software sales. Free cash flow for the quarter was USD 1.96 billion, a 2.7% increase from the previous year, supporting the company’s full-year target of around USD 13.5 billion.
Looking ahead, IBM has provided revenue guidance of USD 16.4 to 16.75 billion for the second quarter, which sits above consensus forecasts. The company continues to forecast at least 5% revenue growth in constant currency for the full year, aided by a one to one-to-one-and-a-half-point currency tailwind. However, this outlook assumes stable economic conditions — a view that may prove optimistic if tariff tensions escalate or corporate IT budgets tighten further.
While IBM’s strong positioning in software and AI solutions offers a degree of resilience, the path forward for its consulting arm appears less certain. The focus now shifts to how well IBM can navigate these macroeconomic challenges while maintaining momentum in its higher-growth segments. As a reminder, IBM sits within the momentum component of the US Growth portfolio, and its continued inclusion will depend on how the share price trades between now and the next rebalance date on 1st May 2025.
