International Business Machines Corp (NYSE:IBM) saw its first quarter sales increase modestly year-over-year as its software unit offset declines in other business lines.
For the quarter, revenue was up 1% at $14.5 billion, above estimates of $14.4 billion.
Software revenue was up 7% at $6.3 billion, while consulting revenue was down 2% at $5.1 billion, and infrastructure revenue fell 6% to $2.9 billion.
Earnings per share of $1.60 beat estimates of $1.43.
IBM reiterated its full-year revenue growth forecast of at least 5%.
“While the macroeconomic environment is fluid, based on what we know today, we are maintaining our full-year expectations for revenue growth and free cash flow,” IBM CEO Arvind Krishna said in a statement.
For Q2, it expects revenue in the range of $16.4 billion to $16.75 billion, above estimates of $16.3 billion.
Analysts at Jefferies noted that Q1 software revenue growth marked a slowdown from 10.4% growth in the previous quarter. Organic software growth also slipped to 6%, compared to 8% previously.
Red Hat, a key pillar of IBM’s hybrid cloud strategy, saw growth fall to 12% from 16%, impacted by a slowdown in consumption-based services, which make up about 20% of its revenue mix, they noted.
The analysts added that while IBM did not change its software and infrastructure guidance, it cut its consulting outlook, citing weakness in discretionary spending and federal government-related contracts.
This included a handful of DOGE-related consulting contracts that were canceled, which represent less than $100M of its greater than $30 billion backlog.
“Given consulting is more sensitive to DOGE initiatives and discretionary pullbacks, management will remain ‘prudently cautious’ around the segment in calendar year 2025,” analysts wrote.
“We are encouraged by the continued software momentum and implied acceleration in the outlook, though we acknowledge the growth deceleration in Q1. We believe risk/reward looks balanced with most of the software multiple expansion priced in.”
Shares traded down 6.7% at $229 on Thursday morning.