DOGE Federal IT Vendor Impact Series: IBM Federal

The Trump administration and its Department of Government Efficiency (DOGE) have generated massive upheaval across the board in federal operations, including in the federal IT segment. As of March 2025, thousands of contracts described by DOGE as “non-mission critical” have been canceled, including some across the federal IT and professional services landscape. TBR’s DOGE Federal IT Vendor Impact Series explores vendor-specific DOGE-related developments and impacts on earnings performance. Click here to receive upcoming series blogs in your inbox as soon as they’ve published.

 

DOGE’s aggressive cost-cutting activities impacted IBM-Fed* in 1Q25

IBM tendered its 1Q25 earnings on April 23, and while the company does not disclose fiscal data about the federal operations of IBM Consulting, IBM’s executives did provide useful color on IBM-Fed and the impact of DOGE. Not surprisingly, IBM-Fed’s contracts with the U.S. Agency for International Development (USAID), much maligned by the Trump administration, suffered cancellations and drawdowns.
 
According to the DOGE-Terminated Contracts Tracker on the GX2 website, which tracks developments in federal contracting, IBM-Fed has had a total of $40.1 million in contracts terminated by DOGE as of the publication of this blog. Cancellations included awards with the Department of the Treasury ($17.5 million in TCV), the Department of Health & Human Services ($3.4 million in TCV), the Commerce Department ($1.3 million in TCV), and the Department of Education ($18 million in TCV). Without disclosing specific revenue data for IBM-Fed, IBM noted that its federal business accounts for less than 5% of IBM’s total corporate revenue and less than 10% of IBM Consulting sales, or, according to TBR estimates, about $490 million in 1Q25, up 3% year-to-year.
 
We note that none of the USAID awards terminated or scaled back by DOGE were listed on the GX2 website. IBM CFO Jim Kavanaugh indicated during the 1Q25 earnings call that IBM-Fed had a “handful of contracts” canceled by DOGE, affecting about $100 million worth of contracts in IBM Consulting’s $30 billion (on an annualized basis) backlog.

The advisory business within IBM-Fed bore the brunt of DOGE-based pressures; the company’s core technology operations may have largely been spared

IBM indicated during the earnings call that 40% of IBM-Fed’s revenue stems from technology-focused work described as “high-value annuitized revenue under contract” and, by implication, is so far unscathed by DOGE. IBM-Fed blends its hybrid cloud, AI and security technologies to offer federal agencies a suite of transformative solutions that are very technology-centric and mission-enabling by nature. Conversely, 60% of IBM-Fed’s sales derive from advisory-based work, which company executives noted during the earnings call would be “more susceptible to discretionary efficiency-type programs.”
 
Based on data about IBM-Fed’s canceled contracts on the GX2 website, we believe the advisory work affected by DOGE included cloud transition and support services, data standards testing and implementation, data quality support services, the acquisition and implementation of integrated workplace management system licenses, and “data at rest” support services (i.e., data that is stored and not being actively used or transmitted). Other contracts were “terminated for convenience,” according to the GX2 website, which did not provide a specific description of the canceled services.
 
IBM-Fed, according to IBM CEO Arvind Krishna, processes claims for veterans, provides procurement services to the General Services Administration (GSA), and has implemented and is currently operating payroll systems for several federal agencies. Krishna acknowledged that “some areas around the edges” of this work “could be viewed as discretionary” by DOGE, but that the bulk of IBM-Fed’s services are mission critical and technology focused.

IBM-Fed will double down on its core cloud, security and AI capabilities to successfully traverse the DOGE-disrupted federal IT space in 2025

According to TBR’s 1Q25 IBM Consulting Earnings Response, “IBM Consulting could experience variability in revenue growth in 2025, and IBM is cautious about the revenue contribution from the business to total corporate revenue due to possible further tightening of discretionary spending driven by macroeconomic uncertainty and the U.S. Department of Government Efficiency’s (DOGE) activities.
 
However, IBM Consulting will continue to gain ground in areas such as generative AI (GenAI) due to IBM’s early advances in the segment, diversifying revenues through new areas of expansion.” To buffer its 2025 sales growth against DOGE’s cost-rationalization efforts and offset revenue losses from the cancellation of advisory work deemed discretionary (and thus expendable) by DOGE, IBM-Fed must play to its strengths in AI- and security-infused hybrid cloud solutions and emphasize how well its offerings align with DOGE’s efficiency agenda.
 
IBM-Fed won large-scale programs with civilian and defense agencies in 2024, thanks to the additional delivery and offerings scale in digital transformation it obtained by acquiring Octo Consulting in late 2022, another advantage and a key selling point for IBM-Fed when advising or coaching the DOGE advisory board. While Octo’s pure play advisory capabilities expose IBM-Fed to DOGE’s federal spending cuts in traditional consulting services, Octo’s oLabs center of excellence showcases IBM-Fed’s acquisition-enhanced cloud, security, data science and DevSecOps capabilities that sync well with the IT priorities of the Trump administration.

IBM-Fed must accelerate its expansion within the DOD and among national security agencies, particularly by emphasizing its strengths in cloud

Octo’s oLabs also serves national security and defense agencies. The Trump administration has indicated national security will be an overarching budget priority during its term and has hinted at a federal fiscal year 2026 (FFY26) defense budget surpassing $1 trillion for the first time, underscoring the urgency for IBM-Fed to accelerate its expansion with the Pentagon, where it has been gaining traction since acquiring Octo.
 
According to TBR’s 1H25 IBM Federal Vendor Profile, “Some federal IT industry observers believe the Trump administration’s DOGE will accelerate cloud investment as federal agencies may be forced to outsource more operations deemed outside ‘Inherently Governmental Functions (IGF).’ Cloud adoption in the Department of Defense (DOD) continues to far exceed civilian cloud investment, which the GSA’s Federal IT Dashboard (FITD) estimated to be $8.2 billion in FFY24, up from $5.5 billion in FFY23.”
 
IBM-Fed could leverage IBM’s 1Q25 $6.4 billion acquisition of HashiCorp to accelerate DOD-based expansion, as HashiCorp has helped the DOD migrate more than 3,000 applications to the cloud with its Terraform (Infrastructure as Code software) and Vault (identity-based security) tools designed to facilitate migrations to multicloud architectures. The DOD has clearly indicated it favors a multicloud approach for implementing cloud-based edge computing solutions.
 
*TBR refers to IBM Consulting’s federal IT operations as IBM-Fed. IBM-Fed is not an official business line title used by IBM or IBM Consulting. The business defined by TBR as IBM-Fed resides within IBM Consulting’s U.S. Public and Federal Market group.

 

TBR’s DOGE Federal IT Impact Series will include analysis of Accenture Federal Services, General Dynamics Technologies, CACI, IBM, CGI, Leidos, IFC International, Maximus, Booz Allen Hamilton and SAIC. Click here to download a preview of our federal IT research and receive upcoming series blogs in your inbox as soon as they’ve published.