IBM taps Palmisano to take over from Gerstner

IBM's board of directors Tuesday officially tapped CEO Louis Gerstner's longtime heir apparent, Samuel Palmisano, as the company's next CEO.

          IBM's board of directors Tuesday officially tapped CEO Louis Gerstner's longtime heir apparent, Samuel Palmisano, as the company's next CEO.

          Effective March 1, Palmisano will succeed Gerstner, who will remain chairman of IBM through the end of 2002, the company announced Tuesday. Palmisano, currently IBM's president and chief operating officer (COO), will remain president.

          Palmisano, 50, joined IBM in 1973 as a sales representative and has climbed steadily within the company during the past three decades. He gained the inside track as Gerstner's replacement when IBM named him its president and COO in September 2000. "Sam bleeds Blue," Gerstner wrote Tuesday, in a letter emailed to IBM employees and released to the media. "He's an exceptional leader, passionate about our business, committed to our principles and values, and steeped in the disciplines that are critical to our successes."

          Gerstner, 59, was widely expected to retire when his contract expires in March. He joined IBM in 1993, and is credited with leading a turnaround that repositioned the lumbering Big Blue at the pinnacle of the IT industry. Its lucrative professional services business and cutting-edge research and development are admired throughout the industry. Hewlett-Packard and Compaq executives have cited the ability to compete with IBM as a goal of their planned merger.

          An IBM spokeswoman declined to comment on whether the company will fill the now-vacant COO position. IBM did not have a COO when Palmisano assumed the position.

          IBM CEOs rarely retain their position past their 60th birthday. Gerstner addressed that trend in his email to the staff.

          "Some people believe IBM CEOs are required to step aside at age 60. That's not so. There is no rule or age limit that requires me to do this now. I am doing it because I am convinced that the time is right. The company is ready, and so is our new leader," he wrote.

          He also noted that when he joined the company in 1993, the board "asked me to focus on one short-term objective: save the company. Given my limited knowledge of IBM at the time, I quite honestly did not know if that could be done."

          Gerstner succeeded in bringing the company back to profitability, although he had help: "If (chief financial officer Jerry) York had not been with the company, Gerstner would probably have been fired in year two," says Giga Information Group analyst Rob Enderle. "He did the heavy lifting while Gerstner learned the business."

          Palmisano has some significant challenges ahead of him, including steering a mammoth company through a slumping market and repairing IBM's money-draining PC business.

          "Compared to Dell, which is really the big challenger, IBM moves more slowly and lives on systems that are antiquated. The information the executives get isn't of the same quality," Enderle says. "Because (Palmisano) has been under the shadow of Gerstner so much of the time he's been in the COO role, it's hard to tell whether he has the capability to step up to the challenges Gerstner has left behind him. It's clear he can handle the operations side of the business, but the harder part is fixing the problems that are endemic to IBM and maintaining and building on the IBM image."

          Building the IBM image was one of Gerstner's great accomplishments. In an industry that traditionally has a hard time with marketing, Gerstner excelled, Enderle says.

          Enderle doesn't expect Palmisano to make any radical changes at IBM. "I would hope for them, but unfortunately I don't expect them. That's one of the problems with an internal (candidate). You have a relationship with many of the people you may have to shoot," he says.

          Annex Research President Bob Djurdjevic says he also wishes for a shakeup but doesn't anticipate one. Gerstner's positive influence on IBM peaked around 1995, Djurdjevic says.

          "He was brought in to stop the haemorrhaging. He did that very well. However, since then his challenge has been to generate growth, and in that respect his performance has been pretty dismal," Djurdjevic says.

          Although IBM's stock price has climbed steadily since Gerstner took the reins, the company failed to take advantage of the opportunities presented by the dot-com boom, Djurdjevic says. More recently, IBM's much-admired services business still pales compared to the growth of services-only organisations such as Accenture, he said. In a report posted on Annex Research's website Djurdjevic blasts the company's spin on its recent fourth-quarter results.

          Still, Djurdjevic says that Gerstner's timing of his departure is "impeccable." With Gerstner remaining with the company through the end of the year, Palmisano is likely to "play possum" and avoid making waves, Djurdjevic predicts.

          IBM also said Tuesday that its vice chairman, John Thompson, will retire from the company and the board on September 1. He currently oversees IBM's worldwide business and technology strategy.

          Thompson's departure will end a career at IBM that spans five decades. He took on the vice chairman title concurrently with Palmisano's September 2000 ascension to his new roles as president and COO.

          Thompson joined IBM in 1966 in Canada, and rose to become CEO and president of IBM Canada Ltd. in 1986. He subsequently moved to the US and held various top positions within IBM, culminating in his tenure as vice president and group executive of IBM's Software Group. Thompson vacated that position in August 2000 and had been expected to retire from the company some time this year, according to analysts.

          IBM's stock price dipped on news of its executive shuffle. Shares of IBM (IBM) ended the day down 4.76%, at $US103, in trading on the New York Stock Exchange.

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