Palmisano Named IBM CEOPalmisano Named IBM CEO

After nine years atop the world's largest computing and services company, Lou Gerstner is calling it quits as head of IBM. The company said Tuesday that Gerstner, who turns 60 on March 1, will retire as CEO on his birthday and will relinquish the chairman's post at the end of the year. Gerstner's contract with IBM is set to expire and the retirement announcement was widely expected. IBM's board tapped Samuel Palmisano, the company's president and chief operating officer, to replace Gerstner as CEO. Palmisano, 50, also retains the title of president. IBM also said vice chairman John Thompson, 59, will retire Sept. 1.

In 1993, Gerstner succeeded John Akers as CEO of IBM after a four-year stint atop RJR Nabisco Inc. That followed 11 years in various executive roles at American Express Co. IBM was losing billions at the time of Gerstner's arrival and in danger of missing out on trends that would define the computer industry for the next decade--including the emergence of networked PCs, client/server architectures, and the Internet.

Gerstner is widely credited with reversing the company's slide and implementing a strategy that helped it regain its status as one of the computing industry's most important--and profitable--players. "He identified three pillars where they needed to excel and then set about getting it done," says Technology Business Research analyst Bob Sutherland, referring to Gerstner's emphasis on leveraging internal technology while developing its software and services businesses.

In a letter to employees, Gerstner conceded that he initially had doubts about his ability to save the company. "Given my very limited knowledge of IBM at the time, I quite honestly did not know if that could be done." But his moves paid off, and then some. While companies that cashed in heavily on the Internet bonanza of the late 1990s--such as Sun Microsystems and Cisco Systems--have watched their fortunes slide in recent months, IBM has consistently turned in solid earnings during the same period and has maintained a stock price in the low $100s.

IBM has been able to weather the tech-sector meltdown because of its diversified revenue streams and its ability to sell long-term services contracts that provide large, predictable annuities, observers say. Still, Gerstner's tenure was not without its hiccups. For instance, many believe the company was slow to pursue the multibillion-dollar storage market, in which it currently trails market leader EMC Corp.

Regardless, Gerstner said in his letter to employees that he has "never felt more optimistic and confident about [IBM's] future." He also called Palmisano "an exceptional leader" who "bleeds blue."

Palmisano, who joined the company in 1973, has served as IBM's president and chief operating officer since September 2000. He oversaw the company's key server and storage product lines prior to that and helped build the services businesses. Sutherland says Palmisano will likely continue to move in the direction of Gerstner. "There's nothing that tells me he's a risk taker. He's known for quiet leadership in much the same way Gerstner is," he says. Gerstner and Palmisano declined to be interviewed.