Palmisano, who has overseen one of the longest growth streaks in IBM history, apparently changed his mind. He said Tuesday that he will retire as CEO effective Jan. 1, though he will continue to serve as board chairman.
IBM tapped current global sales head Virginia (Ginni) Rometty, who formerly led the company's key consulting unit, to replace Palmisano. Rometty is a big picture type who can also talk details, and she will come to the job armed with the sales exec's ability to connect with key customers. She will be the first female CEO for IBM.
"Ginni Rometty has successfully led several of IBM's most important businesses over the past decade--from the formation of IBM Global Business Services to the build-out of our Growth Markets unit," said Palmisano, in a statement. For her part, Rometty, also in a statement, said there is "no greater privilege in business than to be asked to lead IBM."
[ For more background on Rometty and her peers, see HP Should Have Looked Inside IBM For CEO. ]
She will have her work cut out. While IBM has seen steady growth in earnings over the past several quarters, its top line performance has been less stellar. Sales were $26.16 billion in the most recent quarter, up just 3% year-over-year if gains from currency are excluded. Much of the increase was driven by acquisitions.
Rometty's challenge: To find new markets that can reenergize IBM's top line. The company's middleware group and IT services unit (whose head, Mike Daniels, was thought to also be in the running for the CEO job,) are solid performers, but don't hold the potential of hot new markets like mobility, social media, and cloud-based business services.
One possibility is that Rometty could break with IBM's longstanding refusal to enter the applications business. Germany's SAP, which provides server and Web-based business planning tools, has long been thought of as an acquisition target for Big Blue should it enter the apps game.
As for Palmisano, a former sales exec who was known internally as "the closer", he will leave behind a solid legacy. He succeeded turnaround specialist Lou Gerstner in 2002 and quickly put his own stamp on the company--dispatching low-margin, commodity products like PCs and commercial printers, while aggressively steering IBM to more profitable lines, such as specialized software that helps companies quickly analyze and interpret large volumes of business data. The strategy paid off. Under Palmisano's watch, IBM has seen a fivefold increase in earnings. And over the course of his tenure, the company's stock price has roughly doubled to its current price of about $182 per share.
IBM shares were roughly unchanged in after hours trading Tuesday, a sign that investors are confident that the company can continue to thrive under Rometty.
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