IBM Corp. is gearing up for its Spring Analyst Meeting Thursday, a meeting expected to be full of good news on the technology and business fronts and which could mark the end of an era for the venerable Big Blue.
“We expect IBM’s Spring Analyst Meeting being held this Thursday in New York to be very positive, in what could be Lou Gerstner’s final analyst meeting as chairman and CEO of IBM,” Goldman Sachs & Co. said in research by analyst Laura Conigliaro.
Gerstner was responsible for ushering in the winds of change that transformed IBM from the slow-to-change giant it had become in the first days of the PC, into a powerhouse that is once again beginning to set the course for the technology sector.
“Lou Gerstner took over the helm of IBM at a critical crossroads, and repositioned the company as a services-driven, technology-oriented IT supplier,” Conigliaro said in her research.
But now those same winds of change could mean it is time for Gerstner, in turn, to make way for the young turks. Gerstner’s contract expires in March 2002, and many Big Blue watchers speculate that Sam Palmisano, named president of the company last year, will take on the mantle of leadership.
“Given that IBM named Sam Palmisano as president last year, with many insiders and investors expecting him to succeed Mr. Gerstner, Gerstner’s current contract could be his last renewal,” Conigliaro said.
Stephen C. Dube, an analyst with Dresdner Kleinwort Wasserstein, agreed with Conigliaro that Gerstner’s contract likely will not be renewed, but noted that nothing is set in stone.
“IBM has a retirement at 60 policy, if I remember correctly,” Dube said. “He is 59. Whether his contract is or isn’t up, right now he is due to retire next year. That is the policy, but there are exceptions to policies.”
Dube said he, too, expects Palmisano to be IBM’s choice to fill its top positions when Gerstner leaves, though he hedged his bets and noted that Palmisano’s selection is not set in stone either.
“I think he’s the absolute logical solution,” he said, adding that Palmisano was the only president to have served under Gerstner during his tenure. “I do think he is the heir presumptive, but not the heir guaranteed.”
Gerstner took the reigns at IBM on April 1, 1993, following four years at the helm of RJR Nabisco Inc.
But if Gerstner is approaching the last days of his reign at IBM, he has almost certainly secured his legacy.
“IBM is rapidly emerging as a much more influential company in the tech sector, driven by its services capabilities and technology leadership in microelectronics,” Conigliaro said. “IBM’s focus on technology has also translated into much improved products in Unix servers, enterprise storage and distributed software, enabling IBM to solidify and broaden its account control.”
Conigliaro continued, “For the last several years, IBM’s direction was mostly controlled by other, smaller companies in the technology space (Microsoft, Sun, Oracle, etc.), with IBM products often a notch below those of more focused companies and IBM a factor mainly because of its large size. Driven by services and technology, we see IBM’s importance growing, as it better leverages its technology expertise and uses its position in services to influence customers.”
Indeed, Conigliaro said mid-teens growth — outpacing the rest of the industry which is expected to grow 10 to 12 percent — is a realistic possibility for the company’s services business. Big Blue had $10 billion in bookings in the first quarter, and the company has already announced a number of large orders in this quarter, which Conigliaro said bodes well for a sequential increase in orders.
Furthermore, she predicted that Big Blue’s microelectronics division could exceed 10 percent of sales in several years.
“Probably one of Mr. Gerstner’s most important decisions was to open up IBM’s portfolio of technologies to other companies, with the microelectronics division the biggest success,” she said. “Currently at a run rate of 6 to 7 percent of sales, we think that even in the current environment, IBM’s microelectronics business could grow by 15 to 20 percent, given IBM’s technology leadership in areas such as copper interconnect, silicon-on-insulator and process manufacturing.”
IBM could not be reached for comment as of this writing.