IBM names Rometty to replace Palmisano as CEO

The executive who built up IBM Global Services will become IBM's new CEO at the start of next year

IBM has elected Virginia Rometty as president and chief executive officer effective Jan. 1, replacing Sam Palmisano, who will retain the chairman's role.

Rometty most recently has been IBM senior vice president and group executive for sales, marketing, and strategy.

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"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," Palmisano said in a statement. "With every leadership role, she has strengthened our ability to integrate IBM's capabilities for our clients."

Rometty's work integrating PwC and building a global team of more than 100,000 consultants, as well as other roles she has held at the company, have made her a driving force for IBM's Smarter Planet strategy, according to IDC analyst Frank Gens. Smarter Planet is focused on using technology to transform businesses, governments, and industries.

"I think that their strategy has proven to be a very strong one," Gens said. "She represents continuity of strategy."

Rometty has a good understanding of IBM's software, services, and hardware business, and customers shouldn't expect any major changes with the new leadership, said analyst Chris Foster of Technology Business Research.

"The company is strongly run on process, so the process won't change," Foster said.

If anything, Rometty may be better than Palmisano at engaging customers, because she has a reputation for making customers feel involved, Foster said.

Under Palmisano, who became CEO in 2002 and chairman of the board in 2003, IBM sold its PC business to Lenovo, sharpened its focus on services and expanded into emerging markets including China, India, Brazil, and Russia.

IBM, with its broad portfolio of corporate-focused products, is a major barometer of enterprise IT.

IBM last week announced increases in sales and profit for the quarter ending in September, though revenue fell slightly short of analyst expectations. IBM quarterly profit rose year over year by 7 percent to $3.8 billion, while sales were up 8 percent to $26.16 billion. Bright spots included software revenue, up by 13 percent to $5.8 billion; Power Systems revenue, up by 15 percent; and cloud-oriented technology sales, which doubled from last year.

"Sam had the courage to transform the company based on his belief that computing technology, our industry, even world economies would shift in historic ways," Rometty said in a statement. "Today, IBM's strategies and business model are correct. Our ability to execute and deliver consistent results for clients and shareholders is strong."

Despite concerns over sales, IBM last week displayed confidence in its ability to navigate a tough economic climate, raising earnings expectations for fiscal 2011 to at least $13.35 per share from $13.25.

Rometty's biggest challenge will be continuing to drive profits in a weak global economy, IDC's Gens said. If conditions don't improve, "People aren't going to be buying technology at the pace that IBM ... and the rest of the industry would like to see." However, Rometty has been successfully running sales at IBM throughout the downturn, he added.

IBM's orderly move to a new CEO sets it apart from some high-profile rivals, Gens said. For example, Hewlett-Packard recently went through two abrupt changes in top management in less than a year, and Yahoo CEO Carol Bartz was forced out last month under pressure from shareholders.

Palmisano had been widely expected to step down as CEO around age 60, as former IBM chiefs have done. "This is the opposite of some of the recent transitions. ... They've made a science out of succession planning," Gens said.

Agam Shah in New York contributed to this report.

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