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Golden Boy At Big Blue

News: Analysis & Commentary: COMPUTERS


Sam Palmisano's mission: Get the PC business roaring again

Samuel J. Palmisano doesn't lack for advisers. The new general manager of IBM's Personal Computer Co. says he has already been swamped with phone calls and E-mail from friends and associates inside the company offering all sorts of unsolicited advice. He's even getting help at home. His wife has detailed her experience of calling in to IBM's help desk. His 14- and 12-year-old boys--the oldest of four kids--have told him they think his new job is "cool," but that he should spend some time working on IBM PC speed and connectivity.

Not that Palmisano can't manage on his own. The 44-year-old executive spent the past three years building IBM into the world's leading computer-services provider. By the end of 1995, services revenue had skyrocketed to $12.7 billion, up from $7.6 billion in 1993. Last year, the division's sales grew by 31%, making the business of integrating and running computer systems for other corporations the second-largest behind hardware at the $72 billion giant. Says former IBM Chief Financial Officer Jerome B. York: "Palmisano did one hell of an outstanding job."

Palmisano's reward: On Apr. 1, the 22-year IBM veteran steps into one of the toughest and most visible jobs in the computer industry, running IBM's $10 billion desktop-computer unit. It's a roller-coaster business. After a disastrous 1994--IBM lost $1 billion in PCs because of product delays and bloated inventories--the company managed to squeeze out a $100 million profit last year. Ominously, though, IBM's share of the PC market continued to slide even in a period of double-digit growth. Last year, Big Blue captured 8.2% of the worldwide business, down from 8.7% in 1994 (chart).

RISK TIME. Taking on a struggling business doesn't bother Palmisano, a hands-on manager who routinely spent two days a month with his top managers reviewing the status of every IBM service contract worldwide. "I've got a lot of years to play. Now's my time if I'm going to do a high-risk job," he says.

IBM can't afford to lose in PCs. For one thing, sales of its desktop computers now surpass mainframe and minicomputer sales. More important, as corporations install networks of PCs and powerful PC servers, desktop hardware is a critical catalyst for the sale of other products and services. It's simple: For every dollar a company spends on PCs, it shells out $4 on things such as help-desk services, training, and networking. "We're in every one of those businesses," says Robert M. Stephenson, the IBM senior vice-president who is Palmisano's new boss.

In the market for an executive who could deal with multiple technologies and product lines, Stephenson didn't hire an executive search firm to look for an outsider for the PC company job. Palmisano was an obvious candidate. He has risen quickly through a succession of positions inside IBM, including the launch of IBM's successful AS/400 minicomputer and had a stint as executive assistant to former CEO John F. Akers--a post reserved for rising stars. Says consultant Frank Dzubeck: "Sam's got a bullet with an arrow going up next to his name."

An unknown in the clubby PC industry, Palmisano spent the early 1990s in Japan helping IBM bring out the popular ThinkPad laptop computer. As IBM's computer service chief, he worked with scores of companies to cut computing costs and apply technology effectively. "He understood the cost and competitive pressure our company was under," says Mark Essig, executive vice-president of AK Steel, which hired IBM to run its computer operations in 1993. Adds Chris Goodhue, a PC analyst at Gartner Group Inc.: "It's all about getting closer to the customer and helping them manage their business. IBM is bringing somebody to the PC company that understands the importance of that aspect of the business and how to make money there."

There's plenty to be done. IBM needs to update its laptop technology and take a larger share in computer servers from market leader Compaq Computer Corp. And in a business with new-product cycles coming every six months, there's everything from logistics to product development to worry over. "Any hiccups and you're hurting," says an insider.

Palmisano says that it's not in his nature to dwell on the risks: "It's the challenge that's absolutely exciting." If that's the case, then Palmisano certainly won't find his new job dull.By Ira Sager in New YorkReturn to top

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