Louis V. Gerstner Jr.
• Services should bring in $5.3 billion profit on $35.7 billion in revenue
• The stock was up 35% as of Dec. 28, vs. a 13% loss for the S&P 500
PHOTO BY BRIAN SMALE
When IBM named Louis V. Gerstner Jr. chairman and chief executive on Apr. 1, 1993, the computing giant had one foot in the grave. Bloated from its patrician culture and outflanked by more nimble rivals, IBM (IBM ) was on the verge of a breakup. But now, as the 59-year-old veteran of RJR Nabisco and American Express Co. gets ready to retire, IBM is alive and kicking. Its services-heavy business model is the envy of the computer industry, and it has regained leadership in key markets where it had lagged, such as servers, software, and storage devices. While the tech industry imploded in 2001, Big Blue is on track to report $7.7 billion in profits for the year, down slightly from $8.1 billion in 2000. Revenues should be $87.4 billion.
Gerstner made two key decisions that have continued to pay dividends. First, he reversed a plan to break up the company. Good thing: Last year, IBM's global reach and diversity buffered it from the tech downturn. Second, he made a huge strategic bet on the services business, shifting the company away from its roots as a maker of Big Iron and PCs. In 2001, IBM Global Services was the biggest and fastest-growing part of the company, with 43% of sales.
Gerstner does not chitchat. The Mineola (N.Y.) native and Harvard Business School grad surrounds himself with a close circle of loyal advisers. He travels constantly to keep in tune with customers' needs, and in meetings, associates say he zeroes in on the main issue. Still, he makes time for various social causes, especially those that stress the importance of public schools. In June, he became an honorary Knight of the British Empire for his advocacy of education. "Lou is an incredibly focused executive," says Symantec Corp. Chairman John W. Thompson, a former general manager of IBM's North American Sales Group. "He makes it very clear to everyone what his expectations are."
Now, Gerstner's great run is nearing its end. His contract expires on Mar. 31, and he is expected to step down soon after. Waiting patiently in the wings is President and Chief Operating Officer Samuel J. Palmisano, 50, an IBM veteran who has sharpened the giant's day-to-day operations. Thanks to Gerstner, Palmisano will be taking over a healthy and powerful company. He just has to keep it that way.