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Management shakeup at IBM seems to create heir-apparent


ARMONK, N.Y. - In the seven years since he took over IBM, Louis V. Gerstner Jr. has led a striking revival in the fortunes of the world's largest computer company. Yet Gerstner, the chairman and chief executive, has decided that what the company most needs now to accelerate its growth and achieve its goal of being the leading supplier of technology and services for the Internet economy is a good shakeup.

So International Business Machines Corp. announced a sweeping management overhaul yesterday that includes elevating Samuel J. Palmisano, a senior vice president, to president and chief operating officer.

The move appears to make Palmisano, 48, the heir apparent to Gerstner. The 58-year-old Gerstner, who joined IBM in 1993, when the company was reeling, has an employment contract that calls for him to remain in charge "at least until he turns 60 years of age," or until March 2002.

Gerstner acknowledged that the announcement was certain to focus attention on the issue of management succession at IBM. But he noted that the elevation of Palmisano was just one of several promotions of younger executives in the reorganization.

"A new generation of leaders is starting to emerge at IBM," Gerstner said. "And certainly Sam is part of that, but so are a lot of other people here."

Besides, Gerstner noted, he has no intention of stepping down anytime soon. "I'm still here," he said. "I'm not going anywhere, and my job hasn't changed. And the board has not chosen my successor as CEO. There's not a lot you should read into this about me leaving."

Also yesterday, IBM named John M. Thompson, another senior vice president, as vice chairman. Under the new setup, Thompson will guide the company's efforts in promising new areas of growth such as wireless communication, network storage systems, life sciences and Internet software.

Yet, Thompson is 57 years of age, and, given the IBM tradition of having senior executives retire at about 60, seems to be a less likely successor to Gerstner than Palmisano.

Gerstner praised Thompson as "a rare talent," and a gifted manager of technical workers.

The company promoted five other executives, all in their 40s.

While Thompson focuses on the future, Palmisano will be in charge of daily operations in all the company's product and service businesses.

In an e-mail memo to IBM's senior management team yesterday, Gerstner wrote of Palmisano: "Sam has consistently demonstrated the aptitude perhaps most critical to leadership success: He sets tough targets and then meets them."

Gerstner said the reorganization had less to do with succession than with retooling the company's management structure to execute its Internet strategy more effectively.

Indeed, the lingering question about the transformation at IBM under Gerstner's leadership is whether, despite all the progress to date, it is moving into the future quickly enough to offset the decline in some of its traditional businesses, like mainframe computers.

In its second-quarter financial results, reported last week, IBM beat the earnings estimates of Wall Street analysts, but its revenues declined. For the success story to be complete, IBM must deliver growing sales.

In a bulletin last week to the firm's clients, Steven Milunovich, an analyst at Merrill Lynch & Co., wrote that the key to IBM's future as an investment was "figuring out if IBM is a new technology or an old technology stock. It's some of both now."

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