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By Asa Fitch
International Business Machines Corp. said Chief Executive Ginni Rometty is stepping down after a challenging eight-year run at the top of the iconic technology company, as she struggled to deliver growth at a time other tech giants' fortunes blossomed.
Ms. Rometty, 62 years old, will formally step down on April 6. She will be replaced by Arvind Krishna, who heads the company's cloud and cognitive software division, the company said on Thursday. Jim Whitehurst -- the chief executive of Red Hat, the open-source software giant that IBM acquired for approximately $33 billion last year -- was appointed the company's president.
It is the first time IBM will have a leadership structure with a CEO and separate president. They form a dual executive team -- one member with deep IBM experience and another new to the company -- focused on reviving its fortunes.
Ms. Rometty will continue as the company's board chairman through the end of the year, at which time she will retire after almost four decades with Big Blue, the company said. Ms. Rometty has been one of the most high-profile female CEOs in business, where the top ranks are still male dominated.
During her time at the helm of one of the U.S.'s most storied companies, shares in IBM fell by more than 25%, lagging other tech giants. Microsoft Corp. shares are up more than 500% during the period. The tech-heavy Nasdaq Composite Index rose around 250% over that time. IBM sales during the period fell more than 25%.
IBM shares rose more than 3% in aftermarket trading following the announcement.
The new leadership appointments highlight how IBM is betting its future on the booming cloud-computing field, where it has lagged behind rivals such as Amazon.com Inc. and Microsoft Corp .
IBM built its success on providing technology to other companies. But IBM was slow to adapt as corporations shifted from storing data on big servers they owned to renting that computing capacity from service providers, so-called cloud-computing.
Ms. Rometty in recent years has emphasized IBM would become a forceful competitor in cloud-computing, but the company still trails its main rivals in cloud sales. IBM is the fifth-largest public cloud infrastructure provider, according to research firm Gartner Inc., with less than 2% market share.
Ms. Rometty has tried to jump-start cloud growth, largely with Red Hat, the largest acquisition in IBM's 108-year history. The deal closed last year.
"The biggest issue has been the company's very slow transition in terms of its services portfolio and model to a very dynamic tech landscape -- this is why we've seen pretty muted results and lackluster growth rates, " said Moshe Katri, an analyst at Wedbush Securities.
"Sometimes change is good," he said.
Mr. Krishna, 57 years old, played a leading role in IBM's acquisition of Red Hat. He joined the company in 1990 and studied at the Indian Institute of Technology, Kampur and received an electrical engineering doctorate from the University of Illinois Urbana-Champaign.
Ms. Rometty took over as IBM CEO in 2012 at a difficult time. IBM sales fell year-over-year in Ms. Rometty's first 22 quarters in a row. After a brief three-quarter period of rising sales, they fell again for another six quarters. Sales rose in the latest quarter.
A native of Chicago, Ms. Rometty rose up IBM's ranks as an executive in its fast-growing services division in the 1990s under CEO Lou Gerstner, who revived the company by shunning low-margin hardware sales and focusing on IT services and outsourcing. She made her mark under its next CEO, Sam Palmisano, by leading the integration of the consulting arm of PricewaterhouseCoopers LLP, which IBM bought for $3.5 billion for in 2002.
Her ascent into CEO role came at the end of a strong decade of growth under Mr. Palmisano, who despite having to toil in the shadow of a celebrated predecessor, Mr. Gerstner, brought the company to new heights. Revenue grew from $79.64 billion in 2001, the year before Mr. Palmisano took over, to $104.78 billion in 2011, his last year as CEO -- only to fall back to $74.8 billion last year under Ms. Rometty.
But Ms. Rometty inherited major challenges. While the company's sales had been growing, its big corporate customers that drove growth were changing how they were using technology. Rather than buying servers and paying IBM or others to maintain them, companies were increasingly renting computing horsepower from vendors. The shift hit IBM's cash cow -- providing IT services to other companies, selling and maintaining computer equipment and consulting with them on their IT strategies.
Ms. Rometty set about trying to shrink the importance of those slower growing or less profitable businesses while building in more profitable areas -- hoping new strengths would outbalance old weaknesses. She placed big bets on providing IT services linked to healthcare and invested in areas such as artificial intelligence and blockchain to find new avenues for growth. Those efforts have been slow to show results, according to analysts, driving the many quarters of falling topline growth.
Ms. Rometty led the search for her replacement, a process that began around a year ago, said people familiar with the matter.
Her status as one of only a handful of female tech CEOs meant her efforts to revamp IBM gained particular attention. There are currently 29 female CEOs of S&P 500 companies, according to Catalyst, a research and advocacy group that advocates for more women in executive roles.
When Ms. Rometty leaves her post in April that number should remain the same because Jennifer Johnson is stepping into the CEO spot at Franklin Resources Inc. in February.
Currently, only two other women chief executives have tenures that eclipse that of Ms. Rometty's eight years at the helm of IBM. Beth Mooney has been head of KeyBank for nearly nine years; she plans to retire in May. Debra Cafaro has been CEO of Ventas Inc., a healthcare real estate company, for more than 20 years.
Lorraine Hariton, who spent roughly 15 years at IBM early in her career, now runs Catalyst. She said Ms. Rometty helped to foster a culture that elevates women, citing an initiative that focused on helping mid-level women who had been out of the technology workforce successfully return to work.
"They are definitely a model organization for advancing women," Ms. Hariton said.
Many analysts had expected Ms. Rometty to retire earlier, falling in line with a tradition where past CEOs retired once they reached 60.
Mr. Krishna has spent his entire career at IBM, according to his LinkedIn profile. He held numerous roles in the company's research and software divisions, rising in January of 2019 to become senior vice president of cloud and cognitive software. After IBM agreed to buy Red Hat, Mr. Krishna had a hand in ensuring the deal won regulatory approvals in the U.S., Europe, Asia and other parts of the globe.
Mr. Krishna and Mr. Whitehurst are inheriting the same challenges Ms. Rometty wrestled with through her tenure -- the remaking of a tech behemoth to compete in the modern age. IBM said on its latest earnings call this month that it was reorganizing its IT outsourcing business, one of the main legacy businesses that has seen declining growth.
Write to Asa Fitch at email@example.com
(END) Dow Jones Newswires
January 30, 2020 19:07 ET (00:07 GMT)
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