Ginni Rometty, who struggled to lift growth, is to be succeeded
by company's cloud chief
By Asa Fitch
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 31, 2020).
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 succeeded 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 about $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, when 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 dominated by men.
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%.
"I think she made a lot of changes," said David Grossman, an
analyst at Stifel Financial Corp. "You could argue that she didn't
make enough changes quickly enough, but I think the business has
transformed during that period."
The Red Hat acquisition was Ms. Rometty's signature effort to
fast track IBM's revival. The deal, in the last quarter, returned
the company to modest top-line growth, though analysts said the
jury is out on whether Red Hat will return the hefty premium IBM
paid for the business.
IBM shares rose more than 3% in aftermarket trading following
the announcement that Ms. Rometty was stepping down.
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 .
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, played a key role in IBM's acquisition of Red
Hat. He joined the company in 1990 and studied at the Indian
Institute of Technology, Kanpur, 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 the 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.
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 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
health care and invested in areas such as artificial intelligence
and blockchain to find new growth avenues. Those efforts have been
slow to show results, according to analysts, driving the many
quarters of falling top-line growth.
Ms. Rometty led the search for her replacement, beginning around
a year ago, people familiar with the matter said.
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
health care 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 midlevel 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.
Chip Cutter contributed to this article.
Corrections & Amplifications An earlier version of this
article gave an incorrect spelling for the city of Kanpur. (Jan.
30, 2020)
Write to Asa Fitch at asa.fitch@wsj.com
(END) Dow Jones Newswires
January 31, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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