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IBM analysts ponder CEO swan song

Wall Street expects Big Blue to give an upbeat presentation at its annual analyst meeting, which could be CEO Lou Gerstner's farewell announcement.

Wall Street is expecting IBM to give an upbeat presentation Thursday at its annual analyst meeting, which could be CEO Lou Gerstner's farewell announcement.

The most notable topic in a collection of research notes from analysts, aside from saying that they expect an optimistic tone at the Big Blue shindig for Wall Street, was speculation about Gerstner's future.

The CEO's contract expires in March 2002, and at the age of 59--just one year away from the age when all senior IBM executives retired over the last 30 years--he isn't likely to renew it. IBM wouldn't comment on the analysts' theories, but the company's president and chief operating officer, Sam Palmisano, appointed last July, has long been suspected as heir apparent.

Goldman Sachs analyst Laura Conigliaro issued a brief note Monday saying that the meeting was "likely to be very positive and could be Lou Gerstner's final analyst meeting as chairman and CEO."

In a phone interview, Conigliaro said she doesn't expect the company to comment on any search for a replacement and said that even if Gerstner does announce plans to step down, it shouldn't affect shares. IBM has a strong executive stable, analysts said.

Other analysts opted to go to great lengths on the topic of Gerstner's possible departure. In a report titled, "General Gerstner's Farewell Address," Dresdner Kleiner Wasserstein analyst Stephen Dube quoted George Washington at length, comparing the former U.S. president's eight-year reign with that of Gerstner's.

"Here's hoping that Lou Gerstner will leave IBM in the same position that George Washington left us and that he has many years in which to enjoy his consulting arrangement and the rising value of his options," Dube wrote.

Analysts weren't expecting much in regards to IBM's performance.

"IBM's going to pile it on with the importance of the fact that it can offer a whole panoply of products," Conigliaro said, underscoring the success of Gerstner's management prowess.

"I don't think there's a lot of new news to be expected," said Salomon Smith Barney analyst John Jones. The company has been consistent with its message, he added. In its last quarterly report, IBM reiterated that it was comfortable with 2001 earnings estimates, and analysts praised it for whistling past the graveyard while other tech stocks have faltered.

"This is Gerstner's opportunity to give some visibility on what has been going well," Jones said. "He'll highlight the Unix business, storage business, and he'll highlight the microelectronics business on the hardware side, as well as services, which are also doing well."

Jones added in a research note Tuesday that the company may acknowledge that its U.S. business, which comprises 40 percent of revenue, remains tough, "but cost reduction and high (return on investment) projections are doing well." The outlook should be "pragmatic and bullish" overall, he said.

"With so little visibility in this environment, we do not expect any bold financial predictions like the double-digit growth blockbuster from three years ago," wrote Merrill Lynch analyst Tom Kraemer in a research note Tuesday.

Kraemer said he expects the meeting to be "unusually upbeat." He noted that IBM's financial performance is comparable with a year ago.

Though he said IBM is likely to continue to appeal to investors as a "safe haven" in a troubled market, "the risk reward does not look positive to us at this point, and while there may be a brief pop due to Mr. Gerstner's speech, we do not think that it will be sustainable."

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