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More executive changes in wake of IBM shake-up

The ripple effects have already begun from the company's appointment yesterday of a new president and vice chairman, its first high-level organizational change in seven years.

The ripple effects have already begun from IBM's appointment yesterday of a new president and vice chairman, the company's first high-level organizational change in seven years.

Dave Thomas, who has been trying to turn around the company's PC division, has left the company, according to IBM. He will be replaced by IBM vice president Robert Moffat.

The executive switch is likely to be the first of a number of changes in the wake of IBM's promotion yesterday of Sam Palmisano to president and John Thompson to vice chairman. Both executives will also serve as IBM board members.

The elevation of the two IBM veterans, each of whom have worked at IBM for more than 25 years, marks a turning point in the company's evolution, according to many analysts, and paves the way for an eventual successor to CEO Lou Gerstner.

"It makes a lot of sense," Gartner analyst Tom Bittman said. "Palmisano was being preened to be Gerstner's replacement, the way he's moved through the different organizations of the company--and he's had a pretty good success rate."

Bittman predicted a split job, "where John M. becomes chairman of the board and Palmisano remains president" when Gerstner does leave IBM.

Other internal promotions, in fact, already have occurred. Along with Moffat, IBM announced that Bill Zeitler will head the server group, and Linda Stanford will lead a new storage division. Steve Mills was promoted to senior vice president of the software group, where he succeeds Thompson, and John Kelly was promoted to senior vice president of the technology group.

Thomas had been engineering a turnaround that could bring the beleaguered division to profitability later this year.

PCs have been a sore spot for IBM in recent years. In 1998, the company's PC division lost $1 billion. More recently, the division, which makes commercial and consumer PCs, portables and PC servers, lost $69 million in the second quarter, about $100 million less than the previous quarter.

Exit timing a surprise
Thomas' sudden departure caught many longtime IBM observers by surprise.

There was much speculation that he was either forced out in the midst of the turnaround or left after being passed over in yesterday's management shakeup. Thomas could not be reached for comment.

Gartner analyst Thomas Bittman says Big Blue has a good combination from its appointment of Samuel Palmisano as the company's president and COO and John M. Thompson as vice chairman.

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"I just can't believe he would voluntarily go when we're so close to turning things around," said an IBM source who requested anonymity. "It was just too sudden."

Armonk, N.Y.-based IBM wasn't saying much today about Thomas' plans. "He's been responsible for PSG (personal systems group) for two years and has been with the company for 28 years, and it was time to move on," said IBM spokesman Tim Blair. "This is the time for David to pursue the opportunity to lead another company."

Thomas' sudden departure had some people inside IBM speculating he had been let go because of ongoing problems turning around the PC division and component shortages affecting two important products--ThinkPad portables and Netfinity servers.

Writing on the wall
"I've been watching Thomas and for a long time, and I was thinking he wasn't the guy," International Data Corp. analyst Roger Kay said. "Things were moving along just too slowly under his leadership."

Added Bob Sutherland, an analyst at Technology Business Research: "Ever since Palmisano jumped into his role, it's been kind of floated out there he would be the successor. I don't know if Thomas thought he had a great chance, but maybe if he could turn things around it would put him in the running."

IBM is positioning Thomas' departure as voluntary.

"It's not like we're shuffling anyone out under the cloak of darkness," Blair said. "It's not anything where this morning he was packed up and going to go down. It was going to be a smooth handoff with him and Moffat."

Thomas will officially introduce Moffat to the PC division and hand over the reins later this week.

Still, the system shortages came at a bad time for Thomas.

As first reported by CNET, a component shortage has prevented IBM from fulfilling orders for its new lines of ThinkPads, the A20 and T20.

The component problem, which affects ThinkPad and Netfinity motherboards, means shortages that could last well into the quarter. Both the ThinkPad and Netfinity lines are profitable--with sales growing faster than the market--while commercial and consumer PCs are losing money.

Under Thomas' guidance, IBM's division already had made great strides, cutting costs and streamlining operations. While the division's revenue declined $140 year-to-year in the second quarter, it improved over the first quarter's $550 million decline.

During the second quarter, direct sales jumped 5 percent to 24 percent, consistent with IBM's goal of 35 percent direct PC sales by the year's end. Gross margins grew 3 percent, in part because of direct sales efforts and more efficient manufacturing and distribution.