NEW YORK -- International Business Machines Corp. Friday named RJR Nabisco Chairman Louis V. Gerstner Jr. to the helm of the struggling computer giant, which has been plagued by massive losses and declining sales.
Gerstner, 51, will succeed John Akers as chairman and chief executive officer of IBM, effective April 1.
'The challenge is immense,' Gerstner told a news conference. 'I don't underestimate its magnitude.'
Under Gerstner's leadership, RJR Nabisco has sold off billions of dollars in assets to reduce the massive debt incurred in the company's $24.9 billion leveraged buyout -- the largest corporate takeover in U.S. history.
Wall Street was upbeat about Gerstner's appointment and IBM stock, traded on the New York Stock Exchange, gained 62.5 cents to $51.125 a share at midday.
Asked how long it might take to return IBM to profitability, he told reporters, 'I have no idea.'
IBM, the world's largest computer company, had the worst year in its 79-year history in 1992, reporting a record $5.46 billion loss for the fourth quarter and $4.97 billion in red ink for all of 1992. The company announced in January that it was slashing its dividend by more than half.
1992 marked the second straight losing year for IBM, which lost $2.86 billion in 1991 -- the first loss ever for the 79-year-old company. But the 1991 losses were due entirely to restructuring charges. The dismal 1992 results included the first operating losses in the company's history.
Within an hour of the IBM announcement naming Gerstner to its top spot, RJR Nabisco filled Gerstner's position with two corporate insiders, Lawrence R. Ricciardi and Karl M. von der Heyden, who will become co-chief executives.
Gerstner is the sixth CEO in IBM's history and the first from outside the company. He comes to IBM with no computer experience under his belt other than as a customer.
'I obviously have a lot to learn,' conceded Gerstner, who said he would begin by educating himself about every aspect of IBM.
'I understand the use of technology from a customer perspective, having used it in a number of businesses,' he added.
While Gerstner would not comment on specific problems at IBM, he said the company needed to get back to problem solving for its customers and that it does not have to be 'a supplier of everything.'
One of IBM's critical problems has been its dwindling market share. Other computer companies have driven a wedge into the popular personal- computer market and demand for high-margin mainframes has waned as businesses have increasingly turned to less expensive client-server systems.
IBM, a pioneer in the mainframe-computer business, also was a leader in personal computers and servers, but it continued to focus resources on high-profit mainframes and retained high margins on its personal computers while competitors exploited the personal-computer market by slashing margins.
So where does Gerstner come in?
'There isn't another candidate that can do this job better than Lou Gerstner,' said James Burke, one of IBM's directors and also the man chosen to head up the search for Akers' replacement.
Burke stressed that Gerstner was the only person to whom IBM made an offer.
But many top executives around the world were considered for the post, 125 in all, Burke said. He said Gerstner was the first candidate contacted.
Motorola Chairman George Fisher, Apple Computers Chairman John Scully and Allied Signal Chairman Lawrence Bossidy also reportedly were considered for the post but all three indicated they were not interested.
Akers, who said during the news conference he would stay on to help in the transition of power, surprised directors Jan. 26 by recommending they begin looking for someone to replace him.
Akers, who reaches retirement age next year, had come under fire for being too slow to sense and react to the changing market. Critics said he lacked the resolve to undertake the massive streamlining necessary to avert massive losses and also that he was to close to the IBM corporate culture.
'This inbred culture has made the company a little inflexable,' said Martin Ressinger, analyst at Duff & Phelps Corp. in Chicago.
Ressinger said the IBM mentality has kept potentially successful divisions down by adopting a policy that one business unit could not grow at the expense of another.
'IBM wanted to minimize the impact of new technology in order not to affect the old cash cows,' Ressinger said. 'Clearly competitors were not restrained by that.'
He credited Akers with starting the wheels in motion to break through this type of strategy.
But he said Gerstner may be able to speed up the process.
'Maybe not having any experience in the computer industry might work toward his advantage,' Ressinger said.
'I think having somebody that sets the financial rules at the top but isn't into the technology will help drive the individual markets where they have to be,' he said.
Before heading up RJR Nabisco's management team, Gerstner was president of American Express Co. and a management consultant for McKinsey & Co.
'I don't think the job as a CEO of a large company is ever finished, ' Berstner said about his tenure at RJR, but he added the major building blocks now are in place at the tobacco and food conglomerate.
The first block in the rebuilding of IBM fell into place with the appointment of Gerstner, said Mark Jordan, an analyst with A.G. Edwards and Sons Inc. in St. Louis.
'The most important single event was the appointment of a CEO and now IBM has the opportunity to get the business plan moving forward,' Jordan said.
Among the top priorities, Big Blue must look at its mainframe business and decide how much it should invest in this sector, he said.
'The vast majority of the business strategy over the last 18 months focused on fixed capital and productivity capacity rather than looking at the distribution network,' Jordan said.
'They also need to take a hard look at capital production side,' Jordan added.
Ressinger said one of the toughest hurdles facing Gerstner is rebuilding morale in the company, where employees have been numbed by staff reductions.
IBM has been shrinking for six years. It had about 300,000 employees worldwide at the end of 1992 -- about 20,000 fewer than in January 1992 and down by 107,000 from levels in 1986, when its payroll was at its peak. The company has announced plans to slash another 45,000 jobs.
Gerstner said he too early to make any projections about further job cuts, but he added, 'I would not rule anything out at this point.'
'Over the next few months we will look at every single business with a no-holds-barred approach,' Gerstner said. 'I believe I have the authority from the board to do anything necessary.'
