[Lou Gerstner] led IBM back from its darkest days. He transformed the company's culture and reignited growth

Incoming CEO Samuel Palmisano

Mr Gerstner, who will continue as chairman, is widely credited with restoring the company's fortunes during the 1990s.

Mr Palmisano, named IBM president and chief operating officer in September 2000, had been widely expected to succeed Mr Gerstner.

He will retain his role as president, IBM said.

IBM shares dropped 4% to $103.79 in trading immediately following the announcement.

Worst year

"I feel very fortunate to succeed Lou Gerstner as CEO," said Mr Palmisano.

"Against all odds, he led IBM back from its darkest days. He transformed the company's culture and reignited growth."

IBM also announced that vice-chairman John M Thompson would retire from the company and board on 1 September.

The announcements come days after consultants Gartner Dataquest and International Data Corporation (IDC) said 2001 was the worst year in the history of the computer industry.

In the US, where consumer sentiment was battered most severely by the effects of 11 September, sales fell by 10-11% year on year.

Rethink

Relatively healthy figures towards the end of the year offered some hope for recovery, although steep discounting muddied the picture, both analysts said.

IBM sold 2.1 million units in the October to December period, IDC said.

Plunging prices have almost eliminated profit margins, and caused a rethink among manufacturers such as IBM - for whom PCs are no longer a core business - and Compaq and HP, which are planning to merge.

Compaq, the world's number two PC maker since being overtaken by Dell, had already announced plans to shift focus from hardware sales to software and services.