The New York Times published something of an exit interview with Palmisano over the weekend. It read a bit like a victory lap, and that’s not undeserved. The record books will show that IBM shares during the Palmisano era (2003-2011) rose by 125 percent; sales grew from $81 billion in 2002 to an expected $107 billion; and annual profits on a per-share basis went from $3.07 to a consensus forecast of $13.38.

But it got me to thinking about one of the highlights of the Palmisano era; one that generated a great deal of attention at the time: IBM’s decision to sell its personal computer division to Lenovo, the Chinese PC maker. It was a relatively small deal, worth less than $2 billion at the time, but it was a controversial move. Despite the fact that IBM wasn’t making much money on the business, IBM PCs, especially its ThinkPad line of notebooks, were generally considered to be pretty good.

Nearly seven years later, it’s worth noting that Lenovo is now the world’s second-largest PC vendor, behind Hewlett-Packard, having vaulted past Dell earlier this year, according to the market research firm IDC. It’s also worth noting that Lenovo is in fifth place in the U.S., behind HP, Dell, Apple and Toshiba, in that order.

IBM initially owned 15 percent of Lenovo and maintained a stake in that company until February of this year, when it sold its remaining 4.3 percent shares at a profit of more than a quarter-billion dollars.

Lenovo’s biggest shareholder is Legend Holdings, of which 36 percent is owned by the Chinese Academy of Sciences, a.k.a. CAS Holdings, a state-controlled entity. The state has pared back its stake, though: When the IBM-Lenovo deal was announced in 2005, Lenovo was 57 percent state-owned.

There was a lot of natural controversy, and even national security concerns in 2005, about selling so red-blooded an American product as the IBM PC to China. But there was also a solid business case to consider. The PC business was a drag on earnings because of downward price pressure exerted by Dell and all the others, and it wasn’t even leading the market, as was the case with Hewlett-Packard, which engaged in some very public contemplation about spinning off its own PC division.

But there was also a potential strategic benefit, which Michael Useem, a professor a the University of Pennsylvania’s Wharton School of Management, pointed out at the time: Making friends with China.

By selling an underperforming asset to a buyer willing to take it and run with it, IBM got solid access to the exploding Chinese market. In paraphrased remarks to the Times, Palmisano concedes the point:

Palmisano says he deflected overtures from Dell and private equity firms, preferring the sale to a company in China for strategic reasons: the Chinese government wants its corporations to expand globally, and by aiding that national goal, IBM enhanced its stature in the lucrative Chinese market, where the government still steers business.

So how has that worked out? It’s a little hard to tell from reading Big Blue’s Byzantine financial statements. In fiscal 2005, the year the deal closed, IBM reported $18.6 billion, or about 20 percent of revenue, came from the Asia-Pacific region, including China.

And though it declined to provide specific dollar amounts, it said that year that sales in China had dropped by 19 percent, but after after stripping out the PC division, would have grown by 8 percent.

For the first nine months of fiscal 2011, IBM reported that the Asia-Pacific region accounted for exactly the same dollar figure — $18.6 billion — amounting to 24 percent of its overall sales of $77.4 billion, and there’s still a quarter to go. That would put Asia on track to account for a little less than a quarter of IBM’s revenue.

In its earnings statement, IBM also makes a point of calling attention to what it calls “growth markets,” which are generally the BRIC countries — Brazil, Russia, India and China. These markets combined for 23 percent of sales in IBM’s most recent quarter.

This is about as close to understanding the size of IBM’s business in China as we’re going to get. On balance, it looks to have been a positive move, especially when you consider that if IBM had kept its PC division, it would have likely only gotten smaller and become more of a profit drag on a company that’s increasingly focused on high-margin businesses like services and consulting.

Nor can we judge by IBM’s headcount. Globally, as of the publication of its last annual report, IBM employed 426,751 people. But it has stopped providing a geographical breakdown. A report in the Times of India in 2010, mentioned by The Wall Street Journal, suggested that Big Blue’s headcount in India might be as high as 130,000; which, if true, would make it one of that country’s top 10 employers.

There is no question that IBM’s presence in China has grown. You can tell by the press releases. There was for example, a new IBM Research lab in Shanghai in 2008, and another in 2010. Just last month, IBM announced that it had closed a significant IT deal for a major health-care provider in Hong Kong, and another with a Chinese province to improve the safety of pork (which included a food-safety video I embedded below).

For better or worse, Palmisano will be remembered as the man who traded PCs for access to China. On balance, it seems to have been a good trade, but the jury is still out.

Tomorrow is the first business day of IBM’s Rometty era. Assuming she retires at age 60, a well-established IBM tradition, she’ll have about six years to make her mark. One wonders what she’ll be remembered for most.

The readers of Footnoted, the Morningstar-owned blog that follows the surprisingly fascinating world of SEC filings, annually select its worst footnote of the year — in other words, the best/worst disclosure of 2011. Hewlett-Packard won.

And what prompted the voters to award the world’s biggest tech company this dubious distinction? Its severance payment to former CEO Léo Apotheker, who, according to Footnoted’s reckoning, walked away with $25 million to $33 million following an 11-month stint at HP’s helm, during which its market capitalization declined by more than 40 percent.

Footnoted’s Michelle Leder calculated that range, having dug through the byzantine details of Apotheker’s employment contract as well as the separation agreement that HP filed after he left, and concludes the amount was probably closer to $36 million.

Before he was let go, I had taken a stab at the terms of Apotheker’s contract myself and came to a similar range of $28 million to $33 million. Then, after Apotheker’s departure, I trimmed that estimate a bit based on an HP 8K filing. It’s a tricky business running the numbers on these things, but as Footnoted says, we’ll probably get a final accounting when HP files its annual proxy statement early next year.

Apotheker’s package was part of what likely prompted HP to revise its severance policies, as The Wall Street Journal reported earlier this month. From now on, senior HP execs who get pushed out will have to leave behind unvested stock options and grants of restricted shares.

It’s also worth noting that HP beat out rival IBM in the worst footnote selection. Big Blue was in the running for its disclosure of outgoing CEO Sam Palmisano’s $170 million retirement benefit package, which includes, among other things, a $30 million pension that pays $3.2 million a year for life.

But it’s not the first time that HP has taken fire for the size of its payouts to ousted CEOs. When Mark Hurd resigned in 2010, he walked away with a severance deal worth about $35 million, but then later gave some $13 million back by forfeiting a batch of HP shares as part of a legal settlement with HP that followed his joining Oracle as co-president.

According to IBM’s official bio on her, she goes by the name “Ginni.” In her current job, she’s been responsible for revenue, profit, and client satisfaction globally and has been in charge of strategy, marketing and communications.

Before that she ran Big Blue’s global business services unit and helmed the tricky integration of PriceWaterhouseCoopers, which was a key acquisition in 2002, as it became the lynchpin of IBM’s strategically important services business. You may remember that Hewlett-Packard tried and failed to acquire the PwC Consulting business during the Carly Fiorina era. At that time, HP proposed paying $17 billion and change, but negotiations fell through. IBM swooped in and took it out for less than $4 billion in 2002.

Rometty’s naming as CEO makes it an interesting moment in history. With Meg Whitman at the helm of HP, women now run the two biggest IT companies by revenue in the world.

IBM’s statement is below.

ARMONK, N.Y.–(BUSINESS WIRE)– The IBM (NYSE:IBM – News) board of directors has elected Virginia M. Rometty president and chief executive officer of the company, effective January 1, 2012. She was also elected a member of the board of directors, effective at that time. Ms. Rometty is currently IBM senior vice president and group executive for sales, marketing and strategy. She succeeds Samuel J. Palmisano, who currently is IBM chairman, president and chief executive officer. Mr. Palmisano will remain chairman of the board.

“Ginni Rometty has successfully led several of IBM’s most important businesses over the past decade – from the formation of IBM Global Business Services to the build-out of our Growth Markets Unit,” Mr. Palmisano said. “But she is more than a superb operational executive. With every leadership role, she has strengthened our ability to integrate IBM’s capabilities for our clients. She has spurred us to keep pace with the needs and aspirations of our clients by deepening our expertise and industry knowledge. Ginni’s long-term strategic thinking and client focus are seen in our growth initiatives, from cloud computing and analytics to the commercialization of Watson. She brings to the role of CEO a unique combination of vision, client focus, unrelenting drive, and passion for IBMers and the company’s future. I know the board agrees with me that Ginni is the ideal CEO to lead IBM into its second century.”

Ms. Rometty said: “There is no greater privilege in business than to be asked to lead IBM, especially at this moment. Sam had the courage to transform the company based on his belief that computing technology, our industry, even world economies would shift in historic ways. All of that has come to pass. Today, IBM’s strategies and business model are correct. Our ability to execute and deliver consistent results for clients and shareholders is strong. This is due to Sam’s leadership, his discipline, and his unshakable belief in the ability of IBM and IBMers to lead into the future. Sam taught us, above all, that we must never stop reinventing IBM.”

Mr. Palmisano, 60, became IBM chief executive officer in 2002 and chairman of the board in 2003. During his tenure, IBM exited commoditizing businesses, including PCs, printers and hard disk drives, and greatly increased investments in high-value businesses and technologies. He has overseen the significant expansion of IBM in the emerging markets of China, India, Brazil, Russia and dozens of other developing countries, transforming IBM from a multinational into a globally integrated enterprise. In 2008, he launched IBM’s Smarter Planet strategy, which describes the company’s view of the next era of information technology and its impact on business and society.

Since Mr. Palmisano became CEO, IBM has set records in pre-tax earnings, earnings per share, and free cash flow. During Mr. Palmisano’s tenure, IBM increased EPS by almost five times, generated over $100 billion in free cash flow, and invested more than $50 billion in research and development – creating over $100 billion of shareholder value since 2002 through an increase in market capitalization and dividends paid.

As global sales leader for IBM, Ms. Rometty, 54, is accountable for revenue, profit, and client satisfaction in the 170 global markets in which IBM does business. She is responsible for IBM’s worldwide results, which exceeded $99 billion in 2010. She also is responsible for leading IBM’s global strategy, marketing and communications functions. Previously, Ms. Rometty was senior vice president of IBM Global Business Services. In that role, she led the successful integration of PricewaterhouseCoopers Consulting — the largest acquisition in professional services history, building a global team of more than 100,000 business consultants and services experts. She has also served as general manager of IBM Global Services, Americas, and of IBM’s Global Insurance and Financial Services Sector.

Ms. Rometty joined IBM in 1981 as a systems engineer. She holds a Bachelor of Science degree with high honors in computer science and electrical engineering from Northwestern University.

The thing is, IBM is been acquiring mid-sized companies at a pretty steady clip. The biggest deal IBM has done in recent memory is the $1.7 billion acquisition last summer of Netezza. Then for dessert it nabbed Blade Systems the following month for an undisclosed amount. Since then it has done five deals, the largest and most recent of which was the $387 million acquisition of Algorithmics, a Canadian risk analytics firm.

All told, IBM bought 15 companies in 2010, but has bought only three so far this year. It has bought 50 since 2006, suggesting it could easily step up its deal-making pace before the end of the year. And with nearly $12 billion in cash on the balance sheet it could do so without breaking much of a sweat.

But as Mills told Bloomberg, there’s always got to be a good reason to buy a company. “Everything’s got to fit … No spurious, off-to-the-side, unrelated things.” Somehow I can’t help but think that’s a slap at Hewlett-Packard, whose acquisitions of late, have been, well, a tad controversial. But public slap fights aren’t IBM’s style, so maybe I’m reading too much into it.

IBM has a big goal to meet, and it can’t get there without making acquisitions: It wants to add another $20 billion in annual revenue by 2015. It recently hit a significant milepost along the way: Its market capitalization eclipsed that of Microsoft last week. As of yesterday, IBM was worth $207 billion to Microsoft’s $205.5 billion.

In an interview with The Financial Times, Mike Daniels, SVP of IBM’s Global Technology Services and a potential successor to CEO Sam Palmisano, took a few shots at HP–particularly its approach to integrated software and services. To Daniels, HP’s approach is both unwieldy and dated and pretty much guarantees IBM will retain its lead in software and services, no matter what sort of strategy HP CEO Léo Apotheker lays out today. “It’s not like we have a company that has a software strategy and then a services strategy or a hardware strategy,” Daniels said. “I think it would take a long time for anybody to accumulate the kind of capability that we have.”

And will have in the future. IBM plans to spend about $20 billion on acquisitions through 2015, a significant portion of it, presumably, to further cement its lead in software and services.

Day two was very different. Watson dominated, winning nearly every buzzer and answering nearly every “Jeopardy” clue put to it, correctly. The first segment was all Watson, and it would be like that all night. The computer jumped out to an enormous lead, quickly breaking last night’s tie, soon running up a score of $21,035 to $5,000 for Brad Rutter and $2,000 for Ken Jennings, the scores they had at the close of play last night.

One question about French art stumped all three players, including the computer, and so all three lost the same amount of money on the board.

And at one point, Watson drew an early Daily Double about the designer of Emanuel and Pembroke Colleges. The answer was “Sir Christopher Wren.” Watson wagered $6,435, an oddly precise amount that drew some laughter from the crowd. Watson answered correctly, and the room erupted in applause, and a shot of the crowd showed IBM researcher David Ferrucci, widely seen as the public face of the research team that built and worked on Watson, looking something like a proud father. IBM CEO Sam Palmisano was also visible in audience shots.

At another point, when asked a question about items stolen from a museum in a certain city in 2003, Watson had only 32 percent confidence in what it thought was the best answer, which was Baghdad. It said, “I’m going to guess,” before giving the right answer.

By the end of the second segment, Watson’s lead was bordering on the ridiculous–$36,881, to $5,400 for Rutter and $2,400 for Jennings. One interesting moment occurred when all three players passed on a question about a painting stolen in Argentina in 1987. It all came down to Final Jeopardy. The clue was in the category of U.S. Cities: This city’s largest airport is named for a World War II hero, and its second largest airport is named for a World War II battle.

Here the story takes a surprising turn. And once again we’re fortunate to the have the color commentary of Stephen Baker, my old Businessweek colleague and author of “Final Jeopardy,” a book on the inside story of the IBM Jeopardy Challenge. He witnessed the match in person and spent months reporting on the run up to this event. I recorded our Skype call.

In the audio clip below, Baker starts out describing the strange turn the game took at the end during Final Jeopardy, where Watson displays at once how it can be both stupid and smart at the same time.

Steve Baker Talks About The Day 2 Of the IBM Jeopardy Challenge by ahess247

PREVIOUSLY:

• IBM “Jeopardy” Challenge Day One Ends in a Tie
• That Human Vs. Machine Practice Round of “Jeopardy” Didn’t End the Way You Heard It Did
• “Final Jeopardy” Question: Would You Buy an E-Book Without an Ending?
• This Supercomputer Defeated Human Champions of a TV Game Show in 2011
• I’ll Take Computer Company PR Stunts for $1,000,000

• Ann Livermore, vice president of HP’s (HPQ) $54 billion Enterprise Business, who has been twice passed over for the CEO spot.
• Todd Bradley, executive VP of HP’s Personal Systems Group, a $42 billion business.
• Kevin Johnson, who before becoming CEO of Juniper Network (JNPR) headed up Microsoft’s (MSFT) Platforms & Services Division.

Of course at this point there are a lot of names starting to be tossed around, some greater longshots than others. Among them: Vyomesh Joshi, who runs HP’s printing business; HP board member Marc Andreessen, who is on the CEO search committee; perhaps one of the IBM execs now angling to eventually replace CEO Sam Palmisano; maybe an exec from Cisco or Microsoft; or maybe even someone from outside of tech, like Ford CEO Alan Mulally. In any case, it’s game on for one of Silicon Valley’s favorite speculative pastimes.

Obviously.

Posting second-quarter results after the market’s close Monday, the company reported earnings per share of $2.61, up from $2.32 a share last year. and sales of $23.72 billion, up from $23.25 billion last year. Analysts polled by Thomson Reuters had been looking for earnings of $2.58 a share on $24.2 billion in revenue. So while the company’s higher profit exceeded expectations, its revenue came as something of a disappointment, and investors have dragged its shares down about three percent in after-hours trading.

Looking ahead, IBM (IBM) raised its 2010 net income guidance to $11.25 per share. That’s a nickel-per-share increase over its most recent guidance and suggests the company is confident that uptick in spending will continue.

Said CEO Sam Palmisano, “In the second quarter we again delivered double-digit earnings-per-share growth, increased margins, as well as improving constant-currency revenue performance in our ongoing software, services and hardware businesses, and in all geographies. With the benefit of our strategic growth investments, our mix of higher-value business and the introduction of new System z and Power Systems, we are confident of our ability in the second half of the year to continue our strong business performance, grow profit and drive shareholder returns.”

“We’re not looking back, we’re looking ahead. We’re continuing to invest in R&D, in strategic acquisitions, in growth initiatives–and most importantly, during these difficult times, in our people.”

–IBM CEO Sam Palmisano in his letter to shareholders last year

So much for IBM’s lifetime employment concept.

In 2009, the company sacked as many as 10,000 employees. Now comes word of thousands more losing their jobs in what the company likes to refer to as “resource actions.”

The Alliance@IBM/CWA Local 1701 Web site, which tracks layoffs at IBM (IBM), reports that some 2,544 IBM employees have been let go this week, with more to follow. And unsurprisingly, the group says off-shoring is, once again, to blame.

Evidently, RA’d employees are being asked to train their overseas replacements before they’re cut. “IBM is shifting work offshore,” Alliance@IBM national director Lee Conrad told me. “The company appears to be abandoning the US workforce.”

And this, not two months after IBM announced that its full-year profit will be at least $11 a share, exceeding earlier targets.

What was that about investing in our people, again, Sam?

PREVIOUSLY:

• IBM: The “I” Stands for “India”
• Will This New “Long-Term View” Approach Also Include Layoffs?
• Black Thursday at Big Blue
• IBM: Maybe No One Will Notice Our 2,800 Layoffs…

Analysts surveyed by Thomson Reuters had expected IBM (IBM) to earn $3.47 a share on revenue of $26.96 billion.

“We concluded a strong year with a solid performance in the fourth quarter in which we again delivered growth in margins, profit and earnings,” IBM CEO Sam Palmisano said in a release. “IBM continued to benefit from our strategic transformation, offerings that our clients value in this economy, and our commitment to developing countries around the world.”

Looking ahead, IBM said it now expects a profit of at least $11 a share in 2010 compared with a previous target of $10 to $11 per share.

“Bob Moffat, who had been placed on a leave of absence as a result of a US federal investigation into his personal activities, is no longer an employee of IBM,” the message reads.

A terse farewell for a man who was reportedly a trusted lieutenant of Sam Palmisano, IBM’s (IBM) chief executive officer, and one of his possible successors. Moffat, after all, is a 31-year IBM veteran, a “true-blue” company guy who used to boost employee morale by wearing kilts and sumo wrestler suits. Clearly, the company wants to put as much distance between itself and anyone linked with what’s being described as one of the biggest insider-trading schemes of all time–even if he is an archetypal IBM executive.

Moffat, for his part, insists he left the company of his own accord. “[He] retired from IBM, he was not terminated or fired,” said his attorney, Kerry Lawrence, who also noted that the exec is “still asserting his innocence….[He left] so he could devote his time and energy to defending himself against the charges.”

Looking ahead, IBM (IBM) expects full-year 2009 earnings of at least $9.85 a share, compared to its previous estimate of $9.70 per share.

“Our long-term strategic shift to higher-value businesses again enabled us to deliver outstanding margin, earnings and cash flow growth in the third quarter,” IBM CEO Sam Palmisano said in an earnings release. “We also saw improved revenue trends in our business and share gains in software and hardware. We continued to invest for growth in areas where clients see potential for value creation including Smarter Planet solutions, cloud computing and advanced business analytics.”

Looking ahead, Palmisano added, “We are optimistic about 2009 as we again raise our full-year expectations and we remain well ahead of pace for our 2010 roadmap of $10 to $11 per share.”

Taken together with Intel’s (INTC) latest earnings, which also beat expectations for revenue and profit, IBM’s report provides more evidence that the tech sector recovery is underway.

Under the terms of the deal, IBM will pay $50 per share in cash for SPSS. That’s a 43 percent premium over the company’s closing price Monday, but one that’s well worth it to IBM, which sees great value in SPSS’s specialized software and its expertise in data collection, predictive analysis and statistical modeling.

Big Blue says the acquisition will do great things for its newly-formed Business Analytics and Optimization Consulting structure, a unit that offers clients strategic guidance through data analysis.

This is IBM’s second business analytics-related acquisition this summer. In May, the company acquired data discovery technology provider Exeros for an undisclosed sum. When IBM CEO Sam Palmisano pledged earlier this year to “go on offense” in the recession by making acquisitions and investing in research, he wasn’t kidding. Business analytics powerhouse SAS best watch its back.