BlackBerry faces questions about U.S. competitiveness

At the company's annual shareholder meeting, one investor calls the U.S. launch a "disaster." BlackBerry says it has learned its lessons from the Z10 debut.

Roger Cheng Former Executive Editor / Head of News
Roger Cheng (he/him/his) was the executive editor in charge of CNET News, managing everything from daily breaking news to in-depth investigative packages. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade and got his start writing and laying out pages at a local paper in Southern California. He's a devoted Trojan alum and thinks sleep is the perfect -- if unattainable -- hobby for a parent.
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Roger Cheng
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The white Q10 features BlackBerry's trademark physical keyboard. Sarah Tew/CNET

BlackBerry investors aren't happy about its progress in the U.S., and let it be known during the company's annual shareholder meeting on Tuesday.

The company's executives fielded a number of questions -- and some not-so-veiled criticism -- about the mixed response that the new BlackBerry 10 smartphones have received in the U.S. One investor went as far as calling the U.S. launch a "disaster."

While BlackBerry CEO Thorsten Heins disagreed with that characterization, he acknowledged that the company still had a lot of work to do in the U.S.

"It's the most ferocious and competitive market in the industry," he said during the Webcast presentation.

BlackBerry's struggles are indicative of the broader challenges the company faces in introducing a wholly new mobile operating system and competing in a market dominated by Apple's iPhone and Android-powered Galaxy S phones from Samsung Electronics. It has long ceded its home market of North America, with the U.S. being particularly elusive.

Amid disappointing fiscal first-quarter results reported last month, BlackBerry posted North American sales of $761 million, well above the prior quarter, but a 4 percent decline from a year ago -- before BlackBerry 10 phones launched.

The U.S. market has been especially rough because of the control that the wireless carriers exert over the handset market. With a vast majority of smartphone sales taking place in carrier stores, giants such as Verizon Wireless and AT&T have a lot of say on the winners and losers.

BlackBerry works with the carriers on products but also competes for shelf space at their stores, Heins said. For the carriers, which have their own agenda and pressure, it's often easier to sell an iPhone or Android device than to take a risk on a new platform.

"It's hard to convince them to go where the puck is vs. where the puck will be," Heins said. "We value our relationship with the carriers, but there's some opportunistic thinking there."

A vast majority of AT&T's smartphone sales continue to go to Apple's iPhone, Heins noted.

But Heins isn't complaining to the carriers. He said that it's BlackBerry's job to convince them that BlackBerry 10 is a platform worth taking a chance on.

BlackBerry Chief Marketing Officer Frank Boulben told CNET in May that he expected a large carrier campaign to kick off in June coinciding with the launch of the BlackBerry Q10, but the carriers haven't been particularly aggressive about touting its new keyboard smartphone.

BlackBerry CEO Thorsten Heins with the Z10 and Q10
BlackBerry CEO Thorsten Heins with the Z10 and Q10 Sarah Tew/CNET

While carrier executives tout the need for more platform choices, the sentiment appears to be different at the ground level. The same investor who called the U.S. launch a disaster also noted that retail sales representatives that he talked to were either inadequately trained or not trained to use a BlackBerry 10 device. He noted marketing materials were missing at the stores he visited.

While Heins dismissed the notion that the BlackBerry Z10 launch was a disaster, he conceded that the company learned some lessons. The company may have needed to do more training, he noted, and said the company would continue to invest in the platform and educating consumers.

Aside from the one inflammatory criticism, the shareholder meeting was generally amiable, with Heins garnering the occasional applause for his pointed answers.

He also fielded a question about the potential break-up of the company, splitting up the devices business from the enterprise service operations, with a patent-holding entity as a possible third company. Heins said he was open to anything that would create shareholder value, but would want to see the company generate some value on its own before he would entertain such a move. He added he didn't want to distract management with the prospects of such a drastic change.

Other shareholders said they preferred it if BlackBerry remained intact, eliciting some applause from the audience.

Heins on several occasions reiterated his plea for patience as BlackBerry takes a long-term view. The company is shifting toward the second phase of the company's transition, a period of investment as it sets itself up for growth for next year.

"Our transformation is ongoing and it's not going to be easy," he said.