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Apple CEO defends virtual private network app removal in China

Apple Inc. CEO Tim Cook has defended the removal of virtual private network, or VPN, apps from App Store in China amid concerns over the recent regulatory crackdown and Apple's declining growth in the country.

Cook said on the company's fiscal third-quarter earnings call that the iPhone maker only removed the VPN apps that did not meet China's online rules, which makes it mandatory for VPN operators to acquire a government license.

Hundreds of VPN apps are still available on the App Store, including those by developers outside China, Cook said.

"We would obviously rather not remove the apps, but we follow the law wherever we do business," he said.

VPNs are commonly used in China to circumvent the country's Great Firewall, a nickname for the internet filtering system used to block its citizens from accessing foreign content.

In recent months, China has stepped up its crackdown on online platforms and ordered state-run telcos to block access to VPNs. Beijing Sinnet Technology Co. Ltd., operator of Amazon.com Inc.'s cloud service in China, reportedly ordered its local clients to stop using software that would allow Chinese consumers to bypass restrictions.

"[W]e strongly believe that participating in markets and bringing benefits to customers is in the best interest of the folks there and in other countries as well. And so we believe in engaging with governments, even when we disagree," Cook said.

However, some believe that declining growth of its smartphone business in the country is pulling Apple closer to China as its reliance on a heavily regulated services business grows.

Apple's revenue in Greater China declined 10% year over year in the quarter ended June 30 to $8.00 billion, from $8.85 billion, despite strong growth from services, iPad and Mac, and a record number of device upgrades. Apple's revenue grew 3% in Japan and 15% in the rest of Asia-Pacific, which was highest among all regions.

Apple's smartphone shipments in mainland China declined 1% year over year in the quarter ended June 30 as opposed to more than 20% growth in shipments see by local rivals such as Xiaomi Inc., Oppo, Huawei Technologies Co., Ltd. and Vivo, market analysis firm Counterpoint Research said.

Cook, however, said he was "encouraged" by the results in China as it was an improvement from a 14% decline year-over-year in the previous quarter.

"If you look underneath the numbers, mainland China was actually flat year over year during [the fiscal third quarter]. And in constant-currency terms, we were actually up 6% in mainland China. And so we're very encouraged by that," he said.

Apple's services business continued to grow across all markets, including China, with revenue hitting an all-time quarterly record of $7.3 billion, representing 22% year-over-year growth, Cook said.

He was also upbeat about prospects in emerging markets, especially India.

"I see a lot of similarities where China was several years ago. And so I'm very, very bullish and very, very optimistic about India," he added.

However, Apple's overall earnings results beat analyst estimates, and its shares traded up over 6% in after-hours speculation following the earnings release.

The overall growth reportedly rippled out to its component makers globally, pushing Asian technology stocks up. Among Apple suppliers, LG Corp.'s LG Innnotek jumped 9% and SK Hynix rose almost 3%.