“Following a whistle-blower complaint and several other current and former employee complaints, an investigation was undertaken by Arm Limited,” the company said in its latest statement, jointly issued with shareholder Hopu Investment. “Evidence received from multiple sources found serious irregularities, including failing to disclose conflicts of interest and violations of the employee handbook.”

The dispute comes at a sensitive time for Arm and its 49 per cent-owned Chinese affiliate, when Western companies are struggling to navigate an escalating clash between the US and China over technology leadership.

Arm typically maintains a low profile, licensing its designs and collecting royalties via consumer brand companies, from Apple to Samsung Electronics. The dispute over Wu’s status, however, thrust it uncharacteristically into the spotlight, igniting a plethora of stories online about how the US-educated executive was still Arm China’s legal head honcho. Wu himself was cited several times in local media pledging to work with Huawei last year, when Washington first banned the sale of American software and circuitry to the world’s largest telecommunications equipment supplier and second biggest smartphone vendor.

“Arm is a UK-based company but they have a huge amount of activities in the US and in the US ecosystem,” said Alex Capri, a research fellow at the Hinrich Foundation. “What could make this really messy is that the US could start to put pressure on Arm to cut off its Chinese entity.”

Why UK chip software company ARM will keep working with Chinese partners

Capri pointed to Washington’s prior move to stop Dutch semiconductor equipment maker ASML’s supply of advanced technology to China. He said potential US pressure on Arm may prod its Chinese venture to try and operate as a stand-alone or separate entity, but that will still have huge implications for Huawei, whose chip design unit HiSilicon depends on Arm’s technology.

“This is what Arm China’s going to do – embed itself in a ring-fenced Chinese operation, but it will be super messy,” Capri said.

SoftBank acquired Arm for US$32 billion in 2016 in one of its largest acquisitions, a deal intended to further Masayoshi Son’s ambition of creating a global Internet of Things ecosystem. The company licenses the fundamentals of chips for companies that make their own semiconductors, and also sells processor designs. Most of the world’s smartphones depend on Arm’s technology, and it is trying to expand into servers and personal computers.

Arm China was then formed in 2018 when SoftBank sold 51 per cent of the subsidiary to a consortium that included China Investment Corp, the Silk Road Fund and Singaporean state investment firm Temasek Holdings. It now operates offices in Shenzhen, Beijing and Shanghai and acts as an intermediary between Arm in Britain and clients like Huawei.

Huawei’s HiSilicon becomes first mainland Chinese chip company to enter top 10 in global sales

Arm said the board had appointed Ken Phua and Phil Tang as Arm China’s interim co-chief executives. But Arm China said on WeChat that Wu remained in charge. “In accordance with relevant laws and regulations, Allen Wu continues to serve as chairman and CEO,” the post read.

It is unclear how the public dispute would affect Arm’s relationships in the world’s second largest economy. The company has been ensnared in Washington’s campaign against Huawei because of its central role in semiconductor architecture. The US, home to many of the world’s chip makers and a chunk of Arm’s operations, wants to block Huawei’s access to key chip technology after labelling the company a national security threat – something the Chinese telecoms gear maker has consistently denied.

Arm has said it will comply with the so-called US Entity List restrictions. It continues to supply technology to Huawei’s HiSilicon, but it is unclear if it can license future designs to the Chinese company.