Among the six people arrested by Taiwanese prosecutors for allegedly stealing trade secrets from the world’s largest contract chipmaker was a former employee at Tokyo Electron Ltd. Now, the Japanese company—one of the world’s biggest suppliers of chipmaking tools—is struggling to address the potential fallout with one of its most important customers and with governments in Tokyo and Taipei.

Tokyo Electron said that it fired an employee at its Taipei unit in connection with the case and is cooperating with the ongoing investigation. Its shares recouped some of the week’s losses Friday but remain down more than 4% since the TSMC news emerged.

Taiwan makes the most advanced semiconductors in the world and its companies have regularly been targeted for their intellectual property by entities with ties to China, which is pushing hard to develop its own chip capabilities. The Tokyo Electron arrest raises questions about why its employee would be involved in such an endeavor, whether it would have any motivation to steal TSMC trade secrets and whether the case ties into Japan’s own ambitions to build a domestic chip industry.

“The fact that Tokyo Electron has come under the spotlight in this way feels like an unfortunate accident,” said Atsushi Osanai, a professor at Waseda University.

On Wednesday morning, in team meetings around the organization, Tokyo Electron employees were instructed to refrain from talking about the matter, people familiar with the matter said, asking not to be named describing private information. Company managers flew to Taiwan to deal with the aftermath, one person said.

So far, the company has not found evidence that trade secrets were shared with third parties, Tokyo Electron said. It said it was unable to provide further details on a case under judicial review.

Taiwanese prosecutors have not disclosed many details of their investigation and have not identified who they think was behind the six people arrested.

Alongside Applied Materials Inc. and Lam Research Corp., Tokyo Electron plays a low-profile but crucial supporting role to the world’s chipmakers including TSMC, Samsung Electronics Co. and Intel Corp., making machines that coat, etch, process and clean silicon wafers to create semiconductors. 

Chip industry veterans say they see no clear reason for Tokyo Electron to engage in an act of intellectual property theft and risk its relationship with TSMC, the supplier to Nvidia Corp. and Apple Inc. and the world’s biggest spender on chipmaking equipment. Tokyo Electron is privy to its customers’ 10-year technological roadmaps, essential to better propose and develop the most effective chip gear, and that collaboration helps it maintain its technological lead over rivals, its Chief Executive Officer Toshiki Kawai has said.

“TSMC is Tokyo Electron’s most important customer and the central player in the semiconductor industry,” said Osanai. “It’s hard to imagine that the company would risk losing all of that by engaging in any wrongdoing.”

Like much of corporate Japan, Tokyo Electron has been caught in the crosshairs of growing tensions between its two largest trading partners, the U.S. and China. Roughly 40% of the chip tool maker’s sales come from China, but that revenue is taking hits from U.S. export curbs on technology: It can’t sell some of its most advanced equipment into China, and Beijing is now spending billions of dollars to encourage the growth of home-grown chip gear makers.

The controversy also comes at a low point for Tokyo Electron. Last week, its shares plunged 18% after cancellations of expected orders alongside a lull in Chinese demand forced the Tokyo-based company to slash its earnings outlook.