By Jane Lanhee Lee, Josh Horwitz and Stephen Nellis

OAKLAND, Calif/SHANGHAI (Reuters) -SoftBank Group Corp's chip technology firm Arm Ltd's China joint venture laid off 90-95 employees last week to cope with a challenging business outlook this year, according to two sources familiar with the situation.

The layoffs come as SoftBank tries to set up a public listing for Arm this year. The China market has been a major source of growth, although a two-year management dispute at the joint venture that resulted in the ousting of the former CEO created some challenges.

The sources said those who lost their jobs were mostly engineers in research and development. Before the layoffs, Arm China had about 700 employees; there were no layoffs last year when parent Arm Ltd had global layoffs affecting up to 15% of its workforce, according to one of the sources.

Arm China declined to comment.

Arm Ltd said in a statement that “Arm China is a separate company from Arm Ltd, and while we cannot comment on its personnel decisions, we do not expect any disruption to our business in China which continues to remain strong.”

Last year's layoffs came after Nvidia Corp failed to take over Arm because of regulatory hurdles. The collapse of the sale marked a major setback for SoftBank's efforts to generate funds when valuations across its portfolio are under pressure.

Arm China is the exclusive distributor of Arm licenses in China. It collects payments, and sends them to Arm Ltd, which delivers the technology directly to customers.

One of the sources said some customers are concerned about Arm potentially changing how it charges royalties, as well as U.S.-China geopolitical tensions that could cut off access to Arm technology.

Chinese companies, including Huawei Group and Alibaba, have been restricted from using some of Arm's technology in recent years.

(Reporting By Jane Lanhee Lee in Oakland, Calif, Josh Horwitz in Shanghai and Stephen Nellis; Editing by Gerry Doyle and William Mallard)