A Scottish supplier of chips for Apple's iPod saw its share price tumble today after it missed out on a deal to power the next generation of portable media players.

The contract disappointment for Edinburgh-based Wolfson Microelectronics is thought to involve Apple's iPod nano and touch devices - the smaller and touch screen versions of the best-selling digital music player.

The group, which also designs components for TomTom car navigation systems and flat-screen TVs, will still be working with Apple to provide audio chips for its new iPhone.

Wolfson did not name the client in its statement, apart from admitting it had not been selected by a "major tier 1 customer" for inclusion in the next generation of portable media players.

It said it continued "to have a strong relationship with this customer as an important supplier for its other high-growth product areas".

Wolfson, which employs nearly 400 staff, also said that growth in other areas of the business, such as digital camera microchips, would see full year revenue expectations met.

But shares were down nearly 25% after the announcement.

Wolfson said the next generation devices it missed out supplying were expected to be launched in the third quarter of this year.

The firm said: "Wolfson expects the impact on revenues in the second half of 2008 from the portable media player design loss to be mitigated by stronger than previously anticipated growth across its customer base."

It added: "Wolfson remains confident in achieving growth in 2008 and currently anticipates full-year revenue consistent with market expectations."

Wolfson said revenues from portable media player applications such as iPods represented around 24% of total sales.

Other customers of the business include Canon, Sony and Samsung.

In 2007 Wolfson posted a 13.5% jump in full-year revenues to 231.6 million US dollars (£114.7m). Underlying profits came in at 43 million US dollars (£21.8m).

Last month the firm shipped its billionth chip since being founded in 1984.