Shares in Wolfson Microelectronics tumbled 18% after the firm said it had missed out on a key contract.

Shares in Wolfson Microelectronics tumbled 18% after the firm said it had missed out on a key contract, thought to be with Apple, sparking fears that one of Scotland's brightest technology stars may run out of steam.

The fall, which wiped around £30m off Wolfson's capitalisation, came after the Edinburgh-based firm said its product had not been selected by a major, tier-one customer for use in the next generation of its portable media players.

In line with the company's policy of not commenting on customers, Wolfson declined to name the firm concerned.

However, a source familiar with the situation said the statement referred to Apple, the phenomenal success of whose iPod products has been a key element in Wolfson's rise to prominence on the global stage.

Formed by academics at Edinburgh University, Wolfson made its name with technology used to convert digital data into sound, which has been used in Apple iPods.

Helped by the development of a variety of different models, the US corporation has shifted millions of these in recent years, producing a lucrative revenue stream for Wolfson. The company is currently thought to earn several dollars for each chip used in the Nano and Touch versions of the iPod.

However, following the decision of the customer, this income may dry up once the next generation of its products goes into production in the third quarter.

Wolfson put a brave face on the setback, maintaining it remained an important supplier of components for use in high-growth products for the customer.

The company's chips are used in the iPhone gadget, which has been the focus of a huge marketing effort by Apple.

Based on recent conversations with customers, the directors expect growth in other areas, including digital cameras and in-car navigation systems, will compensate for any fall in portable media player revenues in the second half.

In a statement, the company said: "Wolfson remains confident in achieving growth in 2008 and currently anticipates full-year revenue consistent with market expectations."

However, Wolson shares closed down 25.5p at 116.5p, but some investors appeared to remain unconvinced.

Even analysts at joint house broker Cazenove said confidence in Wolfson's current full-year forecasts required a "leap of faith" from investors in light of the news.

The apparent scepticism may reflect growing concern that, after achieving stellar growth rates during the boom in sales of consumer electronics, Wolfson's revenues and earnings will come under growing pressure this year.

Last month chief executive Dave Shrigley said he had reduced internal forecasts for 2008 due to macro-economic concerns.

Shares in Wolfson had fallen 30% this year before yesterday.

Noting Apple was Wolfson's biggest customer, Titus Menzies, analyst at Oriel Securities said: "Management is great but they are caught in a very difficult situation right now."

Menzies highlighted the fact that last September investors had been spooked when it emerged that Wolfson chips would not be used in the new versions of the iPod Classic.

Instead Apple selected chips supplied by US producer Cirrus Logic, possibly indicating Wolfson could be vulnerable to competition from volume players as markets matured. The company may face stiff competition to supply chips for future versions of the iPhone.

Conversely, Menzies said Wolfson might also pay for the fact it supplies mobile phone manufacturers that are targeting high-end western markets which are vulnerable to slowing consumer spending, as opposed to volume producers supplying the buoyant economies of Asia.

However, Wolfson directors appear to believe that helping to reduce the firm's reliance on portable media players, with a strategic push to develop sophisticated products featuring capabilities like energy management, is paying off.

"Wolfson remains confident in its future prospects and its strategic imperative of pursuing double-digit growth," the company said.

A spokesman said the contract setback would have no implications for jobs at Wolfson.

Based on yesterday's closing price, Wolfson had a market capitalisation of £138m.