Apple's long-term iPod chip partner, PortalPlayer, has suffered a major setback with Apple switching to a new supplier for some of its products.

It's a major blow for the company as 90 per cent of PortalPlayer's sales go to Apple to power iPods.

The company told investors that its new media processor – the PP5021 System-on-Chip – hasn't been selected for use in Apple's "new mid-range and high-end flash-based iPods". Apple's flash based iPods currently include the iPod nano and the iPod shuffle. The new chip is designed to offer high-speed transfer of music between a computer and a music player.

PortalPlayer claimed its current processors will continue to be used in other members of the iPod family, however.

The new PP5021 chip was expected to be available in the second half of 2006. PortalPlayer announced in February that it was working on integrating Bluetooth and Wi-Fi into some chips.