Audience Inc, which makes chips used in Apple Inc's iPhones, said its top customer is unlikely to use its technology for the latest iPhone, sending its shares down 58 percent in after-hours trading.
Audience's chips, which improve voice quality in mobile devices by filtering out background noise, are supplied to contract Apple manufacturers including Foxconn and Protek Ltd.
The Mountain View, California, company also sells processors and licenses its processor intellectual property to Apple and some of its units.
"Events of the last week in the normal course of business led us to believe that our technology is not likely to be enabled in Apple's next generation mobile phone," Audience Chief Executive Peter Santos said in an email interview.
Audience has been selling to Apple since 2008. Apple's newest iPhone is expected to be launched next week.
Although Audience did not specify why Apple would no longer use its technology, it noted in a conference call with analysts that the iPhone maker has built up its own audio team.
For Audience, Apple's licensing of its filtering technology accounted for 37 percent of total revenue for both the three months and six months ended on June 30.
The company expects to continue to get royalty income from earlier iPhone models that use its technology.
"We are not aware of any intended changes by this OEM (original equipment manufacturer) in its use of our processors and processor IP in prior generation mobile phones," Santos said.
Shares of the company, which went public in May, fell to $7.99 in trading after the regular market close, knocking $200 million off its market value. The stock closed at $18.86 on Nasdaq on Thursday.
The loss of the Apple contract will not impact Audience's third-quarter results but would affect it a quarter after Apple starts selling its next-generation mobile phones, it said in a statement.
The company, which also counts Samsung Electronics Co Ltd among its top customers, said in a regulatory filing in May that a reduction in orders from one or more of its customers could significantly harm its business, financial condition and cash flows.
The company competes with Maxim Integrated Products Inc, ON Semiconductor Corp, Qualcomm Inc, Texas Instruments Inc, Wolfson Microelectronics Plc and Yamaha Corp.
Audience also raised its third-quarter revenue outlook to between $35 million and $38 million from its prior forecast of between $33 million and $36 million. It expects an adjusted profit of 14 cents to 18 cents per share.
Analysts on average were expecting a profit of 11 cents per share on revenue of $34.7 million, according to Thomson Reuters I/B/E/S.
Audience now plans to diversify into other markets such as notebooks, ultrabooks, smart TV and automotive applications.
"We now expect these markets to generate in the range of $15 to $20 million of incremental revenue in 2013, partially offsetting the expected loss of royalty revenue from Apple," Santos said.
(Reporting by Aurindom Mukherjee and Supantha Mukherjee in Bangalore; Editing by Maju Samuel, Tim Dobbyn and Edmund Klamann)