It was a good day for iPod fans waiting for word of a higher-capacity Nano, and a really, really bad day for iPod chip maker PortalPlayer.

PortalPlayer said it has been notified by Apple that its chips will not be used in future "midrange and high-end flash-based iPods," a move that sent shares in the company plummeting as much as 45 percent on the day.

But it may also have confirmed for many that higher-capacity iPod Nanos are on the way.

"We believe this announcement provides some confirmation that Apple will indeed launch new higher-capacity (ex: 8GB, 10GB) iPod Nanos later this year," Piper Jaffray analyst Gene Munster wrote in a research note. "We expect higher-capacity iPod Nanos will be launched in late summer or early fall."

iPod lovers looking for more storage in a pencil-thin device will likely get their wish, but PortalPlayer, which drew the lion's share of revenue from iPod sales, isn't getting theirs. The company plans to release a new chip in the second half of the year that it thought would accompany new iPod Nanos, but Apple has passed.

PortalPlayer said its chips "will continue to be used in other members of the iPod family," but that didn't appease Wall Street.

PortalPlayer shares dropped as much as 45 percent on the day, their lowest level since the company went public in 2004. Shares closed at $13.13, down 42 percent, and declined another 1 percent in after-hours trading.

Meanwhile, Munster reiterated his prediction that an Apple-branded iPhone will hit stores within the next year, as will a video iPod with a screen larger than the 2.5-inch screen of the current model.

"Apple's strategy could be to wait for increased availability of video content on iTunes, such as feature films, which would likely cause the company to hold back on launching in [calendar year 2006]," Munster wrote.