The tech industry is a brutal, unforgiving business. There's a reason for that, of course. Information technology moves so fast that only firms with the smarts, cash, and marketing know-how win over the long term. It's survival of the fittest at its pugnacious best. And worst.

Take SigmaTel (NASDAQ:SGTL), for example. Yesterday the maker of semiconductors for portable music and entertainment devices cut its outlook for the upcoming quarter because of "equipment issues" at its test and assembly facilities. Specifically, now the company expects to earn $0.10 less per share than the low end of guidance on $74.4 million in sales for the third quarter. That's well below prior guidance of $0.30 to $0.37 a stub on $73 to $83 million in revenue. Not surprisingly, investors have run for the exits faster than a cat at a dog show, sending the stock lower by more than 13% as I write this morning.

Normally I'm not one for such panic selling, but this appears completely justified. Allow me to explain.

When Apple's (NASDAQ:AAPL) new iPod Nano was introduced -- the second of the Mac maker's music players to use Flash technology instead of a hard drive -- it was assumed that SigmaTel would provide the brains of the device, as it does for the iPod Shuffle. But researcher iSuppli took the Nano apart and found instead that rival PortalPlayer (NASDAQ:PLAY) had gotten the gig.

That's flat-out awful news for SigmaTel. And don't let "equipment problems" blind you from that fact. The rest of the digital music maker market is seriously lagging Apple. Consider the numbers. The iPod Shuffle has gone from a 0% share in January to more than 40% of the U.S. market for Flash players in September, according to NPD Group. (Go here for details.) And with the Nano, most appear to expect the Apple's march forward in Flash to continue.

Certainly, SigmaTel has been a benefactor of ravenous Pod people. Yet that now appears to be a one-time anomaly, confined to the Shuffle. So, go ahead, pick your eight-track of trouble: equipment problems or a suddenly smaller market opportunity. In either case, it's indicative of a stock that's decidedly off-key.

Tune in to related Foolishness here:

  • Guess who else has joined the pod people? Yahoo! (NASDAQ:YHOO).
  • Is this really a surprise? I mean, really, most in the portable music business have been suffering for months.
  • Even Hewlett-Packard (NYSE:HPQ) got out of the biz.
  • Don't bet on seeing a video iPod anytime soon.
  • You'd think Microsoft (NASDAQ:MSFT) would have grown a brain when it comes to digital music. Yeah, not so much.

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Fool contributor Tim Beyers visited an Apple store with his wife last week. Now, of course, she wants an iPod Nano. That'll teach him. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile here. The Motley Fool has an ironclad disclosure policy.