Only a year after its inception, Atari reported earnings of $3.2 million. Pong was a huge hit and Atari was busy developing newer more advanced versions, including a home version. In 1975, Atari struck a deal with Sears to market the home version of Pong exclusively through Sears outlets. By the end of 1975 sales had climbed to almost $40 million.

By 1976, several other companies had entered the home video game market. New machines which sported full color and removable game cartridges made Ataris Pong obsolete. In order to regain the lead in the market, Atari began work on the video computer system (VCS). The problem was that Atari didn t have the money to perfect and manufacture the VCS. Atari had grown too fast and spread itself too thin.

It was at this same time that Atari was approached by one of its part-time employees, Steve Jobs, about investing in a project he was working on in his spare time with his friend Steve Wozniak. Nolan Bushnell explained to Jobs that he could not afford to branch off into another business, the home computer, and suggested he see a venture capitalist. So, Jobs and Wozniak formed Apple Computer and Atari began searching for ways to raise much needed capital.

In late 1976, Nolan Bushnell sold Atari to Warner Communications, owner of Warner Bros. and Orion Pictures, for $28 million. In November of 1977, Atari released the VCS. In 1978 Atari grossed $120 million. But all was not well at Atari.

The new management from Warner was stirring things up at Atari. What was once a free-spirited, creative company, was now a jacket-and-tie company. Warner had forced Ataris culture to change in a very short period of time. Pretty soon everybody from the old days, two years before, was leaving. In November 1978 the top brass at Warner asked Nolan Bushnell to step down as chairman but stay on as director. Nolan refused and Warner fired him.

Atari released its first full-fledged home computers in 1979. The first two models, the 400 and 800, were built using an upgraded version of the microprocessor used in the VCS (renamed the 2600). The microprocessor, called the MOS 6502C, was the same chip used in the Apple II computer which was released a year and a half earlier. The Commodore 64 computer would also use the same chip. Another computer, released around the same time, was the Radio Shack TRS- 80. The TRS-80 computer was built using an Intel 8088 microprocessor.

By 1980 revenues had reached $415 million, and operating income had skyrocketed to $77 million, one-third of Warner s total 1980 operating income. In six months Warner stock shot up 35 percent. Atari was the fastest growing company in the History of America.

In 1981, two years after the introduction of Atari s 400 and 800 computers, International Business Machines (IBM) would enter the home computer market with the IBM PC. The entry of a large and well respected computer manufacturer like IBM into the home computer market brought validity to what was previously thought of as a hobby. The IBM PC, built around the Intel 8086 microprocessor, soon became the industry standard.

By the summer of 1982 Atari was a $2 billion a year company, with most of its sales coming from software titles for its 2600 game system. Most of these software titles were licensed from popular arcade games. Atari had very few original games, which is why many creative engineers left.

When Atari announced that it was developing video games based on E.T. and Raiders of the Lost Ark, speculation soared. This was the first time video games were based on movies. Atari was counting on people who saw the movie to buy the game.

One industry analyst predicted that Warner would finish the year with earnings up 50 percent over the previous year. Manny Gerard, a top executive at Warner, confirmed those figures as late as December 7, 1982. Then on December 8, 1982, at 3:04 p.m. Eastern Standard Time, an announcement came across the wire: Warner, citing a slump in Atari sales, expected only a 10 to 15 percent increase in earnings for the fourth quarter. The next day Warner stock fell 16 ¾ points, one-third their value, and closed the quarter with profits down 56 percent, Warner s first decline in eight years. One week later, the Securities and Exchange Commission began an investigation of insider trading involving Ray Kassar, who was the CEO of Atari, and another Atari associate.

Ray Kassar had sold 5,000 shares of Warner stock 23 minutes before the announcement on December 8. After conducting a nine- month investigation, the SEC alleged that Kassar had based his action on illegal insider information.

Meanwhile, sales of Atari video games continued to slide. Atari had ten million dollars worth of finished goods in a warehouse in Taiwan, but no customers to sell them to. The video game industry had moved into the next phase of more powerful machines, but Atari was still selling a five year old game system. They were paying the price for ignoring research and development.

In 1984, businessman Jack Tramiel left Commodore and purchased Atari from Warner. Atari Corporation went public with a stock offering on the American Stock Exchange later that same year. Tramiel immediately began planning for a new, more powerful home computer. The emphasis at Atari had shifted from video games to computers.

In late 1983/early 1984, Apple Computer released a revolutionary new computer, called the Macintosh. This computer, built around a Motorola 68000 microprocessor, used a newer, easier to use graphical interface. It wasn t long before both Commodore and Atari would release similar machines, also using the Motorola 68000 chip and graphical interfaces.

The Commodore entry, named the Amiga, was to become the subject of a 3 year long court battle between Commodore and Atari. The Amiga was originally designed by the Amiga company (founded by former Atari engineer Jay Miner, designer of the Atari 800) and Atari had a license agreement with Amiga for use of the custom chip technology used in the computer. When Jack Tramiel took over Atari in 1984, the deal with Amiga went sour. Instead of purchasing the rights to the Amiga, Atari had to start from scratch on its own machine. Commodore then purchased the rights to the Amiga technology.

Less than a year after Jack Tramiel took over, Atari released the 520 ST and 1040 ST computers. These computers were far less expensive than the Macintosh (less than $1000 for a 1 MB ST). In addition, the ST computers could produce 512 colors on a 12" screen, while the Macintosh was limited to a black and white 9" screen. The STs were also much more powerful, and less expensive, than the IBM XTs and ATs that were available at the time.

Also in 1985, Atari released the XE series of 6502C-based computers. These were expanded versions of the earlier 400/800 computers and were named the 65XE and 130XE. These systems suffered, however, due to a lack of marketing.

Sales of the Atari ST line of computers were fairly slow in the U.S. market, although somewhat stronger in Europe. Atari suffered in the U.S. computer market due to an image problem: they were still thought of as a game company. Atari needed some way to boost sales. In December 1987, Atari purchased the Federated Group, a chain of 65 consumer electronics stores in California, Arizona, Texas, and Kansas. Atari acquired 55 percent control of Federated for $67.3 million. Most of this money was raised by selling $75 million in Eurobonds at 5 ¼ percent interest. The idea was to increase domestic distribution of the ST. But Federated was already in trouble when Atari took over, finishing 1987 in the red. A year and a half after purchasing Federated, Atari announced that they were closing Federated s doors forever.

In the summer of 1988 Atari went through a major reorganization. After realizing that they needed to focus their computer business, Atari Corp. set up a new computer division, called Atari Computer. Also at this time Atari formed a telemarketing group, hired a new public-relations agency, and took on a new advertising agency.

Atari exec. Neil Harris commented, "I have to think this means that corporate management is getting very serious about the USA. They would not be letting us spend the money to do all this, otherwise."

During the past three years Atari has introduced several new products, including : four new lines of computers (the Mega, STe, TT, and Atari Business Computers), a new laser printer, a new hand-held video game system (the Lynx), a 1 lb. palmtop computer/organizer (the Portfolio), an ST compatible laptop (the ST Book), and a light-pen based portable computer (the STylus). These new products will be discussed later in this text.

Atari is currently a multi-national company employing over 1,200 people. Atari corporate headquarters is located in Sunnyvale, CA. Atari operates through wholly owned subsidiaries in Australia, Austria, Belgium, Canada, Denmark, France, Germany, Hong Kong, Israel, Italy, Japan, Mexico, the Netherlands, Norway, Spain, Sweden, Switzerland, Taiwan, the United Kingdom, and the United States.

Ever since Jack Tramiel took over as head of Atari, the company slogan has been "Power Without the Price." This is still very true today. According to Sam Tramiel, President of Atari, "We re committed to bringing American business, professional, and personal computer users the most cost-effective and workable solutions to every productivity problem."

In addition to being the low price leader, Atari is finally beginning to emphasize the U.S. market. During 1990-91, Atari made several changes in Engineering and in the management of the U.S. Corporation. The reorganization has streamlined communications and has facilitated faster turnaround of product designs. Atari is also committed to providing increased inventories and support to U.S. dealers.

One of Atari s short-term goals is to shorten the length of time between product announcement and product delivery. Frequent postponements of shipping dates have been a problem for Atari in the past, but Atari is trying to change that by moving all R&D for the ST and TT lines of computers to Atari Dallas.

Atari continues to grow internationally, especially is Western Europe. The 1991 World of Atari show in Dusseldorf, Germany attracted over 43,000 attendees. According to Sam Tramiel, Atari sees Eastern Europe and Russia as big potential markets for Atari. There are already Atari clubs in Russia. The strength of Atari in Western Europe will aid their efforts to expand into Eastern Europe.

Another of Atari s goals is to improve their cash position by reducing inventory levels. The amount of inventory at the end of 1990 was over $114 million. Some of this inventory consists of outdated 2600 and 7800 video game systems, which are still sold in Europe and South America.

Atari s overall strategy for the U.S. market is to identify niche markets and pursue those markets aggressively. According to Greg Pratt, General Manager of Atari U.S., "Our mandate is to continue to identify, and then go after, those niches where our low prices and high performance give us a distinct advantage." The different niches Atari has identified so far are desktop publishing, multimedia, education, engineering, small-business, and music.

In order to help make this niche market strategy succeed, Atari has formed the Atari Professional Systems Group. The APSG is a division of Atari Computer, and represents an informal partnership comprising Atari, Goldleaf Publishing, ISD Marketing, Soft-Logik Publishing, and Linotype/Hell Company. The APSG provides high-performance hardware/software systems for professional applications in areas ranging from prepress to video, multimedia, and music computing.

In Atari s Lynx and Portfolio product lines, lower price points and a new marketing focus are already paying off. In 1991 Atari dropped the price of its Lynx hand-held video game system to $99, in order to compete with the Nintendo Gameboy priced at $89. The lower price resulted in more than doubling the number of outlets carrying the game system, from 3000 to over 7000. New outlets for Atari game systems include such major chains as Kay Bee, Sears, Montgomery Wards, and K-Mart.

Also in 1991, Atari began advertising the Portfolio aggressively, emphasizing the versatility of the device as both a SuperOrganizer and an MS/DOS compatible computer. Many applications are currently being developed for the Portfolio, ranging from horse-race handicapping to stock-price tracking.