In 1971, Nolan Bushnell and Ted Dabney founded a small engineering company, Syzygy Engineering, that designed Computer Space, the world's first commercially available arcade video game, for Nutting Associates.
On June 27, 1972, the two incorporated Atari, Inc. and soon hired Al Alcorn as their first design engineer. Bushnell asked Alcorn to produce an arcade version of the Magnavox Odyssey's Tennis game, which would be named Pong.
Atari secretly spawned a competitor called Kee Games, headed by Nolan's next door neighbor Joe Keenan, to circumvent pinball distributors' insistence on exclusive distribution deals; both Atari and Kee could market virtually the same game to different distributors, each getting an "exclusive" deal. Joe Keenan's management of the subsidiary led to him being promoted president of Atari that same year.
In 1975, Atari's Grass Valley, CA subsidiary Cyan Engineering, started the development of a flexible console that was capable of playing the four existing Atari games. The result was the Atari Video Computer System, or VCS (later renamed 2600). The introductory price of $199 (equivalent to $894 in 2019) included a console, two joysticks, a pair of paddles, and the Combat game cartridge.
Bushnell knew he had another potential hit on his hands but bringing the machine to market would be extremely expensive. Looking for outside investors, Bushnell sold Atari to Warner Communications in 1976 for an estimated $28–32 million. Nolan continued to have disagreements with Warner Management over the direction of the company, the discontinuation of the pinball division, and most importantly, the notion of discontinuing the 2600.
In December of that year, Nolan Bushnell was fired following an argument with Manny Gerard. "We started fighting like cats and dogs. And then the wheels came off that fall. Warner claimed they fired me," recalled Bushnell. "I say I quit. It was a mutual separation".
The development of a successor to the 2600 started as soon as it shipped. The original team estimated the 2600 had a lifespan of about three years; it then set forth to build the most powerful machine possible within that time frame. Mid-way into their effort the home computer revolution took off, leading to the addition of a keyboard and features to produce the Atari 800 and its smaller sibling, the 400. The new machines had some success when they finally became available in quantity in 1980.
From this platform Atari released their next-generation game console in 1982, the Atari 5200. It was unsuccessful due to incompatibility with the 2600 game library, a small quantity of dedicated games, and notoriously unreliable controllers.
The video game crash of 1983, with losses that totaled more than $500 million. Warner's stock price slid from $60 to $20, and the company began searching for a buyer for its troubled division. In 1983, Ray Kassar had resigned and executives involved in the Famicom merger lost track of negotiations, eventually killing the deal.
With Atari's financial problems and the Famicom's runaway success in Japan after its July 16, 1983, release, Nintendo decided to remain independent.
Financial problems continued to mount and Kassar's successor, James J. Morgan, had less than a year in which to tackle the company's problems. He began a massive restructuring of the company and worked with Warner Communications in May 1984 to create "NATCO" (an acronym for New Atari Company). NATCO further streamlined the company's facilities, personnel, and spending.
Unknown to James Morgan and the senior management of Atari, Warner had been in talks with Tramel Technology to buy Atari's consumer electronics and home computer divisions. Negotiating until close to midnight on July 1, 1984, Jack Tramiel purchased Atari. Warner sold the home computing and game console divisions of Atari to Tramiel for $50 cash and $240 million in promissory notes and stocks, giving Warner a 20% stake in Atari Corporation.
Under Tramiel's ownership, Atari Corp. used the remaining stock of game console inventory to keep the company afloat while they finished development on a 16/32-bit computer system, the Atari ST. ("ST" stands for "sixteen/thirty-two", referring to the machines' 16-bit bus and 32-bit processor core).
In April 1985, they released the first update to the 8-bit computer line — the Atari 65XE, the Atari XE series. June 1985 saw the release of the Atari 130XE; Atari User Groups received early sneak-preview samples of the new Atari 520ST's, and major retailer shipments hit store shelves in September 1985 of Atari's new 32-bit Atari ST computers.
Warner retained the arcade division, continuing it under the name Atari Games, but sold it to Namco in 1985. Warner also sold the Ataritel division to Mitsubishi.
In 1986, Atari launched two consoles designed under Warner — the Atari 2600jr and the Atari 7800 console (which saw limited release in 1984). Atari rebounded, earning a $25 million profit that year.
In 1987, Atari acquired Federated Group for $67.3 million, securing shelf space in over 60 stores in California, Arizona, Texas and Kansas at a time when major American electronics outlets were reluctant to carry Atari-branded computers, two-thirds of Atari's PC production was sold in Europe. The Federated Group (not related to Federated Department Stores) was sold to Silo in 1989.
Tramiel emphasized computers over game consoles but Atari's proprietary computer architecture and operating system fell victim to the success of the Wintel platform while the game market revived. In 1989, Atari Corp. sued Nintendo for $250 million, alleging it had an illegal monopoly. Atari eventually lost the case when it was rejected by a US district court in 1992.
In 1989, Atari released the Atari Lynx, a handheld console with color graphics, to much fanfare. A shortage of parts kept the system from being released nationwide for the 1989 Christmas season, and the Lynx lost market share to Nintendo's Game Boy which, despite only having a black and white display, was cheaper, had better battery life and had much higher availability.
In 1993, Atari positioned its Jaguar as the only 64-bit interactive media entertainment system available, but it sold poorly. It would be the last home console to be produced by Atari and the last to be produced by an American manufacturer until Microsoft's introduction of the Xbox in 2001.
In July 1996, Atari merged with JTS Inc., a short-lived maker of hard disk drives, to form JTS Corp. Atari's role in the new company largely became that of holder for the Atari properties and minor support, and consequently the name largely disappeared from the market.
By 1996, a series of successful lawsuits had left Atari with millions of dollars in the bank, but the failure of the Lynx and Jaguar left Atari without a product to sell. Tramiel and his family also wanted out of the business. The result was a rapid succession of changes in ownership.
On March 13, 1998, JTS sold the Atari name and assets to Hasbro Interactive for $5 million, less than a fifth of what Warner Communications had paid 22 years earlier. This transaction primarily involved the brand and intellectual property, which now fell under the Atari Interactive division of Hasbro Interactive. The brand name changed hands again in December 2000 when French software publisher Infogrames took over Hasbro Interactive.
In October 2001, Infogrames (now Atari SA) announced that it was "reinventing" the Atari brand with the launch of three new games featuring a prominent Atari branding on their boxarts: Splashdown, MX Rider and TransWorld Surf. Infogrames used Atari as a brand name for games aimed at 18–34 year olds. Other Infogrames games under the Atari name included V-Rally 3, Neverwinter Nights, Stuntman and Enter the Matrix.
Between 2004 and 2011, Atari produced and marketed Atari Flashback retro consoles, reminiscent of the Atari 2600 design. Since 2011, these consoles have been produced by AtGames under the license from Atari. Atari Flashback Portable is a handheld game console sold since 2016.
On March 6, 2008, Infogrames made an offer to Atari Inc. to buy out all remaining public shares for a value of $1.68 per share, or $11 million total. The offer would make Infogrames sole owner of Atari Inc., thus making it a privately held company. On April 30, 2008, Atari Inc. announced its intentions to accept Infogrames' buyout offer and to merge with Infogrames. On October 8, 2008, Infogrames completed its acquisition of Atari Inc., making it a wholly owned subsidiary.
On December 9, 2008, Atari announced that it had acquired Cryptic Studios, a MMORPG developer.
In May 2009, Infogrames Entertainment SA, the parent company of Atari, and Atari Interactive, announced it would change its name to Atari SA.
On January 21, 2013, the four related companies Atari, Atari Interactive, Humongous, and California US Holdings filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of New York. All three Ataris emerged from bankruptcy one year later and the entering of the social casino gaming industry with Atari Casino. Frederic Chesnais, who now heads all three companies, stated that their entire operations consist of a staff of 10 people.
On June 8, 2017, a short teaser video was released, promoting a new product, and the following week CEO Fred Chesnais confirmed the company was developing a new games console – the hardware was stated to be based on PC technology, and still under development. In mid-July 2017 an Atari press release confirmed the existence of the aforementioned new hardware, referred to as the Ataribox.
On January 27, 2020, Atari announced a deal with GSD Group to build Atari Hotels, with the first breaking ground in Phoenix in mid-2020. Additional hotels were also planned in Las Vegas, Denver, Chicago, Austin, Seattle, San Francisco, and San Jose. The company plans to make the hotel experience immersive while catering to all ages, including the use of virtual and augmented reality technologies.