What did Atari do with the ageing 7800 series and it's clever XEGS games system, which was a 65XE redesigned with an add-on keyboard?  Although Atari Corp was primarily a Computer company after 1985, it dipped it's toes into the gaming market a number of times both for revenue and market share requirements, but most importantly, because Sega and Nintendo were chipping away at it's forgotten market dominance - and Atari didn't like it (especially as both companies were now making lot's of money at Atari's expense!)

Although Atari lost much ground to Sega and Nintendo from 1986, it did try and take it back.   The problem perhaps was one of resources, as it was busy manufacturing and marketing home computers - it took some time for Atari to wake up and realise that consumers were playing games again after 1984, and so it slowly fought a half-hearted battle against Sega and Nintendo in the gaming market once more.

Ironically, it was Nintendo who came to the Tramiels in 1985 looking for Atari to manufacture and market it's own 8-Bit games console, which Atari quickly dismissed, having no need for a games machine - Atari was a computer company first and foremost under the Tramiels.  While Atari was pushing it's computer line (for reasons of survival as well as market share), the great video games crash of 1984 was now part of history, as Nintendo launched it's 8-Bit console in the U.S. market - simply called the Nintendo Entertainment System (NES), it was an instant success!

In late 1986, after already dusting down the 2600Jr. from the engineering shelf - Atari looked at inventory of a console called the 7800, which was just canned in the first month when the Tramiels took over at the new Atari from Warner.  With not enough units previously manufactured sitting in a warehouse, the Tramiels repackaged the 7800 ProSystem, and made as many as they could for Christmas 1986 - they sold out completely, as did stock of the 2600Jr.  As good as this news was, the 7800 was over 3 and a half years old, and the NES and Sega Megadrive where much more advanced - soon, the 7800 was seen for what it was, an "old" video game system.

Even the XEGS System, with it's large back catalogue of 8-Bit game cartridges, and some newly released titles ported from floppy-disk, such as Star Raiders II, did nothing to stop the sales of SEGA and Nintendo.   Even the addition of a keyboard, allowing the system to be used as a computer wasn't enough to lift sales - and 8-bit computer technology (selling as the 65XE and 130XE) was becoming tired beside the new 16-bit computers now on the market.

This seemed like Atari under the Tramiels' would soon ditch the video games market again, but for unknown reasons, the 2600Jr. (which was still selling strong, especially in Asia) and the 7800 were continuing to be manufactured and shipped to dealers world-wide.  As for support of these systems, the 2600Jr.'s software support slowed dramatically each year as software houses moved over to support the new video games systems on the block.  The 7800 had a pitiful catalogue of games released by Atari, sometimes it seemed begrudgingly that Atari actually released titles for the system at all!

Marketing support was non-existent in comparison with Sega and Nintendo for the two ageing games systems, and so it was again, Atari slowly moved resources to it's cash cow, the ST and TT line of computers.

By 1989, Atari wasn't any threat to Sega or Nintendo - who had the video games market to themselves.  A member of the Tramiel family, who seemed hell-bent on "killing Nintendo" (and any other manufacturer who was a threat!), shocked the games industry at the 1989 CES Show in Chicago.  Sam Tramiel unveiled to the world, a portable video games unit, which was backlit-LCD-colour!   Even Nintendo sighed a gasp, Atari had launched a real killer video games machine - called the Lynx!