Three Game Makers Near Sideline

In recent weeks, Atari (ATAR - Cramer's Take - Stockpickr), Midway Games (MWY - Cramer's Take - Stockpickr) and Majesco Entertainment (COOL - Cramer's Take - Stockpickr) have reported slumping sales, deteriorating bottom lines, disappointing guidance and/or management shake-ups.

While executives at each company generally tried to brush off concerns by pointing toward the future, some investors and analysts are starting to question how much of a future exists at all.

Each company is struggling to define its identity and what markets it's going to pursue, analysts say. But these struggles are coming at a tough time in the industry, with sales slowing and development costs rising in preparation for a new generation of game consoles.

Most analysts expect the industry to rebound within the next two or three years, but some smaller players may not have the financial resources to see themselves through to the other side.

"This industry is fiercely competitive," says a former industry executive. "If you don't have a plan, you're hosed."

Representatives of the three companies did not return calls seeking comment.

None of the three companies is out of the running yet, but each lately has had bad news for investors:

On Tuesday, Atari reported a quarterly loss that was 12 cents a share wider than analysts expected, as revenue plunged 78%.

The company declined to give its outlook for coming quarters, but warned that with no major game releases scheduled for the current period, investors could see more of the same. Thanks to the huge loss, its cash balance dwindled to about $5.8 million, or only slightly more than its cash burn in the just-completed quarter.

Last week, Midway missed Wall Street's top and bottom-line expectations and forecast results for the full year that were much worse than expected.

The company also reported that its cash balance has been cut in half since the beginning of the year.

Further, Midway quietly reported in a regulatory filing the departure of one of its top executives, Mark Beaumont, the company's senior vice president of entertainment.

The results seem to call into question the company's ability to sustain its turnaround effort. After years of posting losses and declining sales, Midway finally posted a profit in the fourth quarter last year and showed sales growth for the full year.