In recent weeks,

Atari

(ATAR)

,

Midway Games

( MWY) and

Majesco Entertainment

(COOL)

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.

The difference between last year and this one has been even more stark at Majesco. The company was a highflier last year, boasting rapidly growing sales and an improving bottom line.

But Majesco

warned last month that it would post a full-year loss, instead of a predicted profit, attributable to revenue that was far below expectations.

In the wake of the warning, the company's CEO resigned, and it replaced its CFO. Last week, its chief legal officer left. Majesco's stock set a new 52-week low on Wednesday, closing the regular session at $2.78 a share.

"At least for Midway and Majesco, they can't do anything right. It's amazing, they're hitting on no cylinders," says Joe Spiegel, a hedge fund manager at Dalek Capital who follows the industry closely.

As for Atari, "It certainly seems to me it's not the beginning of the end; it's the middle of the end," adds Spiegel, who has no positions in the three companies.

Straying From Successful Game Plans

The problem for each of the companies is that they have strayed from where they've succeeded, analysts say. Midway's strength was in taking arcade hits such as

Mortal Kombat

and turning them into top-selling console games.

Atari had a niche for itself selling cheap, mass-market games for kids, and Majesco's core business was selling games and videos for portable game machines such as

Nintendo's

Game Boy Advance.

To a certain extent, each company has strayed in recent years in an attempt to compete in the sexiest part of the market: frontline games for core gamers. And each has stumbled in that effort.

Midway, for instance, blamed the revenue shortfall in its most recent quarter on disappointing sales of

Unreal Championship 2

; Atari saw disappointing sales last year of expected hit

Driver 3

; and Majesco's struggles have coincided with the expansion of its console lineup and the development of other frontline titles.

Deep Pockets Give Hope

But just because the companies are struggling doesn't mean they're going to go out of business.

Viacom

(VIAB) - Get Report

Chairman Sumner Redstone now owns more than 80% of Midway, meaning the company may be able to tap into his riches until things turn around.

Additionally, Atari is majority-owned by France-based

Infogrames

, which has pledged to financially support its troubled affiliate.

Even the industry leaders have posted poor or deteriorating financial results lately:

Electronic Arts

( ERTS) and

Activision

(ATVI) - Get Report

both swung to losses in their most recent quarters after posting prior-year profits.

And

THQ's

(THQI)

quarterly loss

remained the same as the previous year's, despite an 80% jump in sales.

The Console Factor

The video-game industry as a whole is going through one of its periodic slowdowns in expectation of the new consoles. With the first of those consoles,

Microsoft's

(MSFT) - Get Report

Xbox 360, expected to debut later this year, companies have been increasing development efforts -- and consumer demand seems to be slackening.

The difference is that the bigger companies generally have well-defined, proven strategies that succeeded over the course of this last console cycle and tend to have far more financial resources at their immediate disposal than do Atari, Midway or Majesco.

That difference in resources could prove crucial as the next console cycle matures, because development costs are expected to be substantially higher for the next-generation machines than for current ones.

The last year has already seen a winnowing of the competition.

Acclaim Entertainment

, for instance, filed for bankruptcy, and

Tomb Raider

publisher

Eidos

sold its assets to

SCi Entertainment

. Meanwhile, larger publishers have been gobbling up smaller development houses.

"If you're a smaller company and you're struggling to begin with, it makes it a lot harder to go up against Electronic Arts,

Sony

(SNE) - Get Report

and Microsoft," says Schelley Olhava, an analyst at industry research firm IDC.