Updated from July 29

Shares of

Atari

(ATAR)

sunk Friday after the company offered fiscal second quarter guidance that was far below consensus expectations.

In recent trading the video game software company's shares were off 51 cents, or 21.9%, to $1.82.

Atari's disappointing outlook is related to its

Driver 3

game, said Michael Pachter, an analyst with Wedbush Morgan Securities, in a research note issued Friday. Although Atari saw strong initial demand for the title -- it shipped 2.5 million units in its first quarter -- the game has received relatively poor reviews, "making reorders and sustained demand unlikely," Pachter said.

Pachter lowered his second quarter and full year earnings estimates for Atari on the news.

Still, the analyst maintained his buy rating on Atari shares, saying that the recent sell-off may have been overdone. The company already is trading at about 11 times its pro-forma earnings for this year, which is about a 45% discount to its rivals, he noted.

"We think that further declines in the company's share price are unwarranted," he said in his note.

(Wedbush Morgan does not have banking business with Atari.)

On top of its dour forecast, Atari posted a sharp decline in sales and profits in its fiscal first quarter. In spite of that, its results topped Wall Street's earnings estimates.

The company earned $12.06 million, or 10 cents a share, in its just-completed quarter. That was down from the year-ago period, when Atari posted profits of $23.79 million, or 32 cents a share.

Meanwhile, the company's sales fell 27% from the year-ago period to $110.3 million.

Analysts polled by Thomson First Call were expecting the company to earn 8 cents a share on sales of $111.9 million.

Looking forward, Atari expects a loss of $19 million, or 16 cents a share, on revenue of $75 million in its second quarter. For its full fiscal year, the company predicted profits of $25 million to $30 million -- 20 cents to 25 cents a share -- on sales of about $470 million.

Wall Street has similar expectations for Atari's full year -- profits of 23 cents a share on $471.04 million in sales -- but was expecting far better results in the current quarter. The consensus estimate was for a loss of 1 cent a share in the second quarter on $98.76 million in sales.