In December, 1978, Atari was a wholly-owned subsidiary of Warner Communication. Nolan Bushnell, who funded Atari in 1972 sold the company for $28 million in 1976 but still kept a position of responsibility up to October 1978.
The idea of a home computer able to compete with the first Apple, Commodore and Tandy systems came in 1977 from Raymond Kassar, the new manager of Atari. The Home Computer Division was created the same year.
The project took shape in 1978. Two computers code-named Candy and Colleen were designed simultaneously, based on three custom chips specially designed to handle graphics, sound and communication.
Although the Atari 400 and 800 were announced in December 1978, the first prototypes were shown at the Winter CES in January 1979. The production started in October 1979 and the first sales occurred just before Christmas period.
The design of these machines remains an amazing exploit to date. In one year, the teams of Atari (among them Jay Miner) succeeded in finalizing two really astonishing machines, as well as several concepts which are still largely used nowadays: The custom dedicated chips, the Serial I/O bus where all sorts of peripherals could be connected, is very close to our USB bus. Hardware scrolling, hardware sprites, video mode mixing, multivoice synthesizer are all concepts invented by Atari engineers and commonly used in our actual computers.
One can also mention the efficient Basic interpreter in ROM, written by Shepardson Microsystems, Inc (SMI), and a very well designed operating system.