IBM to Make Atari’s New Video Game : Technology: The $500-million deal will make the next-generation system the only video game made in America.

Video game pioneer Atari Corp., struggling to regain a presence in a business it virtually invented, said Monday that IBM Corp. will manufacture its new high-performance game system, known as Jaguar.

The $500-million, multiyear deal illustrates IBM’s determination to become a major player in contract manufacturing, and it will make Jaguar one of the few consumer electronics products--and the only video game system--to be made in the United States.

Atari could also gain some much-needed credibility for Jaguar, which faces an uphill fight against Nintendo, Sega and upstart 3DO Co.

Jaguar features a powerful, custom-designed microprocessor, and Atari says the machine will offer graphics and animation far superior to anything available today. It is scheduled to be launched on a limited basis in the New York area this fall, with a full rollout next year. The machine will cost just $200--far less than the $700 3DO system, which is also scheduled for a fall launch and is also touted as offering better visuals than Sega or Nintendo.

But the Atari machine will likely be handicapped by limited support from the outside software developers who create the games. And a compact disc accessory allowing the system to play audio CDs and display pictures created on Kodak’s Photo CD system--as the 3DO machines will do--will cost extra.

IBM will not only assemble the product, it will also be responsible for all component sourcing, testing, packaging and distribution.

“The scope of the work is quite broad--we will offer a full turnkey solution for Atari,” said Jim Hallmark, head of business development for IBM’s applications solutions division in Charlotte, N.C., where the product will be built.

IBM, which is trying to develop a range of new businesses to offset the decline in its core mainframe computer operations, has been selling contract manufacturing services for the last two years. Hallmark said that in 1992 the business had about $1 billion in revenue and that the goal is to reach $3 billion this year.

Game machines and other consumer electronics products are currently built mostly in Japan and other Asian countries. But in recent years, the United States has begun a comeback as U.S. production costs fall and consumer electronics products increasingly resemble computers--a technology that U.S. firms dominate.

Sunnyvale, Calif.-based Atari pioneered video games in the late 1970s, but its fortunes collapsed when the fad passed. Later, Nintendo re-created the game industry, and since then Atari has limped along as a vendor of specialized computers and a hand-held game system called Lynx. Atari shares closed Monday at $2.4375, unchanged.