But Atari DID have something to compete and they had it nearly a year and a half before Nintendo came to the U.S. They even had manufactured a significant number and had them sitting in a warehouse ready to go for a launch in June 1984. They just chose not to sell them. The hardware that Atari had was on par with what Nintendo produced

Nintendo also approached Atari to market the NES in the U.S. Atari was going to buy exclusive rights to do that but then sit on it. Nintendo found out and decided to do it themselves. Atari was being run by a bunch of idiots at that time. Tramiel was good at doing things as cheaply as possible but not much else.

Atari's failure wasn't in lack of hardware it was in lack of marketing and securing third party hardware and software developers along the way. There's no reason Atari's hardware, sitting in a warehouse at the time, could not have competed well with the NES with the appropriate 1st and 3rd party software support. Even though their joysticks were not the best, there would have been plenty of 3rd party options and Atari could have easily improved upon what they had if they had only chosen to market the 7800 seriously in the first place. Yes, Tramiel was the one who decided to hold it back (along with numerous other projects), mostly because he refused to pay the developers of the hardware what they were owed, but it was already there, produced and ready to go. And as a plus, it was backwards compatible with the 2600.

It's not that they didn't have anything that could have competed it's that they chose not to until it was too late and only did so half-heartedly, mostly just selling what they already had sitting around and developing only a relative handful of actual new titles. And as I mentioned before, even those were severely restricted in terms of development time and memory because Tramiel was cheap. At the end of the day, it wasn't that Atari didn't have the hardware to compete, it's that Nintendo had already locked most of the 3rd party developers into exclusive development for the NES by the time they decided they wanted to compete. This is a big reason the SMS didn't sell better too.

Ironically, despite all this the Atari 7800 was technically a success for Atari. Though never anywhere near the popularity of the NES, it was profitable for Atari, supported until 1991, and it equalled or exceeded sales of the Sega Master System in North America.

I have mixed feeling about Tramiel. Without him there never would have been a Commodore 64, my favorite system of all time. But his philosophy of making cost the absolute most important aspect of everything he did cost both Commodore and Atari in the end.