It is believed to be as early as 1985 when the idea for the world's first colour handheld portable console came about. By 1987, engineers at Epyx, who conceived the idea, had named the system "Handy". Two of these engineers, Dave Needle and R.J. Mical, were also members of the original Amiga design team.
The new system was first shown to industry insiders at Winter CES in January 1989. After running into some financial problems, Epyx could not produce the system on their own and so they decided to enlist the help of another company. Invitations were sent to numerous companies in the hopes of getting a partnership to produce the system. One of these companies was Nintendo, who passed. Atari was also sent an invitation and, needing a way to re-enter the market, they accepted. An agreement was reached where Atari would produce and market the system while Epyx would take care of software development.
The system was again shown at CES, this time in the Summer of 1989, and with the name "Atari Portable Color Entertainment System", which was later changed to "Lynx". Also announced in the same year was the Nintendo GameBoy which would create tough competition for the Lynx, even though the Lynx was more powerful and had a backlit colour screen. The GameBoy only had a black & white screen, however, it was lighter, smaller and used less battery power. But probably the main edge that the GameBoy had over the Lynx was the price. The GameBoy was announced at a price of US$109 while the Lynx was US$90 more at US$199. Both systems were released by the end of the year, in time for Christmas. Due to the larger quantities of GameBoy consoles produced, the system was more readily available, while the Lynx only had limited quantities and often sold out, meaning Atari lost many potential customers. As a result, the GameBoy became the more popular choice over the holiday season.
Due to the lack of third party development for the Lynx, sales were never spectacular, even in 1990. The Lynx lacked killer apps like the many found on the GameBoy. 1991's sales were slightly better than the previous year due to a new marketing campaign and the release of the Lynx II, which was smaller, cheaper and more energy efficient (Lynx II also had a feature which would make the screen turn off to conserve power if a game was paused for a certain length of time). However, the release of the Sega Game Gear in May meant more competition for the Lynx. It also meant that the Lynx was no longer the only colour portable on the market.
The Lynx was often mistaken for a 16-bit system. It's actually more like a PC Engine/Turbo Grafx 16. It does not have a 16-bit main CPU like you'd find in true 16-bit consoles like Sega Mega Drive/Genesis or Nintendo Super NES/Super Famicom, however, it does have other 16-bit co-processors, which you won't find in other 8-bit systems (like Nintendo Entertainment System/Famicom or Sega Master System/SG-1000 Mark III, or a more appropriate comparison may be the Nintendo GameBoy or Sega Game Gear). Another thing to note about the Lynx is its capability of being played upside down. There are two sets of A and B buttons so you may turn the system around to use the controls on opposite hands. The screen display can be flipped the other way around at the touch of a button.
Eventually, Lynx was pushed out of the picture as the GameBoy gained more and more dominance, being followed distantly by Sega's Game Gear. The system had great potential and some great games (apart from the lack of killer apps) including some excellent arcade translations. Unfortunately though, the Lynx came at the wrong time as the much wealthier Nintendo had more money to spend on producing and marketing their system as well as the credibility to gain plenty of third part support thanks to the success of the NES.
Co-Processors: "Mikey" and "Suzy" 2 x 16-bit custom CMOS chips running at 16 MHz, MOS 65C02 running at up to 4 MHz (3.6 MHz average)
Math Co-processor: 16-bit multiply and divide, parallel processing of single instructions
RAM: 64K 120 ns DRAM
ROM: 512 bytes of bootstrap and game card loading ROM
Resolution: 160 pixels x 102 pixels "triad" (3 LCD elements: red, green, and blue) standard resolution (16 320 addressable pixels), capability of 480 x 102 pixels artificially high resolution Colours: 4096 (12-bit) colour palette with 16 simultaneous (4-bit) colours per scan line
Graphics: approximately 128 simultaneous on-screen sprites, drawing support, high-speed sprite capability with collision detection, sprite scaling, distortion and tilting effects, decoding of compressed sprite data, clipping and multi-directional scrolling, variable frame rate (up to 75 frames/sec)
Sound: 4 channels, 8-bit DAC for each channel (4 channels x 8-bit = 32-bit sound), Stereo (Lynx II only)
Video DMA driver for LCD display
Blitter (bitmap block transfer) unit
Screen Size: (3.5 inches) diagonally (approximately (3.25 inches x 1.88 inches))
Dimensions: (10.75 inches x 4.25 inches x 1.5 inches) (Original Lynx), (9.25 inches x 4.25 inches x 2 inches) (Lynx II)
Power: 9V DC, 1A or 6 x AA batteries (lasting 4 hours in original Lynx, 5 hours in Lynx II)
Communications Port: UART for ComLynx
Headphones port (mini-DIN 3.5 mm stereo, wired for mono on original Lynx)
Platform: Atari Lynx.