SEGA did more to popularise video gaming in this country than any company since Atari. First the Master System then the Mega-Drive made consoles seem cool once again. Even Nintendo couldn't compete.

So it was with a heavy heart that I read last week of Sega's plan to withdraw from the hardware market and concentrate its dwindling resources on software.

Where this leaves the Dreamcast - Sega's current hardware platform and the first 128-bit super console - is anyone's guess.

The official company statement issued from Japan is rather ambiguous, contenting itself with saying Sega plans to pursue alternative development strategies. Some have taken this to mean a Dreamcast add-on card for the PC, others reckon the Japanese want to integrate DC gubbins into set-top boxes world-wide that will also receive cable TV.

A Dreamcast card for the PC shouldn't be too hard. Much of the hardware is PC-based anyway. Sega could get away with adding the PowerVR graphics chip and a limited amount of memory to a peripheral card that should be relatively inexpensive. This would then allow PC owners to play DC games - theoretically opening up a much wider market for Sega software sales.

Sega must be hoping this ploy will galvanise third parties into developing for Dreamcast. So far, the number of independent game titles has been a trickle and not the torrent that was needed to stop PlayStation II.

Now Sega has pulled the plug on DC production (it ends next month) and a high street price drop looks inevitable.

In American and Germany the cost of a DC has already fallen to £99 and pressure is building for a similar reduction in the UK to clear out remaining stocks.

Inevitably, third parties are already pulling out of the DC games market. Expect the number of new releases to dry up over the next few months.

The PC add-on strategy must also overcome the "why bother" factor. After all, most decent PCs these days can match a Dreamcast. The only reason for buying a DC card would be to play Sega software.

If Sega moves into PC publishing (which it almost certainly will) then the reasons for buying a DC card will be nil.

Sega has already closed a deal to use DC chips in a set-top box, manufactured by a British company called Pace.

No one has ever tried integrating set-top boxes with game technology before. A US company called VM Labs has such a system under development and Mega Drive chips found there way into some pirate hybrid devices a few years ago, but nothing has ever gone mainstream.

A satellite or cable box that also offers games playing and Internet access could be attractive.

Equally, given the nature of the digital TV market where hardware is usually massively subsidised, such a machine may also be prohibitively expensive.

Incredibly the other rumour involves Microsoft's forthcoming console, the X-Box. Sources claimed Microsoft will announce that its console will include the Dreamcast chipset although both parties have denied this.

This only leaves software, the ace up Sega's sleeve. It still has some top development teams and some extremely marketable intellectual property and developing for other platforms could be the fastest way back for the troubled company.

So what should you do if a Dreamcast was left beneath the tree this Christmas?

Well, don't panic. Sega will still support its troubled child and there are several third parties developing DC titles. The Dreamcast remains a superb console, just look at how a game such as Soul Calibre outshines anything on the PS2, and, in the short term, these announcements will only make it even better value as shops reduce software prices to shift stocks.

As for Dreamcast 2, it now looks as though that piece of hardware will join the Sega Neptune and the Sega Nomad as a console that never saw the light of day.

Get well soon, Sega.