Yu Suzuki, who had previously developed arcade games for Sega including Hang-On and Out Run, was the first manager of the department.

AM2 was placed under the management of CSK Research Institute in 2000, and a year later became SEGA-AM2 Co., Ltd. Their development of Shenmue was over budget and cost millions of dollars, and despite positive reviews and good sales was unable to become profitable.

To accomplish his desire to make a 3D game despite technological limitations at the time,[3] he specified the design of Sega's new Super Scaler arcade system board,[4] which utilized 16-bit graphics and sprite-scaling.

Even so, Suzuki worked with a desire of secrecy, so much so that Sega president Hayao Nakayama was denied entry on one occasion.

With the massive success of Street Fighter II in the industry at the time, he made the decision to make a 3D fighting game to compete.

[12] Virtua Fighter became a huge success in Japan,[13] and its Sega Saturn port sold at a nearly one-to-one ratio with the console itself.

To accurately depict Daytona International Speedway, the developers used satellite imagery and sent staff to photograph the track; Nagoshi walked a full lap to get a feel for the banking in the corners.

[19][20] Daytona USA was highly popular in arcades, and the twin cabinet was one of three 1995 recipients of the American Amusement Machine Association's Diamond Awards, which are based strictly on sales achievements.

[25] Further titles developed in the end of 1990s included Virtua Cop 2, Fighting Vipers, Daytona USA 2: Battle on the Edge, and SpikeOut.

CRI was a subsidiary of CSK Corporation, which was Sega's parent company at the time, and had previously published Aero Dancing.

[27] Also in 2000, Sega restructured its arcade and console development teams into nine semi-autonomous studios headed by the company's top designers.

AM2 developed what Sega hoped would be the Dreamcast's killer app in Shenmue, a "revenge epic in the tradition of Chinese cinema.

[33] Incorporating a simulated day/night cycle with variable weather, non-player characters with regular schedules, and the ability to pick up and examine detailed objects (also introducing the Quick-time event in its modern form[33][34]), Shenmue went over budget and was rumored to have cost Sega over $50 million.

[5][36] According to Sega of America president Peter Moore, Shenmue sold "extremely well", but the game had no chance of making a profit due to the Dreamcast's limited installed base.

[38][35]In addition to the mixed reception for Shenmue, IGN's Travis Fahs stated that "the [Dreamcast] era wasn't as kind to [AM2] as earlier years"—citing (among others) F355 Challenge as an "acclaimed" arcade game that "didn't do much at home", and Genki's port of Virtua Fighter 3 as inferior to the arcade version, "which was already a couple years old and never as popular as its predecessors.

[43] In 2001, AM2 of CRI was renamed to SEGA-AM2 Co., Ltd.[44] After serving as a producer on Virtua Cop 3 and OutRun 2,[23] Suzuki left AM2 on October 1, 2003, in order to start a new studio with Sega, called Digitalrex.

[45][47] Kataoka, who had led research and development at AM2 for a year, had worked on numerous projects for Sega and Yu Suzuki's division as old as Space Harrier to Virtua Fighter 4 Evolution.

[51] Prior to the acquisition by Sammy, Sega began the process of re-integrating its subsidiaries into the main company,[52] which was completed by October 2004.

[64] Other titles from AM2 to get long-term support in arcades are Quest of D,[65] Sega Network Taisen Mahjong MJ,[66] and Shining Force Cross.

[23][24][26] Other titles developed by the studio include Scud Race,[80] Sonic the Fighters,[26] 18 Wheeler: American Pro Trucker,[81] F355 Challenge,[39] Outtrigger (video game),[82] and Soul Reverse.

According to Aaron Souppouris of Engadget, AM2 in the past developed games that defined their genres, and called the department Sega's "most-storied division".

While lamenting the changes in development focus in recent years, Souppouris called the Hatsune Miku series "admittedly excellent".

[10] IGN's Travis Fahs stated that "[f]or as long as SEGA has had internal studios, AM2 has been the favorite son of the arcade division...

"[38] Video game researcher Ken Horowitz has stated that AM2 became the most well-known of Sega's in-house development teams and that the studio produced "ground-breaking classics".