Stern Electronics was founded by father-and-son pinball industry veterans Sam and Gary Stern in 1977 by purchasing the assets of the defunct Chicago Coin. Stern started out designing pinball tables and entered the arcade game market in 1980. The production of pinball tables was suspended in 1982 as the pinball market suffered a downturn in the early 1980s.

Stern's first arcade game was the internally developed Berzerk. Along with the Konami-developed imports Scramble and Super Cobra Stern quickly established themselves as one of the major arcade companies in the United States outside of Atari, Midway and Williams.

A combination of internal issues and the video game market crash eventually forced the closure of Stern Electronics in 1984. Gary Stern and many of the employees would help establish Data East's pinball division, which was sold to Sega and later on to Gary Stern himself, resulting in today's Stern Pinball company.