ACTEL CORP, 10-K, 1999-04-05

ACTEL CORP
10-K, 1999-04-05
SEMICONDUCTORS & RELATED DEVICES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

(Mark One)

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended January 3, 1999

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file number 0-21970

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ACTEL CORPORATION
(Exact name of Registrant as specified in its charter)

California 77-0097724
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

955 East Arques Avenue
Sunnyvale, California 94086-4533
(Address of principal executive offices) (Zip Code)

(408) 739-1010
(Registrant's telephone number, including area code)

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Securities registered pursuant to Section 12 (b) of
the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)

--------------------------------------

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Annual Report on Form
10-K or any amendment to this Annual Report on Form 10-K.

The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing price for shares of the Registrant's
Common Stock on March 31, 1999, as reported by the National Market System of the
National Association of Securities Dealers Automated Quotation System, was
approximately $244,204,048. In calculating such aggregate market value, shares
of Common Stock owned of record or beneficially by all officers, directors, and
persons known to the Registrant to own more than five percent of any class of
the Registrant's voting securities were excluded because such persons may be
deemed to be affiliates. The Registrant disclaims the existence of control or
any admission thereof for any other purpose.

Number of shares of Common Stock outstanding as of March 31, 1999:
21,460,317.

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DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference in Parts II, III,
and IV of this Annual Report on Form 10-K: (i) portions of Registrant's annual
report to security holders for the fiscal year ended January 3, 1999 (Parts II
and IV), and (ii) portions of Registrant's proxy statement for its annual
meeting of shareholders to be held on May 28, 1999 (Part III).

All information contained or incorporated by reference in this Annual
Report on Form 10-K should be read in conjunction with and in the context of the
Risk Factors set forth in Part I. Unless otherwise indicated, the statements
contained in this Annual Report on Form 10-K are made as of March 31, 1999, and
Actel undertakes no obligation to update such statements, including any
forward-looking statement.

PART I

ITEM 1. BUSINESS

Overview

Actel designs, develops, and markets field programmable gate arrays
("FPGAs") and associated development system software and programming hardware.
FPGAs are used by designers of communications, computer, industrial,
military/aerospace, and other electronic systems to differentiate their products
and get them to market faster. The Company is the leading supplier of FPGAs
based on antifuses, and anticipates introducing FPGAs based on static random
access memory ("SRAM") and flash technologies during 1999. Actel's strategy is
to provide logic designers with the broadest range of programmable technology
choices.

Actel shipped its first products in 1988 and thousands of its
development systems are in the hands of customers, including Allen
Bradley/Rockwell, AST Computer, Alcatel, Bay Networks, Cabletron, DSC
Communications, Hughes Aircraft, Lockheed-Martin, Lucent Technologies, and
Siemens. The Company has foundry relationships with Chartered Semiconductor
Manufacturing Pte Ltd ("Chartered Semiconductor") in Singapore, Lockheed-Martin
Federal Systems Company ("Lockheed-Martin FSC") in the United States, Matsushita
Electronics Company ("Matsushita") in Japan, UMC Corp. ("UMC") in Taiwan, and
Winbond Electronics Corp. ("Winbond") in Taiwan, permitting Actel to focus its
resources on its core strengths of designing, developing, and marketing FPGAs.

Actel's product line consists of ten families of antifuse-based FPGAs;
Designer Series Development System, DeskTOP, and CoreHDL software; Silicon
Explorer debugging and diagnostic tools; Activator and Silicon Sculptor device
programmers; and sockets. To meet the diverse customer requirements in the broad
FPGA market, each member of a product family generally is offered in a variety
of speed grades, package types, reliability screenings, and ambient temperature
tolerances. Designers can use Actel's integrated suite of design tools (DeskTOP)
or third-party software for circuit design and then translate the design into a
programmed FPGA using Actel's proprietary, highly automated software (Designer
Series Development System) and device programmers (Activator and Silicon
Sculptor). CoreHDL blocks or "cores" that can be used to reduce development time
by being "dropped into" designs, and Silicon Explorer can be used to reduce
design-verification time by enabling the user to monitor the functionality of a
programmed FPGA in "real time." Sockets permit designers to replace a chip
without damaging the board.

In a strategic move to position Actel as a complete solution provider
for reprogrammable application specific integrated circuit ("ASIC") systems, the
Company and GateField Corporation ("GateField") entered into a multi-year
strategic alliance in August 1998. In establishing the alliance, Actel purchased
marketing and license rights, the assets of GateField's Design Services Business
Unit, and preferred stock. Pursuant to a Product Marketing Agreement, Actel
acquired the exclusive right to market and sell GateField's standard ProASIC
products in process geometries of 0.35-micron and smaller, as well as
GateField's ASICmaster design tool software, as part of Actel's programmable
logic device ("PLD") and design suite product families. Under the terms of the
Agreement, GateField is to provide Actel with a 0.25-micron ProASIC product
family that is expected to support densities of up to half a million
programmable logic gates. The Agreement further provides for migration to
smaller process technologies, with the potential to produce multi-million gate
devices. The non-volatile, single-device, reprogrammable standard ProASIC
products are being developed from GateField's patented, flash-based
reprogrammable ASIC technology and architecture. ProASIC devices exhibit a high
level of portability between PLD and ASIC design flows. The Company also offers
design, prototyping, and consulting services through its new Design Services
Group.

Actel markets its products through a worldwide, multi-tiered sales and
distribution network. The North American network includes 21 sales management
and/or technical sales offices, 19 manufacturers' representative firms, and
three major industrial distributors. The European network includes four sales
management offices and 26 distributors. The Pan-Asia network includes four sales
management offices and 12 distributors. Two additional distributors serve the
remaining international markets in which Actel offers its products.

The Company was incorporated in California in 1985, and intends to
reincorporate as a Nevada corporation during the second quarter of 1999. Actel's
principal facilities and executive offices are located at 955 East Arques
Avenue, Sunnyvale, California 94086-4533, and its telephone number at that
address is (408) 739-1010. The Company's World Wide Web address is
http://www.actel.com. As used in this Annual Report on Form 10-K, "Actel" and
the "Company" mean Actel Corporation and its consolidated subsidiaries. Unless
otherwise indicated, "gate" or "gates" means "ASIC equivalent gates."

"Actel" and the Actel logo are registered trademarks of the Company;
"ProASIC" and "ASICmaster" are registered trademarks of GateField; and "RAD-PAK"
is a registered trademark of . Space Electronics, Inc. This Annual Report on
Form 10-K also includes unregistered trademarks of the Company and trademarks of
companies other than Actel.

Industry Background

The three principal types of integrated circuits used in most digital
electronic systems are microprocessor, memory, and logic circuits.
Microprocessors are used for control and computing tasks; memory devices are
used to store program instructions and data; and logic devices are used to adapt
these processing and storage capabilities to a specific application. Logic
circuits are found in virtually every electronic system.

The logic design of competing electronic systems is often a principal
area of differentiation. Unlike the microprocessor and memory markets, which are
dominated by a relatively few standard designs, the logic market is highly
fragmented and includes, among many other segments, low-density standard
transistor-transistor logic circuits ("TTLs") and custom-designed ASICs. TTLs
are standard logic circuits that can be purchased "off the shelf" and
interconnected on a printed circuit board, but they tend to limit system
performance and increase system size and cost compared with logic functions
integrated at the circuit (rather than the board) level. ASICs are customized
circuits that offer electronic system manufacturers the benefits of higher
levels of circuit integration: improved system performance, reduced system size,
and lower system cost.

ASICs include conventional gate arrays, standard cells, and
programmable logic circuits. Conventional gate arrays and standard cell circuits
are customized to perform desired logical functions at the time the device is
manufactured. Since they are "hard wired" at the wafer foundry, conventional
gate arrays and standard cells are subject to the time and expense risks
associated with any development cycle involving a foundry. Typically,
conventional gate arrays and standard cells are first delivered in production
volumes months after the successful production of acceptable prototypes. In
addition, conventional gate arrays and standard cells cannot be modified after
they are manufactured, which subjects them to the risk of inventory obsolescence
and constrains the system manufacturer's ability to change the logic design.
Programmable logic circuits, on the other hand, are manufactured as standard
devices and customized "in the field" by electronic system manufacturers using
computer-aided engineering ("CAE") design and programming systems. Programmable
logic circuits are being used by a growing number of electronic system
manufacturers as a solution to their increasing demands for differentiation,
rapid time to market, and manufacturing flexibility. While conventional gate
array and standard cell designs are generally more complex than programmable
logic circuit designs, the average capacity (or "gates" per circuit) of
conventional gate arrays, standard cells, and programmable logic circuits have
all increased over time. This indicates that long-term growth in sales within
each market segment has increased faster for circuits with higher capacities.

Programmable logic circuits include PLDs and FPGAs. The market for
complex PLDs ("CPLDs") and FPGAs has grown rapidly because they generally offer
greater capacity, lower total cost per usable logic gate, and lower power
consumption than TTLs and simple PLDs, and faster time to market and lower
development costs than conventional gate arrays and standard cells. For many
electronic system manufacturers, the time-to-market and
manufacturing-flexibility benefits of CPLDs and FPGAs outweigh their price
premium over conventional gate arrays or standard cells of comparable capacity.
This is particularly true with respect to communications applications.

Electronic system manufacturers customize programmable logic circuits
to perform the desired logical functions by using CAE systems to define a
device's function and then a device programmer to change the state of the
device's programming elements (such as antifuses or memory cells) through the
application of an electrical signal. Most CPLDs are programmed with erasable
programmable read only memories ("EPROM") or other "floating gate" technologies.
Many FPGAs are programmed with SRAM technology. FPGAs based on antifuse
programming elements are one-time programmable, meaning they will retain their
circuit configurations permanently, even in the absence of electrical power.
FPGAs and CPLDs based on programming elements controlled by floating gates or
SRAMs are reprogrammable.

Before an FPGA can be programmed there are various steps that must be
accomplished by a designer using CAE design software. These steps include
defining the function of the FPGA, verifying the design, and laying out the
circuit. Traditionally, logic functions have been defined using schematic
capture tools, which essentially permit the designer to construct a circuit
diagram on the computer. As FPGA designers have begun to design higher capacity
circuits, the time required to create schematic diagrams using schematic capture
tools has become prohibitive. To address this problem, designers are
increasingly turning to hardware description languages ("HDLs"), also known as
high-level description. VHDL and Verilog are the most common HDLs, which permit
the designer to describe the circuit functions at an abstract level and to
verify the performance of logic functions at that level. The HDL can then be fed
into logic synthesis software that automatically converts the abstract or
high-level description to a gate-level representation equivalent to that
produced by schematic capture tools. After a gate-level representation of the
logic function has been created and verified, it must be translated or "laid
out" onto the generic logic modules of the FPGA. This is achieved by placing the
logic gates and routing their interconnections, a process referred to as "place
and route." As designers have begun to design higher capacity circuits, the need
for automatic (instead of manual) place and route capability has become
increasingly important. This transition to the use of HDLs presents a challenge
to the designer to learn new design methods and to use new design tools. In
addition, not all programmable logic circuit architectures are equally well
suited for use with logic synthesis and place and route tools.

Actel Strategy

Actel believes that the demand for higher capacity devices will
increase faster than that for programmable devices as a whole. Accordingly, the
Company is focusing its attention on the transition to higher capacity devices
and the associated high-level design methodologies. Actel's strategy is to be
the complete provider of high-density programmable logic by giving designers the
capability to make the best technology choice. The Company is implementing this
strategy by enhancing the functionality, usability, and accessibility of
high-level design tools for its antifuse-based architecture; and by developing
new products based on SRAM and flash technologies using a variety of
architectures that Actel believes will be better suited for this market than
existing reprogrammable architectures.

Products and Services

FPGAs

To meet the diverse customer requirements in the broad high-capacity
programmable logic market, each of the Company's FPGAs (except members of the
RadHard family) is offered in a variety of speed grades, package types,
reliability screenings, and ambient temperature tolerances. The five members of
the ACT 1 and ACT 2 families, for example, can be ordered in more than 100
speed, packaging, screening, and tolerance variations.

ACT 1

The ACT 1 family of FPGAs consists of two products: the
1,200-gate A1010, which was first shipped for revenue in 1988; and the
2,000-gate A1020, which was first shipped for revenue in 1989. This
family of circuits was introduced at 2.0 micron and is manufactured
using 1.0 micron design rules. The Company offers 5.0- and 3.3-volt
versions of both ACT 1 products.

ACT 2

The ACT 2 family of FPGAs consists of three products: the
4,000-gate A1240 and the 8,000-gate A1280, which were first shipped for
revenue in 1991; and the 2,500-gate A1225, which was first shipped for
revenue in 1992. This family of circuits was introduced at 1.2 micron
and is manufactured using 1.0 micron design rules.

ACT 3

The ACT 3 family of FPGAs consists of five products: the
2,500-gate A1425 and the 6,000-gate A1460, which were first shipped for
revenue in 1993; and the 1,500-gate A1415, the 4,000-gate A1440, and
the 10,000-gate A14100, which were first shipped for revenue in 1994.
The ACT 3 family was designed for applications requiring high speed and
a high number of inputs and outputs ("I/Os"). The five members of the
ACT 3 family can be ordered in approximately 150 speed, packaging,
screening, and tolerance variations. The Company offers 5.0- and
3.3-volt versions of all five ACT 3 products, as well as versions
(A1460BP and A14100BP) that are compliant with the peripheral component
interconnect (PCI) standard. The ACT 3 family was introduced at 0.8
micron and is manufactured using 0.6 micron design rules.

The 1200XL family of FPGAs, which was first shipped for
revenue in 1995, consists of three products: the 2,500-gate A1225XL,
the 4,000-gate A1240XL, and the 8,000-gate A1280XL. Taking advantage of
0.6 micron design rules and redesigned I/O modules and clock
distribution networks, 1200XL products offer system performance
significantly in excess of that offered by pin-compatible ACT 2
devices. The Company offers 5.0- and 3.3-volt versions of all three
members of the 1200XL family, which can be ordered in approximately 100
speed, packaging, screening, and tolerance variations.

The 3200DX family of FPGAs consists of five products: the
6,500-gate A3265DX, which was first shipped for revenue in 1995; the
14,000-gate A32140DX and the 20,000-gate A32200DX, which were first
shipped for revenue in 1996; and the 10,000-gate A32100DX and the
30,000-gate A32300DX, which were first shipped for revenue in 1997. The
3200DX family permits designers to integrate the register-intensive
datapath functions of FPGAs, the control and decode modules commonly
implemented in CPLDs, and the fast dual-port SRAM typically used for
high-speed buffering. Supported by the Company's extensive selection of
automated design tools, the 3200DX family is optimized for synthesis
design methodologies to yield predictable performance for system logic
integration. To further assist designers, most members of the family
offer JTAG boundary scan logic, which permits testing of the design
during manufacture. The Company offers 5.0- and 3.3-volt versions of
all five members of the 3200DX family, which is manufactured using 0.6
micron design rules and can be ordered in approximately 150 speed,
packaging, screening, and tolerance variations.

The MX family of FPGAs consists of six products: the
4,000-gate A40MX04 and the 16,000-gate A42MX16, which were first
shipped for revenue in 1997; and the 2,000-gate A40MX02, the 9,000-gate
A42MX09, the 24,000-gate A42MX24, and the 36,000-gate A42MX36, which
were first shipped for revenue in 1998. The MX family includes the best
features from Actel's earlier ACT 1, ACT2, 1200XL, and 3200DX families
and is manufactured using 0.45 micron design rules, which permits the
MX family to work in pure 5.0-volt, pure 3.3-volt, and mixed 5.0- and
3.3-volt systems. Actel believes that, at the time of its introduction
in January 1998, the A42MX09 was the world's fastest FPGA. In May 1998,
the Company announced the availability of the A42MX09 and the A42MX16
in the popular VQFP-100 pin package, which provides a very small
footprint and is particularly useful in handheld and portable computing
applications that require high speed, low power consumption, and design
flexibility on limited in board space. Designers can achieve 5.0- or
3.3-volt 33MHz PCI-compliant output drives on the A42MX24 and A42MX36,
which were introduced in June 1998, by programming a PCI-enable fuse.

Like ASICs and all previous Actel FPGAs, MX devices are
nonvolatile and do not require any external configuration devices or
circuitry. The MX family was introduced with volume production pricing
that the Company believed, in combination with its performance and
functionality, should make it attractive as a single-chip ASIC
alternative. In October 1998, Actel announced list price reductions of
up to 50 percent for its MX FPGAs, enhancing the MX family's appeal as
an ASIC alternative. In March 1999, the Company announced that it had
shipped the two-millionth MX FPGA. This milestone was achieved just
thirteen months after the availability of production devices and only
eighteen months after the introduction of the first member of the
family. This means the MX family ramped to volume faster than any
family in Actel's history. Over time, the MX family, which can be
ordered in more than 200 speed, packaging, screening, and tolerance
variations, and the new SX family (discussed below) should replace all
of Actel's earlier FPGA families in new commercial designs.

The SX family of FPGAs consists of four products, all of which
were first shipped for revenue in 1998: the 8,000-gate A54SX08, the
16,000-gate A54SX16 and A54SX16P, and the 32,000-gate A54SX32. The SX
family is manufactured using three layers of metal and 0.35 micron
design rules, and is scheduled to migrate to 0.25-micron process
technology by the end of 1999. SX is the first family to be built on
Actel's new triple layer metal, sea of modules architecture that will
serve as the foundation for the Company's future antifuse product
releases. In Actel's new metal-to-metal antifuse technology,
interconnect resources have been moved from the area between logic
modules to the Metal 2 and Metal 3 layers. The result is dramatically
decreased die size (regardless of density) that increases device
performance and reduces cost. The new architecture has been developed
for high device performance and features new logic module and
interconnect construction. The foundation for the new architecture is a
"sea" of logic modules, laid out as a grid across the entire silicon
floor. The sea of modules design maximizes the chip area by covering
almost the entire silicon substrate with logic resources. To further
increase design efficiency and device performance, these modules have
been organized into "superclusters." Two different levels of local
routing resources within superclusters give designers the ability to
achieve very fast performance.

SX debuted in April 1998 as the industry's fastest family of
FPGAs with the introduction of the A54SX16. The A54SX32, which was
introduced in August 1998, is well suited for use in networking,
telecommunications, data acquisition, instrumentation, medical
electronics and high-speed computer peripheral applications. The
A54SX08, which was introduced in October 1998, is optimally compatible
with leading-edge applications such as 8b/10b encoding for gigabit
Ethernet routers and high-speed interface for DS3 networks. The
A54SX16P, which was also introduced in October 1998, meets the PCI
AC/DC drive specifications, making it suitable for high-speed
applications such as graphic controllers, multimedia and networking
cards, communications equipment, and other fully compliant 66MHz PCI
designs. All SX devices have full pin compatibility within the family
and provide mixed 5/3.3-volt support with 3.3-volt output drive and
5-volt tolerant inputs. The SX family can be ordered in more than 50
speed, packaging, screening, and tolerance variations, and
approximately 50 more variations are planned.

As discussed above, the SX family achieves high performance by
means of the new low-impedance, metal-to-metal antifuse and several
innovative architectural features, including a hard-wired clock (320MHz
maximum clock frequency), fast I/Os (4ns clock-to-out), and rapid local
interconnects (direct connect 0.1ns, fast connect 0.4ns). This
combination permits the SX family to often exceed the performance of
CPLDs. The SX family's combination of performance and capacity enables
designers to combine multiple high performance CPLDs into a single
FPGA, thereby cutting power consumption, saving board space, and
reducing costs. In November 1998, Actel announced that list prices for
SX FPGAs will be reduced by up to 63 percent in the second half of
1999, based on migration to 0.25-micron process technology, backend
cost reductions, and increased market demand. These significant SX
price reductions should permit customers to use the fastest FPGA on the
market and get ASIC-like pricing for volume production.

HiRel/Military

HiRel and military devices are designed for use in military
and extreme temperature environments. All Actel devices offered in
plastic packages are certified for commercial (0 to +70(0)C),
industrial (-40 to +850(0)C), or military (-55 to +125(0)C) temperature
ranges. The Company's HiRel devices offered in ceramic packages are
certified for commercial or military temperature ranges or with Class B
(MIL-STD-883) qualification.

The HiRel family of plastic FPGAs consists of all devices and
packages offered commercially. The HiRel family of ceramic FPGAs
consists of thirteen products: the 1,200-gate A1010B, the 2,000-gate
A1020B, the 2,500-gate A1425A, the 4,000-gate A1240A, the 6,000-gate
A1460A, the 8,000-gate A1280A and A1280XL, the 10,000-gate A14100A and
A32100DX, the 16,000-gate A54SX16, the 20,000-gate A32200DX, the
32,000-gate A54SX32, and the 36,000-gate A42MX36.

In September 1998, Actel announced it had achieved
MIL-PRF-38535 Qualified Manufacturer Listing ("QML") certification for
its plastic FPGAs. The certification from the Defense Supply Center
Columbus ("DSCC") covers international packaging subcontractors ASAT in
Hong Kong and ANAM in South Korea. ASAT and ANAM produce PLCC, PQFP,
TQFP, VQFP, and RQFP packages for the Company's ACT1, ACT2, ACT3,
1200XL, and 3200DX device families, which have capacities ranging from
2,000 to 36,000 gates. These QML certified components are available at
commercial, industrial, and military temperature levels. In November
1998, the Company announced that the MX family had been added to its
MIL-PRF-38535 QML certification for plastic components. The additional
listing included international packaging subcontractor STATS in
Singapore, and the listed packages included PLCCs, PQFPs, a VQFP, and a
TQFP. In March 1999, Actel announced it has been awarded full
certification to QML status for all military, HiRel, and space
products.

QML certification qualifies processes and materials rather
than individual products or production lots. With QML certification,
devices with plastic packages can be integrated into design
applications that would otherwise require higher-cost ceramic packages,
thereby providing designers with a lower-cost solution. The
certification also permits the integration of commercial and military
production without compromising quality or reliability. Many suppliers
of microelectronic components have implemented QML as their primary
worldwide business standard. Appropriate use of this standard helps not
only in the implementation of advanced technologies, but also in
providing more effective logistical support throughout the life cycle
of the product.

RT/RP

RadTolerant devices are specifically designed for use in space
applications, including commercial, military, and civilian satellites
and deep-space probes. Actel's RadTolerant devices are offered in
ceramic packages and certified for military temperature ranges with
either Class B or Class E (extended flow/space) qualification. The
RadTolerant family of FPGAs consists of five products: the 2,000-gate
RT1020, the 2,500-gate RT1425A, the 6,000-gate RT1460A, the 8,000-gate
RT1280A, and the 10,000-gate RT14100A. In September 1998, the Company
announced the addition of RT54SX16 and RT54SX32 to the RadTolerant
product line, which should be qualified in 1999. The RT54SX16 and
RT54SX32 are manufactured at the Matsushita fabrication facility in
Japan, which has produced devices with better total dose capabilities
than typical commercial fabrication facilities.

In February 1998, Actel announced that it had signed a
memorandum of understanding with Space Electronics, Inc. ("SEi") to
develop and market a new line of high-reliability, radiation-tolerant
FPGA products. The agreement called for the two companies to link
Actel's commercial FPGA products with SEi's RAD-PAK package shielding
technology, which can significantly increase the total dose
survivability of commercial FPGA devices. The RAD-PAK family of FPGAs
consists of two products: the 8,000-gate RP1280A and the 10,000-gate
RP14100A. Actel's RAD-PAK devices are offered in ceramic packages and
certified for commercial or military temperature ranges or with Class B
or Class E qualification.

RadTolerant and RAD-PAK FPGAs provide cost-effective
alternatives to radiation hardened devices for applications that
require high reliability. One such application is the growing
commercial satellite market, widely used in telecommunications for
cellular phones, pagers, and global positioning system products and
services.

The RadHard family of FPGAs consists of two products: the
8,000-gate RH1280, which was first shipped for revenue in 1996; and the
2,000-gate RH1020. In March 1998, the Company announced the
availability of the RH1020. RadHard devices are offered in ceramic
packages and certified with Class VQ (QML) qualification. Actel's
RadHard FPGAs are manufactured by Lockheed Martin FSC at its QML
facility in Manassas, Virginia, using a high-reliability,
radiation-hardened 0.8 micron process. The Company and LMFSC are
jointly developing the RadHard family to meet the demands of
applications requiring guaranteed levels of performance and radiation
survivability, including the growing telecommunications satellite
market. Additional applications for RadHard FPGAs include satellites
for military use, deep space probes and planetary missions, and
ground-based military applications in which radiation survivability is
required.

Software

A key element of the Company's strategy is to support users' electronic
design automation ("EDA") tools of choice by establishing and maintaining
relationships with leading synthesis software vendors for the purpose of
permitting such tools to be used as a "front end" to Actel's proprietary
Designer Series Development System. Rather than developing this capability
alone, the Company has established the Actel Industry Alliance, which Actel uses
to establish relationships with EDA vendors for the purpose of developing
interfaces between such vendors' EDA tools and Actel's proprietary software.
Under the Alliance program, Actel provides members with, among other things,
access to its proprietary software specifications, early access to software
revisions, verification services, and participation in joint marketing efforts.
The Alliance currently has more than 20 members, including all major EDA vendors
supporting high-level design for both VHDL and Verilog. The Company provides
comprehensive HDL solutions for the EDA environments of Cadence Design Systems,
Exemplar Logic, Mentor Graphics, Synopsys, and Synplicity.

Designer Series Development System

In 1995, Actel introduced the Designer Series Development
System toolset, a revolutionary software suite built on an
object-oriented database that helps optimize and simplify FPGA circuit
design, implementation, and testing. The Designer Series has
continuously evolved since its introduction and has recently been
integrated into the Actel DeskTOP integrated software tools to
efficiently perform the suite's place and route tasks.

In August 1998, Actel announced the latest revision to its
Designer Series FPGA design software, version R2-1998. This new version
enhanced timing, precision, and ease of use, and provided full
programming for all Actel FPGAs, including the members of Actel's SX
family, the industry's fastest devices. By ensuring a greater level of
timing analysis accuracy, Actel's R2-1998 Designer Series software
helps designers work at the extremely high-frequency capabilities of
Actel's new SX FPGA family. A new flip-flop report helps designers to
determine the number of sequential and combinatorial macros used in a
design for accurate prediction of device utilization. Refinements were
made to ACTmap, including clock resource checking and speed/utilization
performance improvements; and to ACTgen, including a new user
interface, new macro types, behavioral VHDL and Verilog model
generation capability, and improved reporting.

DeskTOP

In February 1999, Actel became the first programmable device
supplier to offer a free integrated suite of design tools, the Actel
DeskTOP. Introduction of the basic DeskTOP suite was the first phase of
Actel's integrated design tool strategy. DeskTOP is a three-vendor
suite of logic design tools from Synplicity, VeriBest and Actel, with
technical support provided by Actel. The basic DeskTOP version will be
offered at no charge to qualified designers through January 31, 2000.
It offers synthesis for selected devices of up to 50,000 gates and can
be used to design more than 20 Actel device types for commercial and
HiRel applications. One year of DeskTOP maintenance, which includes
full technical support and upgrades for future Actel device family
additions, is $995. Actel's basic DeskTOP offering integrates the
functionality of VeriBest's DesignView Design Manager, schematic entry,
and VHDL simulator; Synplicity's Synplify synthesis software; and
Actel's Designer place and route tool as well as programming, logic
analyzer, and timing analysis software. Optional Verilog simulation is
scheduled to be added to Actel DeskTOP during the second quarter of
1999.

The second phase of Actel's integrated design tool strategy is
scheduled for the second quarter of 1999 with the introduction of
DeskTOP Pro and DeskTOP Open. As a migration path option, DeskTOP Pro
will take the entire DeskTOP development software offering from
VeriBest, Synplicity, and Actel to the highest level of functional
performance and productivity for the design of all Actel devices.
DeskTOP Pro is targeted as a very reasonably priced, complete tool
suite solution for "power users" designing high gate count,
system-level devices. Actel DeskTOP Open will feature an open synthesis
environment is being developed to appeal to customers who have already
invested in their own synthesis tools. Both DeskTOP Open and DeskTOP
Pro will offer feature-rich design solutions with no maximum size
limitation for all supported Actel devices.

CoreHDL Intellectual Property

As integrated circuits move to ever higher levels of capacity
and integration, the use of intellectual property ("IP"), in the form
of cores, becomes more important. In offering CoreHDL IP, the Company
is targeting high-density FPGA designers who are interested in
combining customized logic with predefined functions optimized for high
performance applications. By using predefined cores, designers save
engineering resources for the value-added portions of their designs
while shortening the design cycle. In addition, the portable nature of
cores enables design reuse across multiple product versions.

Actel's CoreHDL IP portfolio consists of three cores, which
are available in either Verilog-HDL or VHDL source code: CorePCI
Target, CorePCI Target+DMA, and Serial Communication UART. There are
two versions of each PCI core, one that has been ported to the
Company's PCI-compliant ACT 3 devices (A1460BP and A14100BP) and one
that has been ported to the PCI-compliant MX (A42MX24 and A42MX36) and
SX (A54SX16P) devices. Actel also offers nine cores developed by
Inicore AG, a Swiss IP provider, which are available only in VHDL
source code: ADPLL, CANbus, CPU 6809, G704 (ISDN Framer), HDLC, I2C,
UART, Utopia (ATM), and VME. In general, these cores are targeted to
telecommunications and industrial control applications.

Silicon Explorer

Silicon Explorer is a powerful debugging and verification tool that
enables the user to monitor the internal operation of a programmed FPGA as it
performs its functions at speed within a real system. By permitting real-time
probing, Silicon Explorer can significantly reduce the amount of time necessary
to debug and verify an FPGA design. The Silicon Explorer tool suite includes
ProbePilot, a high-speed signal acquisition hardware interface between the Actel
FPGA, the board on which the FPGA resides, and the designer's desktop computer;
Explore, an easy-to-use point-and-click software tool that is integrated with
the Company's Designer Series development software is a PC-hosted logic analyzer
that graphically displays the waveforms accessed through ProbePilot. The
ProbePilot signal acquisition control takes advantage of the Company's
ActionProbe circuitry, a patented architectural feature included in all Actel
devices that provides 100% observability of internal nodes from selected
external pins. ProbePilot supports an 18 channel logic analyzer and features
high-speed 100 MHz asynchronous or 66 MHz synchronous sampling rates. ProbePilot
connects directly to any desktop or laptop computer through the serial port and
operates off the test board's 5.0 volt or 3.3 volt power supply. The Explore
windows-based software drives the entire diagnostic and debug process and
resides on the designer's PC as a companion to Actel's Designer Series FPGA
development tools. Silicon Explorer's software graphically displays the
waveforms accessed through ProbePilot - essentially turning your PC into a
full-featured 18 channel logic analyzer, eliminating the need for a costly
stand-alone logic analyzer.

Programmers

Actel's FPGAs can be programmed by Activator or Silicon Sculptor device
programmers. The programmers obtain the fuse file, which includes instructions
on programming an FPGA, from the Company's Designer Series software and use the
file to program the device. Once a device is programmed, Actel's optional
Silicon Explorer diagnostic debugging tool kit supports functional and timing
verification of every internal signal. The Company also supports programmers
that are offered by third parties, including BP Microsystems Inc., Data I/O, SMS
Sprint, and System General.

Activator

There are two Activator device programmers, Activator 2 and
Activator 2S, both of which execute all programming, verification, and
debugging functions. Customized programming adapters for each device
type permit different packages to be programmed by switching adapters.
Activator 2 programs up to four FPGAs at a time; Activator 2S programs
one FPGA at a time.

Silicon Sculptor

In February 1998, announced the availability of Silicon
Sculptor, a new FPGA programmer for the PC. Silicon Sculptor is a
cost-effective, highly reliable programmer for Actel devices that is
convenient and easy-to-use. The compact size of the Silicon Sculptor
makes it easy for designers to program Actel FPGAs from their desktop
PC rather than in a lab. A single adapter module can be used to program
all Actel devices within a package type, regardless of pin count. In
addition, up to four Silicon Sculptors can concurrently program up to
four devices from the same PC by simply connecting an expansion cable.

Sockets

Sockets for Actel FPGAs are available in prototype quantities from
Actel and in production quantities from Actel-qualified socket manufacturers.
Sockets permit designers to replace a chip without damaging the board, which
reduces some of the risk commonly associated with using an antifuse FPGA in
prototype board design. The complete line of sockets accommodates all Actel
FPGAs in TQFP, PQFP, RQFP, and VQFP packages.

In March 1999, the Company announced a range of ball grid array (BGA)
sockets for use with its FPGAs. The BGA sockets are well suited to the
prototyping environment and are compatible with Actel's MX and SX devices as
well as upcoming reprogrammable Actel FPGA families. The use of BGA sockets
facilitates migration to full production, decreasing both time-to-market and
production costs. The sockets are designed to be reliable and have zero
insertion force, meaning that the device is not stressed before, during, or
after testing. The main benefit of these sockets is that they are accommodated
onto the same pad layout on the printed circuit board (PCB) as the device itself
will eventually occupy. This avoids changes to the PCB during the crossover
between prototyping and production. BGA packaging is becoming more popular, due
mainly to their ease of use and ability to be re-worked.

Design Services Group

FPGAs are becoming more dense and their design more complex as
designers integrate system-level logic functionality and IP onto a single piece
of silicon. FPGA suppliers who possess system-level design expertise to offer to
their customers will have a distinct advantage in the market. With its
acquisition of the GateField Design Services Business Unit in August 1998, Actel
became the first FPGA provider to offer such expertise. The Actel Design
Services Group has expanded the Company's ability to support a greater portion
of customers' overall design and risk management. The Design Services Group is
located in a secure facility in Mt. Arlington, New Jersey, and is certified to
handle government, military, and proprietary designs. The Actel Design Services
Group provides varying levels of design services, including design methodology
and tool consulting; turnkey FPGA and ASIC design, IP development and
integration, and board and system design; software design and implementation;
and development of prototypes, first articles and production units.

In January 1999, Actel announced that its Design Services Group was
actively involved with a major customer to supply an FPGA and a new register
transfer level (RTL) core for a 66MHz PCI design application. This design is
being implemented with the beta version of an Actel 66MHz CorePCI macro in the
Actel 16,000-gate PCI FPGA, the A54SX16P. This PCI solution is being developed
by the Design Services Group for a PC-based accelerator board that will also use
a number of Actel's new flash-based ProASIC reprogrammable FPGAs. The Company
believes this PCI implementation, when complete, will be the first programmable
application operating within the PCI 66MHz specification.

Market and Applications

FPGAs can be used in a broad range of applications across nearly all
electronic system market segments. Most customers use the Company's antifuse
FPGAs in low to medium volumes in the final production form of their products.
Some high-volume electronic system manufacturers use Actel's antifuse FPGAs as a
prototyping vehicle and convert production to lower-cost conventional gate
arrays or standard cells, while others with time-to-market constraints use the
Company's FPGAs in the initial production and then convert to conventional gate
arrays or standard cells. As product life cycles continue to shorten and
manufacturing efficiencies increase in antifuse FPGAs, some high-volume
electronic system manufacturers are electing to retain antifuse FPGAs in volume
production because conversion to conventional gate arrays or standard cells may
not yield sufficiently attractive savings before the electronic system reaches
the end of its life. With the introduction of the MX and SX families, Actel
believes that its antifuse FPGAs will increasingly be used in high volume
production.

Communications

The high capacity, high performance, and low power consumption of
antifuse FPGAs make them well suited for use in communications equipment.
Increasingly complex equipment must frequently be designed to fit in the space
occupied by previous product generations. The rapidly changing communications
environment rewards short development times and early market entry.

Representative Actel customers in the communications market include:
3Com, ADC Kentrox, Advanced Fibre Communications, Alcatel, Ascend
Communications, Bay Networks, Cabletron, Cascade, Cisco Systems, Chipcom, DSC
Communications, Hughes Network Systems, Lucent Technologies, Motorola, and
Nortel.

Computer Systems and Peripherals

The computer systems markets are intensely competitive, placing a
premium on early market entry for new products. FPGAs decrease the time to
market and facilitate early completion of production models so that development
of hardware and software can occur in parallel.

Representative Actel customers in the computer market include: AST
Computer, Hewlett-Packard, IBM, Olivetti, Sky Computer, and Tandem Computer.

Industrial Control Equipment

Industrial control and instrumentation applications often require
complex electronic functions tailored to specific needs. FPGAs offer
programmability and high capacity, making them attractive to this segment of the
electronic equipment market.

Representative Actel customers in the industrial market include: Allen
Bradley/Rockwell, Eastman Kodak, General Electric, Hewlett-Packard, Marquette,
and Siemens.

Military and Aerospace

Rigorous quality and reliability standards, stringent volume
requirements, and the need for design security are characteristics of the
military and aerospace market. The Company's antifuse FPGAs have high quality,
reliability, and capacity, and are virtually impossible to reverse engineer,
making them suitable for many military and aerospace applications. Actel's
antifuse FPGAs are especially well suited for space applications, due to the
high radiation tolerance of the antifuse, and for many aircraft and missile
flight applications, due to the high density and performance of antifuse FPGAs.
For these reasons, the Company is the world's leading supplier of military,
radiation tolerant, and radiation hardened FPGAs

Representative Actel customers in the military market include: Alliant
Technology, Boeing, E-Systems, Harris, Honeywell, Hughes Aircraft, Jet
Propulsion Labs (JPL), Lockheed-Martin, Loral, National Aeronautics Space
Administration (NASA), Northrup, Olin Corporation, Raytheon, SCI Systems, Texas
Instruments Incorporated ("TI"), and TRW.

Sales and Distribution

The Company maintains a worldwide, multi-tiered selling organization
that includes a direct sales force, independent manufacturers' representatives,
and electronics distributors. In March 1999, Actel announced the appointment of
Paul Indaco as Vice President of Worldwide Sales

Actel's domestic sales force consists of 70 sales and administrative
personnel and field application engineers ("FAEs") operating from 21 sales
offices located in major metropolitan areas. Direct sales personnel call on
target accounts and support direct original equipment manufacturers ("OEMs").
Besides overseeing the activities of direct sales personnel, the Company's sales
managers also oversee the activities of 19 manufacturers' representative firms
that operate from approximately 48 office locations. The manufacturers'
representatives concentrate on selling to major industrial companies in North
America. To service smaller, geographically dispersed accounts in North America,
Actel has distributor agreements with Arrow Electronics, Inc. and Zeus
Electronics (collectively, "Arrow"), Pioneer-Standard Electronics, Inc.
("Pioneer"), and Unique Technologies ("Unique"). Arrow, Pioneer, and Unique have
75, 50, and 30 branch offices in North America, respectively.

In March 1998, Actel announced that its RadHard FPGAs were being made
available through the Company's North American distribution network, making it
easier for small subcontractors on communications satellite and
military/aerospace projects to incorporate such devices into their designs.
Prior to the announcement, all sales were made direct from the factory.

In August 1998, Actel announced that it had switched its Veba
Electronics Group distribution partner in North America from Wyle Electronics
("Wyle") to Unique. Veba Electronics Group is one of the world's largest
distributors of electronic components. Veba's Northern American distribution
group includes Unique, Insight, and Wyle. A majority of the transition from Wyle
to Unique was completed within 45 days. Actel is now strategically positioned as
Unique's only FPGA supplier. This means that Unique's FPGA focus will be
exclusively on Actel's channel distribution, service, and support requirements.
Under its agreement with the Company, Unique will furnish distribution services
and customer design support for Actel's existing and future FPGA product lines,
including the ProASIC family of flash-based reprogrammable products. The
agreement also provides for Unique to add FAEs dedicated to the Company.

Actel generates a significant portion of its revenues from
international sales. Sales to customers outside the United States for 1998,
1997, and 1996 accounted for 33%, 31%, and 33% of net revenues, respectively. Of
these export sales, the largest portion was derived from European customers. The
Company's European sales organization consists of 26 distributors (including
Arrow and Memec, which have 16 subsidiary companies in Europe) having
approximately 45 branch offices. The activities of these distributors are
supervised from sales management offices in Basingstoke (England), Paris
(France), Milano (Italy), and Munich (Germany), where a total of 17 people are
employed.

Actel's Pan-Asia sales organization consists of 12 distributors having
approximately 25 branch offices. The activities of these distributors are
supervised from sales management offices in Hong Kong (China), Seoul (Korea),
Taipei (Taiwan), and Tokyo (Japan), where a total of nine people are employed.
In June 1998, the Company announced the appointment of a regional sales manager
and a synthesis expert for the Pan-Asian region and a Korean account sales
manager. Two additional distributors serve the remaining international markets
in which Actel offers its products.

In January 1998, Actel announced an agreement with High Reliability
Components Corporation ("HIREC") to bring high reliability FPGAs to the Japanese
satellite and space exploration industry. This includes the latest Japanese
National Space Development Agency ("NASDA") launch vehicle, the H-IIA Rocket.
The Company's radiation tolerant and radiation hardened FPGAs have been a part
of many historic U.S. space missions, including such high profile projects as
the Hubble Telescope and Mars Explorer. HIREC is a leading distributor of
electronic devices and engineering services to the Japanese space industry. The
agreement brings together Actel's significant experience in providing mission
critical logic devices used in space exploration and communications satellites
with HIREC's value added testing and quality assurance services. The result
should be more reliable designs and faster time-to-launch for Japan's growing
telecommunications and space infrastructure. HIREC has already delivered the
Company's FPGAs combined with HIREC's extended tests and quality assurance
services to NASDA satellite programs.

In September 1998, Actel announced that it had signed an agreement with
Unique of Hong Kong under which Unique will distribute all of the Company's
existing and future FPGAs in the People's Republic of China (PRC) and ASEAN
regions. Unique, a division of Memec (Asia Pacific) Ltd. and part of the
worldwide Memec Group within Veba Electronics Inc., is a leading distributor in
marketing specialist semiconductors. In October 1998, the Company announced that
it had signed an agreement with Maojet Technology Corp. of Taipei, an
independent EDA software distributor, to distribute Actel's new ProASIC products
in Taiwan; and an agreement with Tomen Electronics Corp. of Tokyo to distribute
ProASIC products in Japan. Tomen Electronics is one of Japan's leading
distributors of semiconductors, computer peripherals and software. Under the
agreements, Maojet and Tomen will distribute all ProASIC products in process of
geometries of 0.25-micron and smaller, as well as GateField's ASICmaster design
tools software. Actel decided to work with Maojet and Tomen because of their
experience distributing ProASIC products for GateField.

The Company's sales cycle for the initial sale of a design system is
generally lengthy and often requires the ongoing participation of salespersons,
engineers, and management. After a sales representative or distributor evaluates
a customer's logic design requirements and determines if there is an application
suitable for Actel's FPGAs, the next step typically is a visit to the qualified
customer by a regional sales manager or the FAE from the Company or its
distributor. The sales manager or FAE may then determine that additional
analysis is required by engineers based at Actel's headquarters.

In 1998, more than half of Actel's sales in the United States and
virtually all of the Company's sales outside the United States were made through
distributors. As is common in the semiconductor industry, Actel generally grants
price protection to distributors. Under this policy, distributors are granted a
credit upon a price reduction for the difference between their original purchase
price for products in inventory and the reduced price. From time to time,
distributors are also granted credit on an individual basis for Company-approved
price reductions on specific transactions to meet competition. The Company also
generally grants distributors limited rights to return products. To date,
product returns under this policy have not been material. Actel maintains
reserves against which these credits and returns are charged. Because of its
price protection and return policies, the Company does not recognize revenue on
products sold to distributors until the products are resold to end customers.

Backlog

At December 31, 1998, Actel's backlog was approximately $25.5 million,
compared with approximately $28.0 million at December 31, 1997. The Company
includes in its backlog all OEM orders scheduled for delivery over the next nine
months and all distributor orders scheduled for delivery over the next six
months. Actel produces standard products that may be shipped from inventory
within a short time after receipt of an order. The Company's business, and to a
large extent that of the entire semiconductor industry, is characterized by
short-term order and shipment schedules, rather than volume purchase contracts.
In accordance with industry practice, Actel's backlog may be cancelled or
rescheduled by the customer on short notice without significant penalty. As a
result, the Company's backlog may not be indicative of actual sales and
therefore should not be used as a measure of future revenue.

Customer Service and Support

Actel believes that superior customer service and technical support are
essential for success in the FPGA market. The Company facilitates service and
support through service team meetings that address particular aspects of the
overall service strategy and support. The most significant areas of customer
service and technical support are regularly measured. Actel's customer service
organization emphasizes prompt, accurate responses to questions about product
delivery and order status.

The Company's FAEs provide technical support to customers in Europe,
Japan, Korea, Taiwan, and the Untied States. This network of experts is
augmented by FAEs working for Actel's sales representatives and distributors
throughout the world. Customers in any stage of design can also obtain
assistance from the Company's technical support hotline or web-based technical
support database called "Guru." In addition, Actel offers technical seminars on
its products and comprehensive training classes on its software.

The Company generally warrants its products against defects in material
and workmanship for one year. Actel also warrants that its automatic place and
route software will achieve gate utilization at not less than the rates
advertised. The Company has not experienced significant warranty returns to
date.

Manufacturing and Assembly

Actel's strategy is to utilize third-party manufacturers for its wafer
requirements, which permits the Company to allocate its resources to product
design, development, and marketing. Wafers used in Actel's FPGAs are
manufactured by Chartered Semiconductor in Singapore; by Lockheed-Martin FSC in
Manassas, Virginia; by Matsushita in Japan; by UMC in Taiwan; and by Winbond in
Taiwan. The Company's FPGAs in production are manufactured by Chartered
Semiconductor using 0.6, 0.45, and 0.35 micron design rules; by Lockheed-Martin
FSC using 0.8 micron design rules; by Matsushita using 1.0, 0.8, and 0.6 micron
design rules; and by Winbond using 0.8 and 0.6 micron design rules.

In March 1999, Actel announced that it had, in partnership with
Matsushita, successfully developed a 0.25-micron antifuse process that is being
qualified for production. The new process technology was developed in record
time, and is expected to sample in the second quarter of 1999 with volume
production expected by the third quarter.

Wafers purchased by the Company from its suppliers are assembled,
tested, marked, and inspected by Actel and/or a subcontractor of the Company
before shipment to customers. Actel assembles most of its plastic commercial
products in Hong Kong, Korea, and Singapore. Ceramic package assembly, which is
generally required for military applications, is performed at one or more
subcontractor manufacturing facilities, some of which are in the United States.

In September 1998, the Company also announced it had received ISO 9002
certification for the manufacturing and testing of its FPGAs. The certification
was granted by DSCC. The ISO standards, developed by the International
Organization for Standardization, provide an international benchmark for quality
systems. Specifically, ISO 9002 requires compliance in the following areas:
management responsibility, customer service, supplier management, internal
quality audits, training process control, and inspection. As Actel continues to
establish itself as a leading supplier of high-quality FPGAs, ISO certification
provides a globally recognized benchmark that Actel's devices have been
certified for integrity in the manufacturing and test process.

Strategic Relationships

In addition to strategic relationships that Actel enjoys with its
customers, foundries, assembly houses, distributors, and sales representatives,
the Company also has the following strategic partners:

AGL

In May 1998, the Company announced that it had signed a letter of
intent to acquire AutoGate Logic, Inc. ("AGL") of Fremont, California. AGL is a
software service company that offers a range of development tools, including
place and route and timing analysis software. The financial terms of the
proposed acquisition were not disclosed. The proposed acquisition was the result
of increasing collaboration between the two companies. Consummation of the
proposed acquisition was subject to the execution and delivery of definitive
agreements and certain other closing conditions. Discussions ceased in the
middle of December 1998, after it became evident that the financial terms
contained in the letter of intent were no longer viable and that certain closing
conditions would not occur.

On March 17, 1999, AGL informed the Company of a change in its
situation and requested that Actel renew acquisition negotiations. The Company
and AGL have restarted negotiations.

Boulder Creek

Actel has worked exclusively with Boulder Creek Corporation to jointly
develop and manufacturer the Silicon Explorer. Boulder Creek designs and
manufactures hardware and software tools used by electronic design engineers to
debug systems on a chip. Founded in 1994, Boulder Creek is a privately held
company located in Santa Cruz, California.

BP Microsystems

Actel has worked with BP Microsystems of Houston, Texas, to jointly
develop Silicon Sculptor based on BP's world class technology. BP Microsystems
offers a wide variety of programmers, including EPROM programmers, universal
programmers, concurrent programming systems, and Fine Pitch Automated
programming systems. The modules of the Silicon Sculptor are designed to be
fully upward compatible with all BP Microsystems antifuse FPGA programmers,
which permits design engineers to move from prototype programming to high volume
production programming.

GateField

In a strategic move to position Actel as a complete solution provider
for reprogrammable ASIC systems, the Company and GateField entered into a
multi-year strategic alliance in August 1998. In establishing the alliance,
Actel purchased marketing and license rights, the assets of GateField's Design
Services Business Unit, and preferred stock. Consideration paid in these
transactions totaled $10,447,000, consisting entirely of cash. For the financial
details of these transactions, see Note 5 of Notes to Consolidated Financial
Statements.

Marketing Rights

Under the terms of a Product Marketing Agreement, Actel
received exclusive, worldwide distribution rights to the GateField's
standard ProASIC FPGA products utilizing less than .35 micron
geometries, including FPGA products that are integrated with SRAM or
flash memory and all resulting next generation reduced process geometry
ProASIC FPGA products. For these rights, the Company paid GateField an
initial fee and agreed to pay a fee of $1,000,000 upon qualification of
the initial .25 micron product. In addition, Actel and GateField will
equally share gross profits from ProASIC product sales.

License Rights

Pursuant to the terms of a License Agreement, GateField
granted to the Company a fully paid, non-exclusive, non-transferable
license to sell and upon certain events, make, have made, import and
use GateField's standard ProASIC FPGA products below .35 micron and all
resulting next generation reduced process geometry ProASIC FPGA
products.

Design Services Business Assets

Pursuant to the terms of an Asset Purchase Agreement, the
Company purchased the assets of GateField's Design Service Business
Unit, which is located in Mt. Arlington, New Jersey, and engaged in the
business of providing prototyping design services and verification
services for electronic systems, integrated circuits, and other
electronic components. The purchase price for such assets may include
contingent payments, not to exceed $1.0 million in the aggregate, based
on the Actel Design Services Group achieving certain profitability
levels.

Preferred Stock

Pursuant to terms of a Series C Preferred Stock Purchase
Agreement, Actel purchased, and GateField issued to the Company,
300,000 shares of GateField's Series C Convertible Preferred Stock, par
value $0.10 (the "Shares"). The Shares are initially convertible into
2,000,000 shares of GateField common stock and are entitled to certain
liquidation and redemption rights. In the event that all of GateField's
outstanding shares of Series B Preferred Stock are redeemed, Actel
shall be entitled to redeem its Series C Shares, subject to applicable
law. The Company is entitled to certain registration rights and has a
right of first refusal to purchase its pro rata share of certain new
securities GateField may issue.

Synplicity and VeriBest

In November 1998, the Company announced that it had, together with
Synplicity and VeriBest, begun developing an integrated tool environment for
Actel FPGA designs. The suite of tools, based exclusively on VHDL and Verilog
standards and targeted for the PC environment, was released in the first quarter
of 1999 (see "Products -- Software -- DeskTOP").

In March 1998, the Company announced that it and Synplicity have
jointly developed a seamless synthesis methodology in Synplify 3.0c that allows
designers of radiation hardened and radiation tolerant FPGAs to quickly and
easily meet the tight single event upset (SEU) requirements specified in the
next generation of communication, military, deep space and planetary mission
satellites. The new version of Synplify, which is designed to work with Actel's
RH1280, RP1280A, RP14100, RT1280, and RT14100 devices, permits designers to
automatically infer sequential elements, such as C-C flip-flop macros and triple
modular redundancy (TMR) macros, that dramatically improve SEU occurrence.

Research and Development

In 1998, 1997, and 1996, the Company spent $31.2 million, $26.5
million, and $23.9 million, respectively, on research and development, which
represented approximately 20%, 17%, and 16% of net revenues, respectively, for
such periods. Actel's research and development expenditures are divided among
circuit design, software development, and process technology activities, all of
which are dedicated to developing new families of FPGA products based on
existing or emerging technologies. In the areas of circuit design and process
technology, the Company's research and development activities include continuing
efforts to reduce the cost and improve the performance of current products,
principally by reducing the design rules under which such products are
manufactured. Actel's software research and development activities include
providing customers with access to a wide variety of CAE tools and HDL cores in
a complete and automated desktop design environment on popular personal computer
and workstation platforms.

The research and development projects that the Company publicly
discussed in 1998 included the following:

ProASIC and ASICmaster

As part of its strategic alliance with GateField, Actel acquired the
exclusive right to market and sell GateField's Standard ProASIC products in
process geometries of 0.35-micron and smaller, as well as GateField's ASICmaster
design tool software, as part of Actel's PLD and design suite product families.
Under the terms of the Product Marketing Agreement, GateField is to provide
Actel with a 0.25-micron ProASIC product family that is expected to support
densities of up to half a million programmable logic gates. The Agreement
further provides for migration to smaller process technologies, with the
potential to produce multi-million gate devices. The non-volatile,
single-device, reprogrammable Standard ProASIC products are being developed from
GateField's patented, flash-based reprogrammable ASIC technology and
architecture. ProASIC devices exhibit a high level of portability between PLD
and ASIC design flows. The Company believes that 0.25-micron ProASIC products
will be available in 1999.

Flash-based ProASIC products offer some benefits over other
programmable devices available on the market today. Unlike SRAM and FPGA
programmable products, which are either volatile or non-reprogrammable, ProASIC
devices are non-volatile and reprogrammable. ProASIC devices permit designers to
use their standard ASIC design flow, with no new design methodologies to learn,
saving both time and money. ProASIC products also permit a seamless migration to
standard ASIC designs, again saving time and money. In addition, ProASIC's high
gate density translates into high performance capabilities.

The 0.25-micron ProASIC products are closely coupled with ASICmaster
automated place-and-route EDA design tool software, which is optimized for HDL
design and methodology. ASICmaster software, running on UNIX and Windows NT
platforms, accepts netlists from standard mask programmable ASIC tools provided
by companies such as Exemplar, Mentor Graphics, ViewLogic, Cadence, and
Synopsys. ASICmaster performs place and route of the design into the selected
device and provides back-annotated delay information for simulation. Once the
design is verified, ASICmaster downloads the layout into a device programmer for
chip programming. Design services are provided as needed to help the customer
accelerate verification, prototyping, and time-to-market.

Because of its agreement with GateField, Actel also expects to benefit
from GateField's strategic alliance with Siemens Semiconductor Group of Munich,
Germany. This GateField relationship provides access to Siemens' 0.25-micron
flash process technology at its new, state-of-the-art wafer fabrication facility
in Dresden, Germany, plus assembly and test support.

ES Architecture and RS Reprogrammable Products

In 1996, Actel announced its intention to enter the reprogrammable FPGA
market. The Company's first reprogrammable FPGA offering will be an SRAM-based
"RS" product family utilizing Actel's new ES reprogrammable architecture.

The ES architecture combines a new, fine-grained cell structure with a
routing-centric architecture. The expected result is logic cells that are more
readily synthesized and more efficient than current programmable architectures.
The key to the architectural efficiencies is a technology in which separate
transistors are used to implement logic and to drive the interconnects. By
separating these functions, Actel believes that more efficient die utilization
is achievable, resulting in lower-cost designs. In addition, the interconnect
drivers are tailored to routing length, which should provide high performance
even for cross-chip routing. The ES architecture also makes greater use of
hierarchy than current programmable architectures. A constant, maximum routing
delay is associated with each level of hierarchy, which should provide the
device with fanout independent delays. This means that, regardless of the number
of logic elements being driven, the delay should always be constant, making the
chip's performance predictable. Many aspects of the ES architecture are
switch-technology independent, making possible future variants of the ES
architecture employing antifuse, flash, or other basic programming elements.

The Company has experienced significant delays in matching the
capabilities of its software and the resources of its silicon. Actel is
completing a set of changes to both the silicon and the software, and believes
that the product will be available in the second half of 1999.

Competition

The FPGA market is highly competitive, and the Company expects that
competition will continue to increase as the market grows. Actel's competitors
include suppliers of TTLs and ASICs, including conventional gate arrays,
standard cells, PLDs, and FPGAs. Of these, the Company competes principally with
suppliers of conventional gate arrays, standard cells, CPLDs, and FPGAs.

The primary advantages of conventional gate arrays and standard cells
are high capacity, high speed, and low production cost in high volume. Actel
competes with conventional gate array and standard cell suppliers by offering
lower design costs, shorter design cycles, and reduced inventory risks. However,
some customers elect to design and prototype with the Company's products and
then convert to conventional gate arrays or standard cells to achieve lower
costs for volume production. For this reason, Actel faces competition from
companies that specialize in converting CPLDs and FPGAs, including the Company's
products, into conventional gate arrays or standard cells.

The Company also competes with suppliers of CPLDs. Suppliers of these
devices include Altera Corporation ("Altera"), Advanced Micro Devices' Vantis
subsidiary, and Lattice Semiconductor. The circuit architecture of CPLDs gives
them a performance advantage in certain lower capacity applications, but Actel
believes that its products are better suited for higher capacity designs.
Altera, however, has a larger installed base of development systems than the
Company. In addition, many newer CPLDs are reprogrammable, which permits
customers to reuse a circuit multiple times during the design process (unlike
antifuse-based FPGAs, which permanently retain the programmed configuration). No
assurance can be given that Actel will be able to overcome these competitive
disadvantages.

The Company competes most directly with established FPGA suppliers,
such as Xilinx, Inc. ("Xilinx") and Lucent Technologies (which is a licensed
second source of some Xilinx products). While Actel believes its products and
technology are superior to those of Xilinx in many applications requiring
greater speed, lower cost, or nonvolatility, Xilinx came to market with its
FPGAs approximately three years before the Company, has a larger installed base
of development systems, and its SRAM-based products are reprogrammable. No
assurance can be given that Actel will be able to overcome these competitive
disadvantages.

Several companies have either already marketed antifuse-based FPGAs,
including QuickLogic Corporation ("QuickLogic"), or announced their intention to
do so. See "Legal." On March 31, 1995, the Company completed its acquisition of
the antifuse FPGA business of TI, which was the only second-source supplier of
the Company's products. Xilinx, which is a licensee of certain of the Company's
patents, introduced antifuse-based FPGAs in 1995 and terminated its antifuse
FPGA business in 1996. Cypress Semiconductor Corporation, which was a licensed
second source of QuickLogic, sold its antifuse FPGA business to QuickLogic in
the first quarter of 1997.

The Company believes that important competitive factors in its market
are price, performance, number of usable gates, ease of use and functionality of
development system software, installed base of development systems, adaptability
of products to specific applications, length of development cycle (including
reductions to finer micron design rules), number of I/Os, reliability, adequate
wafer fabrication capacity and sources of raw materials, protection of products
by effective utilization of intellectual property laws, and technical service
and support. Failure of Actel to compete successfully in any of these or other
areas could have a materially adverse effect on its business, financial
condition, or results of operations.

Patents and Licenses

As of March 31, 1999, the Company had 167 United States patents and
applications pending for an additional 40 United States patents. Actel also had
36 foreign patents and applications pending for 41 patents outside the United
States. The Company's patents cover, among other things, Actel's basic circuit
architecture, antifuse structure, and programming method. The Company expects to
continue filing patent applications when appropriate to protect its proprietary
technologies. Actel believes that patents, along with such factors as
innovation, technological expertise, and experienced personnel, will become
increasingly important.

The Company attempts to protect its circuit designs, software, trade
secrets, and other proprietary information through patent and copyright
protection, agreements with customers and suppliers, proprietary information
agreements with employees, and other security measures. No assurance can be
given that the steps taken by Actel will be adequate to protect its proprietary
rights.

In connection with the settlement of patent litigation in 1993, Actel
granted Xilinx a license under certain of Actel's patents that permits Xilinx to
manufacture and market antifuse-based products. Xilinx announced in 1996 that it
had discontinued its antifuse-based FPGA product line.

In 1995, Actel and BTR, Inc. entered into a License Agreement pursuant
to which BTR licensed its proprietary technology to the Company for development
and use in FPGAs and certain multichip modules. As partial consideration for the
grant of the license, the Company is paying to BTR non-refundable advance
royalties. Actel has also employed the principals of BTR to assist the Company
in its development and implementation of the licensed technology.

During the third quarter of 1998, the Company and QuickLogic agreed to
settle two patent infringement actions between the parties. See "Legal." As part
of the settlement, the Company and QuickLogic entered into a Patent Cross
License Agreement that protects all existing FPGA products of both companies for
the lives of those products.

As is typical in the semiconductor industry, the Company has been
notified of claims that it may be infringing patents owned by others. As it has
in the past, the Company may obtain licenses under patents that it is alleged to
infringe. The Company is in license negotiations with several companies,
including two semiconductor manufacturers with significantly greater financial
and intellectual property resources than the Company. No assurance can be given
that licenses will be available or that the terms of any offered license will be
acceptable to the Company. Failure to obtain a license for technology used by
Actel could result in litigation. In the event of an adverse result in any
litigation, the Company may be required to pay substantial damages; discontinue
the use of infringing processes; cease the manufacture, use, and sale of
infringing products; and/or expend significant resources to develop
non-infringing technology. All litigation, whether or not determined in favor of
Actel, can result in significant expense and divert the efforts of technical and
management personnel from the Company's operations. In addition, the Company has
agreed to defend its customers from and against any claims that Actel products
infringe the patent or other intellectual rights of any third party, and to
indemnify its customers up to the dollar amount of their purchases of any Actel
products found to infringe. Any successful third party claim against the Company
or its customers for patent or other intellectual property infringement may have
a materially adverse effect on Actel's business, financial condition, or results
of operations.

Employees

At the end of 1998, the Company had 457 full-time employees, including
137 in marketing, sales, and customer support; 157 in research and development;
115 in operations; and 33 in administration and finance. None of the Company's
employees is represented by a labor union nor does Actel have employment
agreements with any of its employees. The Company has not experienced any work
stoppages, and believes that its employee relations are satisfactory. In March
1999, Actel announced the appointment of Suzanne Kinner as Vice President of
Human Resources.

Risk Factors

Shareholders of Actel and prospective investors should carefully
consider, along with the other information in this Annual Report on Form 10-K,
the following risk factors:

Acts of God

The performance of Actel and each of its suppliers, distributors,
subcontractors, and agents is subject to events or conditions beyond such
party's control, including labor disputes, acts of public enemies or terrorists,
war or other military conflicts, blockades, insurrections, riots, epidemics,
quarantine restrictions, landslides, lightning, earthquake, fires, storms,
floods, washouts, arrests, civil disturbances, restraints by or actions of
governmental bodies acting in a sovereign capacity (including export or security
restrictions on information, material, personnel, equipment, or otherwise),
breakdowns of plant or machinery, inability to obtain transport or supplies, and
the like. The occurrence of any of these circumstances could disrupt the
Company's operations and may have a materially adverse effect on the Company's
business, financial condition, or results of operations.

"Blank Check" Preferred Stock; Change in Control Arrangements

Actel's Articles of Incorporation authorize the issuance of up to
5,000,000 shares of "blank check" Preferred Stock (of which 4,000,000 shares
remain available for issuance), with such designations, rights, and preferences
as may be determined from time to time by the Board of Directors. Accordingly,
the Board is empowered, without approval by holders of the Company's Common
Stock, to issue Preferred Stock with dividend, liquidation, redemption,
conversion, voting, or other rights that could adversely affect the voting power
or other rights of the holders of the Common Stock. Issuance of the Preferred
Stock could be used as a method of discouraging, delaying, or preventing a
change in control of Actel. In addition, such issuance could adversely affect
the market price of the Common Stock. Although the Company does not currently
intend to issue any additional shares of its Preferred Stock, there can be no
assurance that Actel will not do so in the future.

The Company has adopted an Employee Retention Plan that provides for
payment of stock to Actel's employees who hold unvested stock options in the
event of a change of control of the Company. Payment is contingent upon the
employee remaining with Actel for six months after the change of control. The
Company has also entered into Management Continuity Agreements with each of its
executive officers, which provide for the acceleration of unvested stock options
in the event an executive officer's employment is actually or constructively
terminated other than for cause following a change of control.

Competition

The semiconductor industry is intensely competitive and is
characterized by rapid rates of technological change, product obsolescence, and
price erosion. Actel's existing competitors include suppliers of conventional
gate arrays, standard cells, CPLDs, and FPGAs. The Company's two principal
competitors are Xilinx, a supplier of FPGAs based on SRAM technology, and
Altera, a supplier of CPLDs and FPGAs. The Company also faces competition from
companies that specialize in converting FPGAs, including Actel's products, into
conventional gate arrays or standard cells.

In addition, all existing FPGAs not based on antifuse technology and
certain CPLDs are reprogrammable, a feature that makes them more attractive to
designers. The Company also believes that, if there were a downturn in the
market for CPLDs and FPGAs, companies with broader product lines and
longer-standing customer relationships may be in a stronger competitive position
than Actel. Many of the Company's current competitors offer broader product
lines and have significantly greater financial, technical, manufacturing, and
marketing resources than Actel.

Significant additional competition is possible from major domestic and
international semiconductor suppliers. All such companies are larger, offer
broader product lines, and have substantially greater financial and other
resources than the Company, including the capability to manufacture their own
wafers. Additional competition could adversely affect Actel's business,
financial condition, or results of operations.

The Company may also face competition from suppliers of logic products
based on new or emerging technologies. The Company seeks to monitor developments
in existing and emerging technologies. No assurance can be given that Actel will
be able to compete successfully with suppliers offering products based on new or
emerging technologies. In any event, given the intensity of the competition and
the research and development being done, no assurance can be given that Actel's
technologies will remain competitive.

Dependence on Customized Manufacturing Processes

Actel's antifuse-based FPGAs and, to a lesser extent, flash-based
ProASIC FPGAs are manufactured using customized steps that are added to
otherwise standard manufacturing processes of independent wafer suppliers. There
is considerably less operating history for the customized processes steps than
for the foundries' standard manufacturing processes. The dependence of Actel on
customized processing steps means that, in contrast with competitors using
standard manufacturing processes, the Company has more difficulty establishing
relationships with independent wafer manufacturers, takes longer to qualify a
new wafer manufacturer, takes longer to achieve satisfactory, sustainable wafer
yields on new processes, may experience a higher incidence of production yield
problems, must pay more for wafers, and generally will not obtain early access
to the most advanced processes. These risks are particularly pronounced with
respect to wafers intended for use in military and aerospace applications. Any
of the above factors could be a material disadvantage against the competing
products of Actel's competitors that use standard manufacturing processes. As a
result of these factors, the Company's products typically have been fabricated
using processes one or two generations behind the processes used on competing
products. As a consequence, Actel to date has not fully realized the price and
performance benefits of its antifuse technology. The Company is attempting to
accelerate the rate at which its products are reduced to finer geometries and is
working with its wafer suppliers to obtain earlier access to advanced processes,
but no assurance can be given that such efforts will be successful.

Dependence on Design Wins

In order for the Company to sell an FPGA to a customer, the customer
must incorporate the FPGA into the customer's product in the design phase. Actel
therefore devotes substantial resources, which it may not recover through
product sales, in support of potential customer design efforts (including, among
other things, providing development system software) and to persuade potential
customers to incorporate the Company's FPGAs into new or updated products. These
efforts usually precede by many months (and often a year or more) the generation
of volume FPGA sales, if any, by Actel. The value of any design win, moreover,
will depend in large part upon the ultimate success of the customer's product.
No assurance can be given that the Company will win sufficient designs or that
any design win will result in significant revenues.

Dependence on Independent Assembly Subcontractors

Actel relies primarily on foreign subcontractors for the assembly and
packaging of its products and, to a lesser extent, for the testing of its
finished products. The Company generally relies on one or two subcontractors to
provide particular services and has from time to time experienced difficulties
with the timeliness and quality of product deliveries. Actel has no long-term
contracts with its subcontractors and certain of those subcontractors are
currently operating at or near full capacity. There can be no assurance that
these subcontractors will continue to be able and willing to meet the Company's
requirements for such components or services. Any significant disruption in
supplies from, or degradation in the quality of components or services supplied
by, these subcontractors could delay shipments and result in the loss of
customers or revenues or otherwise have a materially adverse effect on Actel's
business, financial condition, or results of operations.

Dependence on Independent Software and Hardware Developers

Actel is dependent upon independent software and hardware developers
for the development, maintenance, and support of certain elements of its
Designer Series Development Systems software and of its Silicon Explorer
debugging and verification tool, Activator and Silicon Sculptor device
programmers, and sockets. The Company's reliance on independent software and
hardware developers involves certain risks, including lack of control over
development and delivery schedules and the availability of customer support. No
assurance can be given that the Company's independent developers will be able to
complete software and/or hardware under development, or provide updates or
customer support in a timely manner, which could delay future software or FPGA
releases and disrupt Actel's ability to provide customer support services. Any
significant delays in the availability of the Company's software and/or hardware
could be detrimental to the capability of the Company's new families of products
to win designs, delay shipments and result in the loss of customers or revenues,
or otherwise have a materially adverse effect on Actel's business, financial
condition, or results of operations.

Dependence on Independent Wafer Manufacturers

Actel does not manufacture any of the wafers used in the production of
its FPGAs. Such wafers are manufactured by Chartered Semiconductor in Singapore,
Lockheed-Martin FSC in the United States, Matsushita in Japan, by UMC in Taiwan,
and Winbond in Taiwan. The Company's reliance on independent wafer manufacturers
to fabricate its wafers involves significant risks, including the risk of events
limiting production and reducing yields, such as technical difficulties or
damage to production facilities, lack of control over capacity allocation and
delivery schedules, and potential lack of adequate capacity. These risks are
particularly pronounced with respect to wafers intended for use in military and
aerospace applications.

Actel has from time to time experienced delays in obtaining wafers from
its foundries, and there can be no assurance that the Company will not
experience similar or more severe delays in the future. In addition, although
Actel has supply agreements with most of its wafer manufacturers, a shortage of
raw materials or production capacity could lead any of the Company's wafer
suppliers to allocate available capacity to customers other than Actel, or to
internal uses, which could interrupt the Company's capability to meet its
product delivery obligations. These risks are particularly pronounced with
respect to wafers intended for use in military and aerospace applications. Any
inability or unwillingness of Actel's wafer suppliers to provide adequate
quantities of finished wafers to satisfy the Company's needs in a timely manner
would delay production and product shipments and could have a materially adverse
effect on Actel's business, financial condition, or results of operations.

If the Company's current independent wafer manufacturers were unable or
unwilling to manufacture Actel's products as required, the Company would have to
identify and qualify additional foundries. The qualification process typically
takes one year or longer. No assurance can be given that any additional wafer
foundries would become available or be able to satisfy Actel's requirements on a
timely basis or that qualification would be successful. In addition, the
semiconductor industry has from time to time experienced shortages of
manufacturing capacity. To secure an adequate supply of wafers, the Company has
considered, and continues to consider, various possible transactions, including
the use of substantial nonrefundable deposits to secure commitments from
foundries for specified levels of manufacturing capacity over extended periods,
equity investments (such as Actel's investment in Chartered Semiconductor) in
exchange for guaranteed production, and the formation of joint ventures to own
foundries. No assurance can be given as to the effect of any such transaction on
the Company's business, financial condition, or results of operations.

Dependence on International Operations

Actel buys a majority of its wafers from foreign foundries and has most
of its commercial products assembled, packaged, and tested by subcontractors
located outside the United States. These activities are subject to the
uncertainties associated with international business operations, including trade
barriers and other restrictions, changes in trade policies, foreign governmental
regulations, currency exchange fluctuations, reduced protection for intellectual
property, war and other military activities, terrorism, changes in political or
economic conditions, and other disruptions or delays in production or shipments,
any of which could have a materially adverse effect on the Company's business,
financial condition, or results of operations.

In order to expand international sales and service, the Company will
need to maintain and expand existing foreign operations or establish new foreign
operations. This entails hiring additional personnel and maintaining or
expanding existing relationships with international distributors and sales
representatives. This will require significant management attention and
financial resources and could adversely affect Actel's financial condition and
operating results. No assurance can be given that the Company will be successful
in its maintenance or expansion of existing foreign operations, in its
establishment of new foreign operations, or in its efforts to maintain or expand
its relationships with international distributors or sales representatives.

Dependence on Key Personnel

The success of the Company is dependent in large part on the continued
service of its key management, engineering, marketing, sales, and support
employees. Competition for qualified personnel is intense in the semiconductor
industry, and the loss of Actel's key employees, or the inability of the Company
to attract other qualified personnel, could have a materially adverse effect on
Actel. The Company does not have employment agreements with any of its key
employees.

Dependence on Military and Aerospace Customers

Although Actel is unable to determine with certainty the ultimate uses of its
products, the Company estimates that sales of its products to customers in the
military and aerospace industries, which sometimes carry higher profit margins
than sales of products to commercial customers, accounted for approximately
one-quarter of revenues in 1998. In general, Actel believes that the military
and aerospace industries have accounted for a significantly greater percentage
of the Company's net revenues following the introduction of RH1280 in 1996. No
assurance can be given that future sales to customers in the military and
aerospace industries will continue at current volume or margin levels. In June
1994, Secretary of Defense William Perry directed that the Department of Defense
adopt a new way of doing business as it relates to acquisition by avoiding
government-unique requirements and relying more on the commercial marketplace.
Under the Perry initiative, the Department of Defense must increase access to
commercial state-of-the-art technology and must facilitate the adoption by its
suppliers of business processes characteristic of world class suppliers.
Integration of commercial and military development and manufacturing facilitates
the development of dual-use processes and products and contributes to an
expanded industrial base that is capable of meeting defense needs at lower
costs. To that end, many of the cost-driving specifications that have been part
of military procurements for many years have been cancelled in the interest of
buying commercial products. The Company anticipates that this trend toward the
use of commercial off-the-shelf (COTS) products will continue, and it may erode
the revenues and/or margins that Actel derives from sales to customers in the
military and aerospace industries, which could have a materially adverse effect
on Actel's business, financial condition, or results of operations.

Orders from the military and aerospace customers tend to be large and
irregular, which creates operational challenges and contributes to fluctuations
in Actel's net revenues and gross margins. These sales are also subject to more
extensive governmental regulations, including greater import and export
restrictions. In addition, products for military and aerospace applications
require processing and testing that is more lengthy and stringent than for
commercial applications, increasing the risk of failure. It is often not
possible to determine before the end of processing and testing whether products
intended for military or aerospace applications will fail and, if they do fail,
a significant period of time is often required to process and test replacements,
each of which makes it difficult to accurately estimate quarterly revenues and
could have a materially adverse effect on Actel's business, financial condition,
or results of operations.

Dividend Policy

Actel has never declared or paid any cash dividends on its capital
stock. The Company intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends in the future.
Fluctuations in Operating Results

The Company's quarterly and annual operating results are subject to
fluctuations resulting from general economic conditions and a variety of risks
specific to Actel or characteristic of the semiconductor industry, including
booking and shipment uncertainties, supply problems, and price erosion.

Booking and Shipment Uncertainties

Actel typically generates a large percentage of its quarterly
revenues from orders received during the quarter and shipped in the
final weeks of the quarter, making it difficult to accurately estimate
quarterly revenues. The Company's backlog (which may be cancelled or
deferred by customers on short notice without significant penalty) at
the beginning of a quarter accounts for only a fraction of Actel's
revenues during the quarter. This means that the Company generates the
rest of its quarterly revenues from orders received during the quarter
and "turned" for shipment within the quarter, and that any shortfall in
"turns" orders will have an immediate and adverse impact on quarterly
revenues. There are many factors that could cause a shortfall in
"turns" orders, including but not limited to a decline in general
economic conditions or the businesses of end users, excess inventory in
the channel, conversion to conventional (or non-programmable) gate
arrays, or the loss of business to other competitors for price or other
reasons.

Historically, Actel has shipped a disproportionately large
percentage of its quarterly revenues in the final weeks of the quarter.
Any failure by the Company to effect scheduled shipments by the end of
the quarter, therefore, could have a materially adverse effect on
revenues for such quarter. Since Actel generally does not recognize
revenue on the sale of a product to a distributor until the distributor
resells the product, the Company's quarterly revenues are also
dependent on, and subject to fluctuations in, shipments by Actel's
distributors. When there is a shortfall in revenues, operating results
are likely to be adversely affected because most of the Company's
expenses do not vary with revenues.

Supply Problems

In a typical semiconductor manufacturing process, silicon
wafers produced by a foundry are sorted and cut into individual die,
which are then assembled into individual packages and tested for
performance. The manufacture, assembly, and testing of semiconductor
products is highly complex and subject to a wide variety of risks,
including defects in masks, impurities in the materials used,
contaminants in the environment, and performance failures by personnel
and equipment. Semiconductor products intended for military and
aerospace applications are particularly susceptible to these
conditions, any of which could have a materially adverse effect on
Actel's business, financial condition, or results of operations.

As is common in the semiconductor industry, Actel's
independent wafer suppliers from time to time experience lower than
anticipated yields of usable die. For example, the Company experienced
a yield problem at one of its foundries in the fourth quarter of 1993
that was severe enough to have a materially adverse effect on Actel's
operating results. To the extent yields of usable die decrease, the
average cost to the Company of each usable die increases, which reduces
gross margin. Wafer yields can decline without warning and may take
substantial time to analyze and correct, particularly for a company
such as Actel that does not operate its own manufacturing facility, but
instead utilizes independent facilities, most of which are offshore.
Yield problems may also increase the time to market for the Company's
products and create inventory shortages and dissatisfied customers. In
addition, Actel typically experiences difficulties and delays in
achieving satisfactory, sustainable yields on new processes or at new
foundries. Although the Company eventually has been able to overcome
these difficulties in the past, no assurance can be given that it will
be able to do so with respect to its current or future new processes
and/or new foundries. Nor can any assurance be given that the Company
will not experience wafer supply problems in the future, or that any
such problem would not have a materially adverse effect on Actel's
business, financial condition, or results of operations.

Price Erosion

The semiconductor industry is characterized by intense
competition. Historically, average selling prices in the semiconductor
industry generally, and for the Company's products in particular, have
declined significantly over the life of each product. While Actel
expects to reduce the average selling prices of its products over time
as the Company achieves manufacturing cost reductions, Actel is
sometimes required by competitive pressures to reduce the prices of its
products more quickly than such cost reductions can be achieved. In
addition, the Company sometimes approves price reductions on specific
sales to meet competition. If not offset by reductions in manufacturing
costs or by a shift in the mix of products sold toward higher-margin
products, declines in the average selling prices of Actel's products
will reduce gross margins and could have a materially adverse effect on
the Company's business, financial condition, or results of operations.

Forward-Looking Statements

All forward-looking statements contained in this Annual Report on Form
10-K, including all forward-looking statements contained in any document
incorporated herein by reference, are made pursuant to the safe harbor
provisions of the Public Securities Litigation Reform Act of 1995. Words such as
"anticipates," "believes," "estimates," "expects," intends," "plans," "seeks,"
and variations of such words and similar expressions are intended to identify
the forward-looking statements. The forward-looking statements include
projections relating to trends in markets, revenues, average selling prices,
gross margin, wafer yields, research and development expenditures, selling,
general, and administrative expenditures, and the Year 2000 compliance issue.
All forward-looking statements are based on current expectations and projections
about the semiconductor industry and programmable logic market, and assumptions
made by the Company's management that reflect its best judgment based on other
factors currently known by management, but they are not guarantees of future
performance. Accordingly, actual events and results may differ materially from
those expressed or forecast in the forward-looking statements due to the risk
factors identified herein or for other reasons. Actel undertakes no obligation
to update any forward-looking statement contained or incorporated by reference
in this Annual Report on Form 10-K.

Future Capital Needs

The Company must continue to make significant investments in research
and development as well as capital equipment and expansion of facilities.
Actel's future capital requirements will depend on many factors, including,
among others, product development, investments in working capital, and
acquisitions of complementary businesses, products, or technologies. To the
extent that existing resources and future earnings are insufficient to fund the
Company's operations, Actel may need to raise additional funds through public or
private debt or equity financings. If additional funds are raised through the
issuance of equity securities, the percentage ownership of current shareholders
will be reduced and such equity securities may have rights, preferences, or
privileges senior to those of the holders of the Company's Common Stock. No
assurance can be given that additional financing will be available or that, if
available, it can be obtained on terms favorable to Actel and its shareholders.
If adequate funds are not available, the Company may be required to delay,
limit, or eliminate some or all of its proposed operations.

Gross Margin

The Company's gross margin is the difference between the revenues it
receives from the sale of its products and the cost of those products. The price
Actel can charge for a product is constrained principally by its competitors.
While competition has always been intense, the Company believes price
competition is becoming more acute. This may be due in part to the transition
toward high-level design methodologies, which permit designers to wait until
later in the design process before selecting a programmable logic device and
make it easier to convert from one programmable logic device to another. These
competitive pressures may cause Actel to reduce the prices of its products more
quickly than it can achieve cost reductions, which would reduce the Company's
gross margin and may have a materially adverse effect on its operating results.

One of the most important variables affecting the cost of the Company's
products is manufacturing yields. With its customized antifuse and, to a lesser
extent, flash manufacturing process requirements, Actel almost invariably
experiences difficulties and delays in achieving satisfactory, sustainable
yields on new processes or at new foundries. The Company introduced most members
of the MX family and all members of the SX family in 1998. Until satisfactory
yields are achieved on these new product families, they generally will be sold
at lower gross margins than Actel's mature product families. Depending upon the
rate at which sales of these new products ramp (and the MX and SX families are
directed at high-volume users) and the extent to which they displace mature
products, the lower gross margins could have a materially adverse effect on the
Company's operating results. Similarly, Actel anticipates introducing the first
members of its new ProASIC and RS families in 1999. Until satisfactory yields
are achieved on these new product families, they generally will be sold at lower
gross margins than Actel's mature product families and could have a materially
adverse effect on the Company's operating results.

Management of Growth

Actel has recently experienced and expects to continue to experience
growth in the number of its employees and the scope of its operations, resulting
in increased responsibilities for management personnel. To manage recent and
potential future growth effectively, the Company will need to continue to hire,
train, motivate, and manage a growing number of employees. The future success of
Actel will also depend on its ability to attract and retain qualified technical,
marketing, and management personnel. In particular, the current availability of
qualified silicon design, software design, process, and test engineers is
limited, and competition among companies for skilled and experienced engineering
personnel is very strong. The Company has been attempting to hire a number of
engineering personnel and has experienced delays in filling such positions.
During strong business cycles, Actel expects to experience continued difficulty
in filling its needs for qualified engineers and other personnel. No assurance
can be given that the Company will be able to achieve or manage effectively any
such growth, and failure to do so could delay product development and
introductions or otherwise have a materially adverse effect on Actel's business,
financial condition, or results of operations.

Manufacturing Yields

Actel depends upon its independent wafer suppliers to produce wafers
with acceptable yields and to deliver them to the Company in a timely manner.
Currently, substantially all of the Company's revenues are derived from products
based on Actel's proprietary antifuse process technologies. Successful
implementation of antifuse process technology requires a high degree of
coordination between the Company and its foundry. Therefore, significant lead
time is required to reach volume production on new processes and at a new wafer
supply locations. Accordingly, no assurance can be given that volume production
on Actel's new MX and SX families will be achieved in the near term or at all.

Similarly, the Company anticipates introducing the first members of its
new ProASIC and RS families in 1999. While these products are based on flash and
SRAM process technologies, respectively, and are therefore less customized than
an antifuse process, they are leading edge technologies and less familiar to
Actel. The Company has always experienced difficulty achieving satisfactory,
sustainable yields on new process technologies at new foundries, and does not
believe that ProASIC or RS will be much different. Although Actel eventually has
been able to overcome these difficulties in the past, no assurance can be given
that it will be able to do so with respect to its ProASIC or RS products. In any
event, until satisfactory yields are achieved on these new product families,
they generally will be sold at lower gross margins than Actel's mature product
families and could have a materially adverse effect on the Company's operating
results.

The fabrication of high-performance antifuse wafers or state-of-the-art
flash or SRAM wafers is a complex process that requires a high degree of
technical skill, state-of-the-art equipment, and effective cooperation between
the wafer supplier and the circuit designer to produce acceptable yields. Minute
impurities, errors in any step of the fabrication process, defects in the masks
used to print circuits on a wafer, and other factors can cause a substantial
percentage of wafers to be rejected or numerous die on each wafer to be
non-functional. As is common in the semiconductor industry, the Company has from
time to time experienced in the past, and expects that it will experience in the
future, production yield problems and delivery delays. Any prolonged inability
to obtain adequate yields or deliveries could adversely affect the Actel's
business and operating results.

One-Time Programmability

While the nonvolatility of Actel's antifuse FPGAs is necessary or
desirable in some applications, logic designers generally would prefer to
prototype with a reprogrammable logic device, all other things being equal. This
is because the designer can reuse the device if he or she makes an error. The
visibility associated with discarding a one-time programmable device often
causes designers to select a reprogrammable device even when the alternative
one-time programmable device offers significant advantages. This bias in favor
of designing with reprogrammable logic devices appears to increase as the size
of the design increases, and is a major reason the Company has decided to enter
the reprogrammable FPGA market.

Patent Infringement

As is typical in the semiconductor industry, the Company has been and
expects to be from time to time notified of claims that it may be infringing
patents owned by others. No assurance can be given that such claims against
Actel will not result in litigation. All litigation, whether or not determined
in favor of Actel, can result in significant expense to the Company and can
divert the efforts of Actel's technical and management personnel from productive
tasks.

Although the Company has obtained patents covering aspects of its FPGA
architecture, logic modules, and certain techniques for manufacturing its
antifuse, no assurance can be given that Actel's patents will be determined to
be valid or that any assertions of infringement or invalidity by other parties
(or claims for indemnity from customers resulting from any infringement claims)
will not be successful. In the event of an adverse ruling in any litigation
involving intellectual property, the Company could suffer significant (and
possibly treble) monetary damages, which might have a materially adverse effect
on Actel's business, financial condition, or results of operations. The Company
may also be required to discontinue the use of infringing processes; cease the
manufacture, use, and sale of infringing products; expend significant resources
to develop non-infringing technology; or obtain licenses under patents that it
is infringing. Although patent holders commonly offer licenses to alleged
infringers, no assurance can be given that licenses will be offered or that the
terms of any offered licenses will be acceptable to Actel. In the event of a
successful claim against the Company, Actel's failure to develop or license a
substitute technology on commercially reasonable terms would have a materially
adverse effect on the Company's business, financial condition, and results of
operations.

Potential Acquisitions

In pursuing its business strategy, Actel may acquire products,
technologies, or businesses from third parties. Identifying and negotiating
these acquisitions may divert substantial management time away from the
Company's operations. An acquisition could absorb substantial cash resources,
require Actel to incur or assume debt obligations, and/or involve the issuance
of additional equity securities of the Company. The issuance of additional
equity securities may dilute, and could represent an interest senior to the
rights of, the holders of Actel's Common Stock. An acquisition accounted for as
a purchase, such as the Company's acquisition of TI's antifuse FPGA business in
1995, could involve significant one-time write-offs, possibility resulting in a
loss for the fiscal year in which it is taken, and would require the
amortization of any goodwill over a number of years, which would adversely
affect earnings in those years. Any acquisition would require attention from the
Company's management to integrate the acquired entity into Actel's operations,
may require the Company to develop expertise outside its existing business, and
could result in departures of management from either Actel or the acquired
entity. An acquired entity may have unknown liabilities, and its business may
not achieve the results anticipated at the time it is acquired by the Company.

Protection of Intellectual Property

Actel has historically devoted significant resources to research and
development and believes that the intellectual property derived from such
research and development is a valuable asset that has been and will continue to
be important to the success of the Company's business. Actel relies primarily on
a combination of nondisclosure agreements, other contractual provisions, and
patent and copyright laws to protect its proprietary rights. No assurance can be
given that the steps taken by the Company will be adequate to protect its
proprietary rights. In addition, the laws of certain territories in which
Actel's products are or may be developed, manufactured, or sold, including Asia
and Europe, may not protect the Company's products and intellectual property
rights to the same extent as the laws of the United States. Failure of Actel to
enforce its patents or copyrights or to protect its trade secrets could have a
materially adverse effect on the Company's business, financial condition, or
results of operations.

Reliance on Distributors

In 1998, more than half of Actel's sales in the United States and
virtually all of the Company's sales outside the United States were made through
distributors. Three of Actel's distributors, Wyle/Unique, Arrow, and Pioneer,
accounted for approximately 14%, 14%, and 9%, respectively, of the Company's net
revenues in 1998. No assurance can be given that future sales by these or other
distributors will continue at current levels or that the Company will be able to
retain its current distributors on terms that are acceptable to Actel.

The Company's distributors generally offer products of several
different companies, including products that are competitive with Actel's
products. Accordingly, there is a risk that these distributors may give higher
priority to products of other suppliers, thus reducing their efforts to sell the
Company's products. In addition, Actel's agreements with its distributors are
generally terminable at the distributor's option. A reduction in sales efforts
by one or more of the Company's current distributors or a termination of any
distributor's relationship with Actel could have a materially adverse effect on
the Company's business, financial condition, or results of operations.

Actel defers recognition of revenue on shipments to distributors until
the product is resold by the distributor to the end user. The Company's
distributors have on occasion built inventories in anticipation of substantial
growth in sales and, when such growth did not occur as rapidly as anticipated,
substantially decreased the amount of product ordered from Actel in subsequent
quarters. Such a slowdown in orders would generally reduce the Company's profit
margins on future sales of higher cost products because Actel would be unable to
take advantage of any manufacturing cost reductions while the distributor
depleted its inventory at lower average selling prices. In addition, while the
Company believes that its major distributors are currently adequately
capitalized, no assurance can be given that one or more of Actel's distributors
will not experience financial difficulties. The failure of one or more of the
Company's distributors to pay for products ordered from Actel or to continue
operations because of financial difficulties or for other reasons could have a
materially adverse effect on the Company's business, financial condition, or
results of operations.

Reliance on International Sales

Sales to customers located outside the United States accounted for
approximately 33%, 31%, and 33% of net revenues for 1998, 1997, and 1996,
respectively. Actel expects that revenues derived from international sales will
continue to represent a significant portion of its total revenues. International
sales are subject to a variety of risks, including longer payment cycles,
greater difficulty in accounts receivable collection, currency restrictions,
tariffs, trade barriers, taxes, export license requirements, and the impact of
recessionary environments in economies outside the United States. All of the
Company's foreign sales are denominated in U.S. dollars, so Actel's products
become less price competitive in countries with currencies that are declining in
value against the dollar. In addition, since virtually all of the Company's
foreign sales are made through distributors, such sales are subject to the risks
described above in "Reliance on Distributors."

Semiconductor Industry Risks

The semiconductor industry has historically been cyclical and
periodically subject to significant economic downturns, which are characterized
by diminished product demand, accelerated price erosion, and overcapacity. The
Company may in the future experience substantial period-to-period fluctuations
in business and results of operations due to general semiconductor industry
conditions, overall economic conditions, or other factors, including legislation
and regulations governing the import or export of semiconductor products.

Software Development Challenges

The computational complexities are not yet well understood for the
software tools required to support the largest members of the RS family of
products. It is anticipated that both the computational memory capacities and
tool runtimes will be several times greater than those required for Actel's
current antifuse products, which are significantly smaller. It is expected that
the Company will need to develop and deploy tools incorporating significantly
more compact, memory-resident data structures, which must be combined with
algorithms capable of dealing very efficiently with the large circuit sizes.

Technological Change and Dependence on New Product Development

The market for Actel's products is characterized by rapidly changing
technology, frequent new product introductions, and declining average selling
prices over product life cycles, each of which makes the timely introduction of
new products a critical objective of the Company. Actel's future success is
highly dependent upon the timely completion and introduction of new products at
competitive price and performance levels. In evaluating new product decisions,
Actel must anticipate well in advance both the future demand and the technology
that will be available to supply such demand. Failure to anticipate customer
demand, delays in developing new products with anticipated technological
advances, and failure to coordinate the design and development of silicon and
associated software products each could have a materially adverse effect on
Actel's business, financial condition, or results of operation.

In addition, there are greater technological and operational risks
associated with new products. The inability of the Company's wafer suppliers to
produce advanced products; delays in commencing or maintaining volume shipments
of new products; the discovery of product, process, software, or programming
failures; and any related product returns could each have a materially adverse
effect on Actel's business, financial condition, or results of operation.

Actel is scheduled to introduce members of the ProASIC and RS families
in 1999. No assurance can be given that the Company's design and introduction
schedules for such products or the supporting software will be met or that such
products will be well-received by customers. No assurance can be given that any
other new products will gain market acceptance or that the Company will respond
effectively to new technological changes or new product announcements by others.
Any failure of Actel to successfully define, develop, market, manufacture,
assemble, or test competitive new products could have a materially adverse
effect on its business, financial condition, or results of operations.

The Company must also continue to make significant investments in
research and development to develop new products and achieve market acceptance
for such products. Actel conducts most of its research and development
activities at facilities operated by its foundries. Although the Company has not
to date experienced any significant difficulty in obtaining access to its
current facilities, no assurance can be given that access will not be limited or
that such facilities will be adequate to meet Actel's needs in the future.

Volatility of Stock

The price of the Company's Common Stock can fluctuate substantially on
the basis of factors such as announcements of new products by Actel or its
competitors, quarterly fluctuations in the Company's financial results or the
financial results of other semiconductor companies, or general conditions in the
semiconductor industry or in the financial markets. In addition, stock markets
have recently experienced extreme price and volume volatility. This volatility
has had a substantial effect on the market prices of the securities issued by
high technology companies, at times for reasons unrelated to the operating
performance of the specific companies.

Year 2000 Compliance

The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000.

Based on recent assessments, the Company determined that it would be
required to upgrade, modify, and/or replace portions of its internal software
and certain internal hardware so that those systems will properly utilize dates
beyond December 31, 1999. The Company presently believes that, with
modifications or replacements of existing software and certain hardware, the
impact of the Year 2000 issue can be mitigated. However, if the modifications
and replacements are not made on a timely basis, no assurance can be given that
the Company's internal networks, desktops, and test equipment will be
operational, or that third party vendors will be able to meet the Company's
production needs.

The Company's plan to resolve the Year 2000 issue involves the
following four phases: inventory, assessment, remediation, and
testing/implementation. The Company has completed its inventory and assessment
of information technology ("IT") and non-information technology ("Non-IT")
systems that could be significantly affected by the Year 2000. The assessment
indicated that most of the Company's significant IT systems could be affected,
particularly the order entry, general ledger, billing, and inventory systems.
Non-IT systems that could be affected include testers and bar-code devices used
in various aspects of the manufacturing and shipping process.

Based on a review of its product lines (FPGA devices and programming
software and hardware), the Company has determined that the majority of its
products it has sold and will continue to sell do not require remediation to be
Year 2000 compliant. Accordingly, the Company does not believe that the Year
2000 presents a material exposure as it relates to the Company's products.

With respect to its IT exposure, to date the Company has completed the
remediation of its ERP systems (systems for order entry, general ledger,
billing, production tracking, inventory and shipping) by upgrading to year 2000
compliant versions. Once software is reprogrammed or replaced for a system,
testing and implementation are carried out. These phases run concurrently for
different systems. The Company plans to have most IT systems fully tested and
implemented by June 30, 1999, with 100% completion targeted for September 30,
1999.

The remediation of Non-IT systems is significantly more difficult than
remediation of IT systems due to the dependency on manufacturers for information
on the Year 2000 compliance status of the various components and products. The
Company is 30% complete with the remediation phase of its Non-IT systems. The
Company expects to complete its remediation of Non-IT systems by June 30, 1999.
Testing and implementation of affected equipment is expected to be fully
completed by September 30, 1999.

The Company has queried all of its significant suppliers and
subcontractors ("Suppliers"). To date, the Company is not aware of any Supplier
with a Year 2000 issue that would materially impact the Company's results of
operations, liquidity, or capital resources. However, the Company has no means
of ensuring that its Suppliers will be Year 2000 ready. The inability of
Suppliers to complete their Year 2000 compliance process in a timely fashion
could materially and adversely impact the Company.

The Company will utilize both internal and external resources to
reprogram or replace, test, and implement the software and embedded systems for
Year 2000 modifications. To date, the Company has incurred approximately $0.5
million of expenses on efforts directed solely at Year 2000 compliance. The
total cost of the Year 2000 project is not expected to exceed $2.0 million and
is being funded through operating cash flows.

Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the Year 2000 program. The Company
believes that it is more likely to experience Year 2000 problems with the
systems of Suppliers rather than with the Company's internal systems or
products. The Company's Year 2000 program includes efforts to assess the Year
2000 compliance of its Suppliers.

The Company currently has no contingency plans in place in the event it
does not complete all phases of the Year 2000 program. The Company intends to
develop a contingency plan to deal with Year 2000 issues that may materially
adversely affect its business processes. The Company intends to have a
contingency plan in place no later than June 30, 1999.

Based on its current understanding, the Company believes that the
likelihood of a material adverse impact due to problems with internal systems or
products sold to customers is remote and expects that the cost of its Year 2000
compliance program over the next two years will not have a material effect on
the Company's financial position or overall trends in results of operations. The
cost of the program and the date on which the Company believes it will become
Year 2000 compliant are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, cooperation of vendors, and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. If Year 2000
modifications and conversions are not properly made, or are not completed in
timely manner, the Year 2000 issue could have a materially adverse impact on the
Company's future business operations and, in turn, on its financial position and
results of operations. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in the area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.

Executive Officers of the Registrant

The following table identifies each executive officer of Actel as of
March 31, 1999:
<TABLE>
<CAPTION>

Name Age Position
- ------------------------------- ---- -----------------------------------------------------
<S> <C>
John C. East................... 54 President and Chief Executive Officer
Henry L. Perret................ 53 Vice President of Finance and Chief Financial Officer
Esmat Z. Hamdy................. 49 Senior Vice President of Technology & Operations
Carl N. Burrow................. 38 Vice President of Marketing
Anthony Farinaro............... 36 Vice President & General Manager of Design Services
Paul V. Indaco................. 48 Vice President of Worldwide Sales
Suzanne M. Kinner.............. 35 Vice President of Human Resources
Fares N. Mubarak............... 37 Vice President of Engineering
Robert J. Smith, II............ 54 Vice President of Software
David L. Van De Hey............ 43 Vice President & General Counsel and Secretary
</TABLE>

Mr. East has served as President and Chief Executive Officer of the
Company since December 1988. From April 1979 until joining Actel, Mr. East
served in various positions with Advanced Micro Devices, a semiconductor
manufacturer, including Senior Vice President of Logic Products from November
1986 to November 1988. From December 1976 to March 1979, he served as Operations
Manager for Raytheon Semiconductor. From September 1968 to December 1976, he
served in various marketing, manufacturing, and engineering positions for
Fairchild Camera and Instrument Corporation, a semiconductor manufacturer.

Mr. Perret joined Actel in January 1996 as Controller and has been Vice
President of Finance and Chief Financial Officer since June 1997. From April
1992 until joining the Company, he was the Site Controller for the manufacturing
division of Applied Materials, a maker of semiconductor manufacturing equipment,
in Austin, Texas. From 1978 to 1991, Mr. Perret held various financial
positions, including divisional controllerships with National Semiconductor, a
semiconductor manufacturer.

Dr. Hamdy is a founder of the Company, was Vice President of Technology
from August 1991 to March 1996 and Senior Vice President of Technology from
March 1996 to September 1996, and has been Senior Vice President of Technology
and Operations since September 1996. From November 1985 to July 1991, he held a
number of management positions with the Company's technology and development
group. From January 1981 to November 1985, Dr. Hamdy held various positions at
Intel Corporation, a semiconductor manufacturer, lastly as project manager.

Mr. Burrow joined the Company in January 1992 as Southwest Regional
Sales Manager, was Director of Western Area Sales from February 1996 to October
1997, and has been Vice President of Marketing since October 1997. From June
1983 until January 1992, he held various sales and marketing positions at Texas
Instruments, a semiconductor manufacturer.

Mr. Farinaro joined Actel in August 1998 as Vice President & General
Manager of Design Services. From February 1990 until joining Actel, he held
various engineering and management positions with GateField (formally Zycad
Corporation until 1997), a semiconductor company, with the most recent position
of Vice President of Application & Design Services. From 1985 to 1990, Mr.
Farinaro held various engineering and management positions at Singer Kearfott,
an aerospace electronics company, and it's spin-off, Plessey Electronic Systems
Corporation.

Mr. Indaco joined Actel in March 1999 as Vice President of Worldwide
Sales. From March 1999 until joining the Company, he served as Vice President of
Sales for Chip Express, a semiconductor manufacturer. From January 1996 to
February 1999, Mr. Indaco held senior sales management positions with Redwood
Microsystems, a semiconductor manufacturer. From October 1994 to January 1996,
he held senior sales management positions with LSI Logic, a semiconductor
manufacturer. From March 1984 to October 1994, Mr. Indaco held various field
engineering sales and marketing for Intel Corporation, a semiconductor
manufacturer. From July 1978 to February 1984, he held various field engineering
sales and marketing for Texas Instruments, a semiconductor manufacturer.

Ms. Kinner joined Actel in March 1999 as Vice President of Human
Resources. From November 1994 until joining the Company, she held human resource
management positions at S3 Inc., a semiconductor manufacturer. From August 1985
to November 1994, Ms. Kinner held various human resources position for Mentor
Graphics, an ECD supplier.

Mr. Mubarak joined the Company in November 1992, was Director of Product
and Test Engineering until October 1997, and has been Vice President of
Engineering since October 1997. From 1989 until joining Actel, he held various
engineering and engineering management positions with Samsung Semiconductor
Inc., a semiconductor manufacturer, and its spin-off, IC Works, Inc. From 1984
to 1989, Mr. Mubarak held various engineering, product planning, and engineering
management positions with Advanced Micro Devices, a semiconductor manufacturer.

Dr. Smith joined Actel in March 1997 as Vice President of Software.
Prior to joining the Company, he was an independent consultant specializing in
product development and positioning, software team building, pragmatic software
engineering practices, and small company trouble shooting. From September 1985
to March 1995, Dr Smith held various positions with Microelectronics and
Computer Technology Corporation (MCC), a consortial systems and software R&D
company, where he last served as Vice President of Advanced Systems and
Networks.

Mr. Van De Hey joined Actel in July 1993 as Corporate Counsel, became
Secretary in May 1994, and has been Vice President & General Counsel since
August 1995. From November 1988 to September 1993, he was an associate with
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, a law firm in Palo
Alto, California, and the Company's outside legal counsel. From August 1985
until October 1988, he was an associate with the Cleveland office of Jones, Day,
Reavis & Pogue, a law firm.

Executive officers serve at the discretion of the Board of Directors.

ITEM 2. PROPERTIES

Actel's principal administrative, marketing, sales, customer support,
design, research and development, and testing facilities are located in
Sunnyvale, California, in three buildings that comprise approximately 138,000
square feet. These buildings are leased through June 2003, and the Company has a
renewal option for an additional five-year term. Actel also leases sales offices
in the metropolitan areas of Atlanta, Baltimore, Basingstoke (England), Boston,
Chicago, Dallas, Denver, Hong Kong (China), Kanata (Ontario) Los Angeles, Milano
(Italy), Minneapolis, Munich (Germany), Orlando, Paris (France), Philadelphia,
Raleigh, Seoul (Korea), Taipei (Taiwan), and Tokyo (Japan), as well as the
facilities of the Design Services Group in Mt. Arlington, New Jersey. The
Company believes its facilities will be adequate for its needs in 1999, but is
investigating options for continued expansion beyond that time.

ITEM 3. LEGAL

There are no pending legal proceedings of a material nature to which
Actel is a party or of which any of its property is the subject. There are no
such legal proceedings known by the Company to be contemplated by any
governmental authority.

QuickLogic

During the third quarter of 1998, the Company and QuickLogic agreed to
settle and dismiss the two patent infringement actions between the parties
pending before the United States Court for the Northern District of California,
San Jose Division. The actions were dismissed on September 4, 1998. As part of
the settlement, the Company and QuickLogic entered into a Patent Cross License
Agreement. Management is satisfied with the terms of the settlement, which is
immaterial to the Company's business, financial condition, or operating results.

Lemelson

During the third quarter of 1998, the Lemelson Medical, Education &
Research Foundation (the "Foundation"), filed a lawsuit in the United States
District Court for the District of Arizona, against the Company and 25 other
United States semiconductor companies seeking monetary damages and injunctive
relief based on such companies' alleged infringement of certain patents held by
the Foundation. The action was dismissed as to the Company on December 8, 1998,
pursuant to the terms of a settlement agreement between the Foundation and the
Company. The settlement is immaterial to the Company's business, financial
condition, or operating results.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

The information appearing under the caption "Stock Listing" in the
Registrant's annual report to security holders for the fiscal year ended January
2, 1999 (the "1998 Annual Report"), is incorporated herein by this reference.

ITEM 6. SELECTED FINANCIAL DATA

The information appearing under the caption "Selected Consolidated
Financial Data" in the 1998 Annual Report is incorporated herein by this
reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information appearing under the caption "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" of the 1998 Annual
Report is incorporated herein by this reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information appearing under the captions "Consolidated Balance
Sheets," "Consolidated Statements of Income," "Consolidated Statements of
Shareholders' Equity," "Consolidated Statements of Cash Flows," "Notes to
Consolidated Financial Statements," and "Report of Ernst & Young LLP,
Independent Auditors" in the 1998 Annual Report is incorporated herein by this
reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

Except for the information specifically incorporated by reference from
Actel's definitive Proxy Statement for the Annual Meeting of Shareholders to be
held on May 29, 1999, as filed on or about April 9, 1999, with the Securities
and Exchange Commission (the "1999 Proxy Statement") in Part III of this Annual
Report on Form 10-K, the 1999 Proxy Statement shall not be deemed to be filed as
part of this Report. Without limiting the foregoing, the information under the
captions "Compensation Committee Report" and "Company Stock Performance" under
the main caption "OTHER INFORMATION" in the 1999 Proxy Statement are not
incorporated by reference in this Annual Report on Form 10-K.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information regarding the identification and business experience of
Actel's directors under the caption "Nominees" under the main caption "PROPOSAL
NO. 1 -- ELECTION OF DIRECTORS" in the 1999 Proxy Statement and the information
under the main caption "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE
ACT OF 1934" in the 1999 Proxy Statement are incorporated herein by this
reference. For information regarding the identification and business experience
of Actel's executive officers, see "Executive Officers of the Registrant" at the
end of Item 1 in Part I of this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information under the caption "Director Compensation" under the main
caption "PROPOSAL NO. 1 -- ELECTION OF DIRECTORS" in the 1999 Proxy Statement
and the information under the caption "Executive Compensation" under the main
caption "OTHER INFORMATION" in the 1999 Proxy Statement are incorporated herein
by this reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information under the caption "Share Ownership" under the main
caption "INFORMATION CONCERNING SOLICITATION AND VOTING" in the 1999 Proxy
Statement and the information under the caption "Security Ownership of
Management" under the main caption "OTHER INFORMATION" in the 1999 Proxy
Statement are incorporated herein by this reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information under the caption "Certain Transactions" under the main
caption "OTHER INFORMATION" in the 1999 Proxy Statement is incorporated herein
by this reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Annual Report on
Form 10-K:

(1) Financial Statements. The following consolidated financial
statements of Actel Corporation included in the 1998 Annual Report are
incorporated by reference in Item 8 of this Annual Report on Form 10-K:

Consolidated balance sheets at December 31, 1998 and 1997

Consolidated statements of income for each of the three
years in the period ended December 31, 1998

Consolidated statements of shareholders' equity for each of
the three years in the period ended December 31, 1998

Consolidated statements of cash flows for each of the three
years in the period ended December 31, 1998

Notes to consolidated financial statements

(2) Financial Statement Schedule. The financial statement
schedule listed under 14(d) hereof is filed with this Annual Report on
Form 10-K.

(3) Exhibits. The exhibits listed under Item 14(c) hereof are
filed with, or incorporated by reference into, this Annual Report on
Form 10-K.

(b) Reports on Form 8-K. Actel filed no reports on Form 8-K during the
quarter ended January 3, 1999.

Exhibit Number Description
- ------------------ -------------------------------------------------------------

3.1 Restated Articles of Incorporation (filed as Exhibit 3.2 to
the Registrant's Registration Statement on Form S-1 (File No.
33-64704), declared effective on August 2, 1993).

3.2 Restated Bylaws of the Registrant (filed as Exhibit 3.3 to
the Registrant's Registration Statement on Form S-1 (File No.
33-64704), declared effective on August 2, 1993).

10.1 (2) Form of Indemnification Agreement for directors and officers
(filed as Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1 (File No. 33-64704), declared effective
on August 2, 1993).

10.2 (2) 1986 Incentive Stock Option Plan, as amended and restated
(filed as Exhibit 10.2 to the Registrant's Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended
December 29, 1996).

10.3 (2) 1993 Directors' Stock Option Plan, as amended and restated
(filed as Exhibit 10.3 to the Registrant's Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended
December 28, 1997).

10.4 (2) 1993 Employee Stock Purchase Plan, as amended and
restated (filed as Exhibit 10.4 to the Registrant's Annual
Report on Form 10-K (File No. 0-21970) for the fiscal year
ended December 28, 1997).

10.5 (2) 1995 Employee and Consultant Stock Plan, as amended and
restated (filed as Exhibit 10.5 to the Registrant's Annual
Report on Form 10-K (File No. 0-21970) for the fiscal year
ended December 29, 1996).

10.6 Form of Distribution Agreement (filed as Exhibit 10.13 to the
Registrant's Registration Statement on Form S-1 (File No.
33-64704), declared effective on August 2, 1993).

10.7 (1) Patent Cross License Agreement dated April 22, 1993 between
the Registrant and Xilinx, Inc. (filed as Exhibit 10.14 to
the Registrant's Registration Statement on Form S-1 (File No.
33-64704), declared effective on August 2, 1993).

10.8 Subscription and Participation Agreement dated February 3,
1994 between the Registrant, Singapore Technologies Ventures
Pte Ltd and Chartered Semiconductor Manufacturing Pte Ltd
(filed as Exhibit 10.16 to the Registrant's Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended
January 2, 1994).

10.9 Manufacturing Agreement dated February 3, 1994 between the
Registrant and Chartered Semiconductor Manufacturing Pte Ltd
(filed as Exhibit 10.17 to the Registrant's Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended
January 2, 1994).

10.10 Distribution Agreement dated June 1, 1994, between the
Registrant and Arrow Electronics, Inc. (filed as Exhibit
10.18 to the Registrant's Quarterly Report on Form 10-Q (File
No. 0-21970) for the quarterly period ended July 3, 1994).

10.11 (1) Product Development and Marketing Agreement dated August 1,
1994, between the Registrant and Loral Federal Systems
Company (filed as Exhibit 10.19 to the Registrant's Quarterly
Report on Form 10-Q (File No. 0-21970) for the quarterly
period ended October 2, 1994).

10.12 (1) Foundry Agreement dated as of June 29, 1995, between the
Registrant and Matsushita Electric Industrial Co., Ltd and
Matsushita Electronics Corporation (filed as Exhibit 10.25 to
the Registrant's Quarterly Report on Form 10-Q (File No.
0-21970) for the quarterly period ended July 2, 1995).

10.13 Lease Agreement for the Registrant's offices in Sunnyvale,
California, dated May 10, 1995 (filed as Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K (File No. 0-21970)
for the fiscal year ended December 31, 1995).

10.14 (1) License Agreement dated as of March 6, 1995, between the
Registrant and BTR, Inc. (filed as Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K (File No. 0-21970)
for the fiscal year ended December 29, 1996).

10.15 Asset Purchase Agreement dated August 14, 1998, between
GateField Corporation and Actel Corporation (filed as Exhibit
2.1 to GateField Corporation's Current Report on Form 8-K
(File No. 0-13244) on August 14, 1998, and incorporated
herein by this reference).

10.16 Series C Preferred Stock Purchase Agreement dated August 14,
1998 between GateField Corporation and Actel Corporation
(filed as Exhibit 4.1 to GateField Corporation's Current
Report on Form 8-K/A (File No. 0-13244) on August 31, 1998,
and incorporated herein by this reference).

10.17 Product Marketing Agreement dated August 14, 1998, between
the GateField Corporation and Actel Corporation (filed as
Exhibit 10.24 to GateField Corporation's Quarterly Report on
Form 10-Q (File No. 0-13244) on November 19, 1998, and
incorporated herein by this reference.)

10.18 License Agreement dated August 14, 1998, between GateField
Corporation and Actel Corporation (filed as Exhibit 10.25 to
GateField Corporation's Quarterly Report on Form 10-Q (File
No. 0-13244) on November 19, 1998, and incorporated herein by
this reference.)

10.19 (1) Patent Cross License Agreement dated August 25, 1998, between
Actel Corporation and QuickLogic Corporation.

13 Portions of Registrant's Annual Report to Shareholders for
the fiscal year ended January 2, 1999, incorporated by
reference into this Report on Form 10-K.

21 Subsidiaries of Registrant

23 Consent of Ernst & Young LLP, Independent Auditors

24 Power of Attorney
- ------------------

(1) Confidential treatment requested as to a portion of this Exhibit.

(2) This Exhibit is a management contract or compensatory plan or
arrangement.

(d) Financial Statement Schedule. The following financial statement
schedule of Actel Corporation is filed as part of this Report on Form 10-K and
should be read in conjunction with the Consolidated Financial Statements of
Actel Corporation, including the notes thereto, and the Report of Independent
Auditors with respect thereto:

Schedule Description Page
- --------------- ----------------------------------------------------- ---------
II Valuation and qualifying accounts --

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

ACTEL CORPORATION

April 2, 1999 By: /s/ John C. East
-----------------------------------------
John C. East
President and Chief Executive Officer

<PAGE>
SCHEDULE II

ACTEL CORPORATION

-------------------------------

Valuation and Qualifying Accounts
(in thousands)

<TABLE>
<CAPTION>
Balance at Balance at
beginning end of
of period Provisions Write-Offs period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996.................. $ 567 $ 81 $ 15 $ 633
Year ended December 31, 1997.................. 633 1,611 612 1,632
Year ended December 31, 1998.................. 1,632 5 83 1,554
</TABLE>

ACTEL CORPORATION

SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net revenues................................ $ 154,427 $ 155,858 $ 148,779 $ 108,516 $ 76,007
Costs and expenses:
Cost of revenues......................... 61,642 64,244 64,420 52,517 33,349
Research and development................. 31,220 26,465 23,934 20,560 14,406
Selling, general, and administrative..... 41,743 41,194 38,395 27,364 19,699
In-process R&D (1)....................... -- -- -- 16,600 --
------------ ------------ ------------ ------------ ------------
Total costs and expenses........... 134,605 131,903 126,749 117,041 67,454
------------ ------------ ------------ ------------ ------------
Income (loss) from operations............... 19,822 23,955 22,030 (8,525) 8,553
Interest expense............................ -- -- (13) (93) (232)
Interest income and other, net.............. 2,380 1,842 1,068 846 935
------------ ------------ ------------ ------------ ------------
Income (loss) before taxes.................. 22,202 25,797 23,085 (7,772) 9,256
Tax provision (benefit)..................... 7,215 9,029 8,147 (6,640) 1,389
------------ ------------ ------------ ------------ ------------
Net income (loss)........................... $ 14,987 $ 16,768 $ 14,938 $ (1,132) $ 7,867
============ ============ ============ ============ ============
Net income (loss) per share:
Basic (2)................................ $ 0.71 $ 0.82 $ 0.84 $ (0.07) $ 0.46
============ ============ ============ ============ ============
Diluted (2).............................. $ 0.68 $ 0.76 $ 0.70 $ (0.07) $ 0.45
============ ============ ============ ============ ============
Shares used in computing net income
(loss) per share:
Basic.................................... 21,251 20,370 17,826 17,367 16,995
============ ============ ============ ============ ============
Diluted.................................. 21,921 21,968 21,485 17,367 17,579
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital............................ $ 85,858 $ 76,279 $ 55,397 $ 39,867 $ 35,971
Total assets............................... 179,708 159,994 136,712 107,119 67,855
Long-term obligations (3).................. -- -- -- -- 72
Convertible preferred stock (4)............ -- -- 18,147 18,147 --
Total shareholders' equity................. $ 127,054 $ 109,010 $ 69,357 $ 50,920 $ 49,311

- -----------------------------------------------------------
<FN>
(1) Represents a charge for in-process research and development incurred
in the first quarter of 1995 in connection with the Company's
acquisition of the field programmable gate array business of Texas
Instruments Incorporated ("TI").

(2) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards
No. 128, "Earnings Per Share." See Note 13 of Notes to Consolidated
Financial Statements for further discussion of earnings per share
and the impact of Statement No. 128.

(3) Includes long-term portion of notes payable and capital lease
obligations.

(4) Represents redeemable, convertible preferred stock issued to TI in
connection with the Company's acquisition of TI's field programmable
gate array business. On March 12, 1997, TI converted the Series A
Preferred Stock into 2,631,578 shares of Common Stock.

</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Actel Corporation ("Actel" or the "Company") is the world's leading
supplier of antifuse-based field programmable gate arrays ("FPGAs") and
associated software development tools. FPGAs are used by designers of
communication, computer, industrial control, military/aerospace, and other
electronic systems to differentiate their products and get them to market
faster.

Business Developments

GateField

In the third quarter of 1998, the Company entered into a product
marketing rights agreement with, and purchased convertible stock of, GateField
Corporation ("GateField"). Simultaneously, the Company acquired the Design
Services Business Unit of GateField in a transaction accounted for as a
purchase. Consideration paid in these transactions totaled $10,447,000,
consisting entirely of cash.

In accordance with provisions of APB Opinion 16, all identifiable
assets, including identifiable intangible assets, were assigned a portion of the
total consideration on the basis of their respective fair values. Standard
valuation procedures and techniques were utilized in determining the fair value
of each acquired asset. This included consideration of cost, income, and
market-based valuation approaches, as appropriate, based on the nature of the
assets being valued. An income-based approach, which focuses on the cash-flow
generating capacity and associated risks of an asset, was considered most
appropriate for analyzing the product marketing rights agreement and backlog of
the Design Services Business Unit due to their future earnings potential. The
value of the assembled work force was estimated on a replacement cost basis by
determining the cost to find and interview candidates and to train new employees
in their new positions. Lastly, the convertible preferred stock was valued as if
converted into common stock at the date of the acquisition, subject to certain
valuation adjustments. The assumptions used to estimate the value of the
identified intangible assets were developed by the Company and GateField
management and were further supported through relevant industry data. The
consideration was allocated as follows: $6,000,000 to the product marketing
rights agreement; $1,650,000 to the convertible preferred stock; and $2,797,000
(consisting of $447,000 related to net assets and $2,350,000 related to
intangible assets) to the Design Services Business Unit.

The product marketing rights agreement provides the Company with an
exclusive right to market and sell GateField's standard ProASIC products in
process geometries of 0.35 micron and smaller as part of the Company's product
line. Development of the underlying technology and products is managed and
executed exclusively by GateField, and the products are expected to be
production qualified by the end of 1999. The Company has agreed to pay
additional consideration of $1,000,000 upon qualification of the initial .25
micron product. As of December 31, 1998, GateField's progress in developing the
technology and products was consistent with the Company's expectations; however,
there can be no assurance that GateField's future technology and product
development efforts will result in product sales sufficient to recover the
Company's investment. The $6,000,000 allocated to product marketing rights will
be amortized over the related products' currently estimated revenue-producing
life of seven years; the Company will re-evaluate the expected life if product
sales do not commence as scheduled or fail to achieve expected volumes in the
future.

The Company's investment in GateField's convertible preferred stock
consists of 300,000 shares of GateField Series C Preferred Stock that are
convertible, at the Company's election, into 2,000,000 shares of GateField
Common Stock. The Company's investment in GateField represents less than 5% of
total common-equivalent equity of GateField, determined assuming conversion of
all GateField convertible preferred stock into common stock. The Company
accounts for its preferred stock investment in GateField under the cost method;
therefore, changes in the value of the investment are not recognized unless
impairment in the value of the investment is deemed to be "other than
temporary." Such an impairment could occur if, among other things, product sales
subject to the product marketing rights agreement discussed in the preceding
paragraph do not commence as scheduled or fail to achieve expected volumes in
the future.

The Company also purchased from GateField its Design Services Business
Unit located in Mt. Arlington, New Jersey. The Actel Design Services Group
provides varying levels of design services, including: design methodology and
tool consulting; turnkey FPGA and application specific integrated circuit
("ASIC") design; intellectual property ("IP") development and integration; board
and system design; software design and implementation; and development of
prototypes, first articles, and production units. The Company is the first FPGA
provider to offer system-level design expertise, expanding the Company's ability
to support a greater portion of customers' overall design and risk management.
The Design Services Group is a secure facility certified to handle government,
military, and proprietary designs. The Design Services Group is not involved in
the development efforts underlying the product marketing rights agreement. The
net assets of the Design Services Group were valued at $447,000 and consist
principally of fixed assets, accounts receivable, deposits, and accounts
payable. Intangible assets were valued at $2,350,000 and consist of $300,000
related to backlog, $1,000,000 related to workforce-in-place, and $1,050,000
related to goodwill. Backlog is being amortized over its estimated useful life
of six months. The Design Services Group workforce and goodwill are being
amortized over their estimated useful life of five years.

QuickLogic

During the third quarter of 1998, the Company and QuickLogic
Corporation ("QuickLogic") agreed to settle and dismiss the two patent
infringement actions between the parties pending before the United States Court
for the Northern District of California, San Jose Division. The actions were
dismissed on September 4, 1998. As part of the settlement, the Company and
QuickLogic entered into a Patent Cross License Agreement. Management is
satisfied with the terms of the settlement, which is immaterial to the Company's
business, financial condition, or operating results.

Lemelson

Results of Operations

The following table sets forth certain financial data from the
Consolidated Statements of Operations expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues............................................................ 100.0% 100.0% 100.0%
Cost of revenues........................................................ 39.9 41.2 43.3
------------ ------------ ------------
Gross margin............................................................ 60.1 58.8 56.7
Research and development................................................ 20.2 17.0 16.1
Selling, general, and administrative.................................... 27.0 26.4 25.8
------------ ------------ ------------
Income from operations.................................................. 12.9 15.4 14.8
Interest and other income, net.......................................... 1.5 1.2 0.7
------------ ------------ ------------
Income before taxes..................................................... 14.4 16.6 15.5
Tax provision........................................................... 4.7 5.8 5.5
------------ ------------ ------------
Net income.............................................................. 9.7% 10.8% 10.0%
============ ============ ============
</TABLE>
Beginning in 1998, the Company's fiscal year ends on the first Sunday in
January, instead of the Sunday closest to December 31. Fiscal 1998 was a
fifty-three week fiscal year, rather than a normal fifty-two week fiscal year,
but that would also have been the case under the old policy. Fiscal 1998, 1997,
and 1996 ended on January 3, 1999, December 28, 1997, and December 29, 1996,
respectively. For ease of presentation, December 31 has been utilized as the
fiscal year-end for all years.

Net Revenues

Net revenues for fiscal 1998 were $154.4 million, a decrease of 1% from
net revenues for fiscal 1997. This compares with an increase in net revenues of
5% for fiscal 1997 over fiscal 1996. The Company derives its revenues primarily
from the sale of FPGAs, which accounted for 97% of net revenues for 1998,
compared with 98% for 1997 and 97% for 1996. The Company also derives revenues
from royalties and the sale of software, hardware, maintenance, and design
services.

Net revenues from the sale of FPGAs for 1998 decreased 2% from net
revenues from the sale of FPGAs for 1997. This compares with an increase of 6%
in net revenues from the sale of FPGAs for 1997 over 1996. The decrease in net
revenues from the sale of FPGAs for 1998 from 1997 was primarily due to an 11%
decrease in the overall average selling price of FPGAs, which was mostly offset
by an increase of 12% in unit sales. The decrease in the overall average selling
price of FPGAs for 1998 was driven by a higher percentage of shipments of MX
product, which has lower average selling prices than other families, coupled
with selling price erosion typical to the semiconductor industry. The growth in
net revenues from the sale of FPGAs for 1997 over 1996 was due primarily to a 3%
increase in unit sales coupled with a 2% increase in the overall average selling
prices of FPGAs. The increase in the overall average selling price in 1997 was
due principally to proportionately greater unit sales of the Company's newer
(ACT 3, XL, DX, and RH) product families, which generally command higher average
selling prices than the Company's older (ACT 1 and ACT 2) product families.

As is typical in the semiconductor industry, the average selling prices
of the Company's products generally decline over the lives of such products. To
increase revenues, the Company seeks to increase unit sales of existing
products, principally by reducing prices, and to introduce and sell new
products. No assurance can be given that these efforts will be successful.

As is common in the semiconductor industry, the Company generates
significant revenues from the sales of its products through distributors. The
Company's principal distributors are Unique Technologies, Inc. ("Unique") and
Pioneer-Standard Electronics, Inc. ("Pioneer") in North America and Arrow
Electronics, Inc. and Zeus Electronics (collectively, "Arrow") worldwide. Unique
replaced Wyle Electronics Marketing Group ("Wyle") as an Actel distributor in
the second half of 1998. Unique and Wyle are both part of the worldwide Veba
Electronics Group. The Company is now strategically positioned as Unique's only
FPGA supplier. This provides the Company with a partner whose FPGA focus will be
exclusively on the Company's channel distribution, service, and support
requirements. The following table sets forth, for each of the last three years,
the percentage of revenues derived from all customers accounting for 10% or more
of net revenues in any of such years:

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Wyle/Unique............................................................. 14% 17% 14%
Arrow................................................................... 14% 17% 14%
Pioneer................................................................. 9% 12% 11%
</TABLE>

The Company does not recognize revenue on product shipped to a distributor until
the distributor resells the product to its customer.

Sales to customers outside the United States for 1998, 1997, and 1996
accounted for 33%, 31%, and 33% of net revenues, respectively. Of these export
sales, the largest portion was derived from European customers.

Gross Margin

Gross margin for 1998 was 60% of net revenues, compared with 59% of net
revenues for 1997 and 57% of net revenues for 1996. The improvements in gross
margin resulted primarily from improved manufacturing yields, wafer price
reductions, and appreciation in the value of the United States dollar versus the
Japanese yen, in which some of the Company's wafer purchases are denominated.
The Company periodically enters into foreign exchange contracts to minimize
foreign exchange risk relating to wafer purchases denominated in yen.

As is typical in the semiconductor industry, margins on the Company's
products generally decline as the average selling prices of such products
decline. The Company seeks to offset margin erosion by selling a higher
percentage of new products, which generally tend to have higher margins than
more mature products, and by reducing costs. The Company seeks to reduce costs
by improving wafer yields, negotiating price reductions with suppliers,
increasing the level and efficiency of its testing and packaging operations,
achieving economies of scale by means of higher production levels, and
increasing the number of die produced per wafer by shrinking the die size of its
products. No assurance can be given that these efforts will be successful. The
capability of the Company to shrink the die size of its FPGAs is dependent on
the availability of more advanced manufacturing processes. Due to the custom
steps involved in manufacturing antifuse FPGAs, the Company typically obtains
access to new manufacturing processes later than its competitors using standard
manufacturing processes.

Research and Development

Research and development expenditures for 1998 were $31.2 million, or
20% of net revenues, compared with $26.5 million, or 17% of net revenues, for
1997 and $23.9 million, or 16% of net revenues, for 1996. Research and
development expenditures for 1998 increased by 18% compared with 1997, and
increased as a percentage of net revenues as the Company boosted the level of
its research and development expenditures to accelerate the introduction of new
products. Research and development expenditures for 1997 increased by 11%
compared with 1996, and increased as a percentage of net revenues principally
because net revenues for the second half of 1997 decreased from the first half
of 1997.

The Company's research and development consists of circuit design,
software development, and process technology activities. The Company believes
that continued substantial investment in research and development is critical to
maintaining a strong technological position in the industry. Since the Company's
antifuse FPGAs are manufactured using a customized process, the Company's
research and development expenditures will probably always be higher as a
percentage of net revenues than that of its major competitors.

Selling, General, and Administrative

Selling, general, and administrative expenses for 1998 were $41.7
million, or 27% of net revenues, compared with $41.2 million, or 26% of net
revenues, for 1997 and $38.4 million, or 26% of net revenues, for 1996. Selling,
general, and administrative expenses for 1998 increased by 1% compared with
1997, while the Company's net revenues for 1998 decreased by 1% compared with
1997. Selling, general, and administrative expenses for 1998 increased as a
percentage of net revenues principally because of an increased level of sales
and marketing activities in support of new products. Selling, general, and
administrative expenses for 1997 increased by 7% compared with 1996, while
revenues increased in 1997 by 5% over 1996. This spending increase was primarily
due to increased sales and marketing support for new products and increased
legal spending for litigation support.

Tax Provision

The Company's effective tax rates for 1998, 1997, and 1996 were 32.5%,
35.0% and 35.0%, respectively. Significant components affecting the effective
tax rate include benefits of federal research and development credits, income
from tax exempt securities, state composite rate, and the recognition of certain
deferred tax assets subject to valuation allowances as of December 31, 1997,
December 31, 1996, and December 31, 1995. The effective tax rate for 1998 was
less than the effective tax rate for 1997 due primarily to increased R&D
spending, increased income from tax exempt securities, and a lower state
composite rate.

Financial Condition, Liquidity, and Capital Resources

The Company's total assets were $179.7 million at the end of 1998,
compared with $160.0 million at the end of 1997. The increase in total assets
was attributable principally to increased cash, cash equivalents, short-term
investments, and inventory. The following table sets forth certain financial
data from the Consolidated Balance Sheets expressed as the percentage change
from the end of fiscal 1997 to the end of fiscal 1998:
<TABLE>
<CAPTION>
Percentage Change
From 1997 to 1998
--------------------------
<S> <C>
Cash, cash equivalents, and short-term investments..................................... 19.2%
Accounts receivable, net............................................................... (17.2)
Inventories............................................................................ 25.4
Property and equipment, net............................................................ (3.2)
Other assets (primarily GateField)..................................................... 128.5
Total assets........................................................................... 12.3
Total current liabilities.............................................................. 3.3
Shareholders' equity................................................................... 16.6
</TABLE>

Cash, Cash Equivalents, and Short-Term Investments

The Company's cash, cash equivalents, and short-term investments were
$70.4 million at the end of 1998, compared with $59.0 million at the end of
1997. The amount of cash, cash equivalents, and short-term investments increased
as a result of $27.2 million of cash provided by operations and $1.5 million of
cash provided by financing activities, which were offset in part by $17.4
million of cash used in investing activities. These activities included
approximately $10.4 million used in the GateField transaction and $6.1 million
used in the repurchase of Company Common Stock.

The Company currently has no material financial obligations to its
wafer suppliers. However, wafer manufacturers are increasingly demanding
financial support from customers in the form of equity investments and advance
purchase price deposits, which in some cases are substantial. Should the Company
require additional capacity, it may be required to incur significant
expenditures to secure such capacity.

The Company believes that the availability of adequate financial
resources is a substantial competitive factor. To take advantage of
opportunities as they arise, or to withstand adverse business conditions should
they occur, it may become prudent or necessary for the Company to raise
additional capital. The Company intends to monitor the availability and cost of
potential capital resources, including equity, debt, and off-balance sheet
financing arrangements, with a view toward raising additional capital on terms
that are acceptable to the Company. No assurance can be given that additional
capital will become available on acceptable terms.

Notwithstanding the foregoing, the Company believes that existing cash,
cash equivalents, and short-term investments, together with cash generated from
operations, will be sufficient to meet its cash requirements for 1999. A portion
of available cash may be used for investment in or acquisition of complementary
businesses, products, or technologies.

Accounts Receivable

The Company's net accounts receivable were $20.8 million at the end of
1998, compared with $25.1 million at the end of 1997. This decline of 17% in net
accounts receivable compares favorably with the 1% decrease in net revenues for
1998 compared with 1997. The Company believes that its net accounts receivable
for 1998 declined through more focused collection efforts and process
improvements.

Inventories

The Company's inventories were $25.7 million at the end of 1998,
compared with $20.5 million at the end of 1997. This increase was driven
primarily by intentional inventory builds in the Company's newest product
families, MX and SX, driving an increase in days of inventory from 122 to 148
days. This build enables the Company to have MX and SX products available for
immediate shipment to customers. Since the Company's FPGAs are manufactured
using customized steps that are added to the standard manufacturing processes of
its independent wafer suppliers, the Company's manufacturing cycle is longer and
hence more difficult to adjust in response to changing demands or delivery
schedules.

Property and Equipment

The Company's net property and equipment was $14.6 million at the end
of 1998, compared with $15.1 million at the end of 1997. The Company invested
$7.6 million in property and equipment in 1998, compared with $6.8 million in
1997. Depreciation of property and equipment was $8.1million for 1998, compared
with $7.5 million for 1997. Capital expenditures during the past two years have
been primarily for engineering, manufacturing, and office equipment.

Other Assets

The Company's other assets grew to $15.9 million at the end of 1998,
compared with $7.0 million at the end of 1997. This increase was attributable
primarily to the Company's transactions with GateField. See Note 5 of Notes to
Consolidated Financial Statements.

Current Liabilities

The Company's total current liabilities were $52.7 million at the end
of 1998, compared with $51.0 million at the end of 1997.

Shareholders' Equity

Shareholders' equity was $127.1 million at the end of 1998, compared
with $109.0 million at the end of 1997. The increase included $15.0 million of
net income and proceeds of $7.6 million from the sale of Common Stock under
employee stock plans. These increases were offset by the repurchase of 675,000
shares of Common Stock at a cost of $6.1 million.

Employees

At the end of 1998, the Company had 457 full-time employees, including
137 in marketing, sales, and customer support; 157 in research and development;
115 in operations; 15 in Design Services; and 33 in administration and finance.
This compares with 380 full-time employees at the end of 1997, an increase of
20%. Net revenues per employee was approximately $338,000 for 1998, compared
with approximately $410,000 for 1997.

Impact of Recently Issued Accounting Standards

As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of SFAS 130 had no impact on
the Company's net income or shareholders' equity. SFAS 130 requires unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity to be included in other comprehensive income.
Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130. Total comprehensive income for 1998 and 1997 were
$15,114,000 and $16,818,000, respectively.

During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"), which established standards for the way public
enterprises report information in annual statements and financial reports
regarding operating segments, products, services, geographic areas, and major
customers. The Company currently has one reportable segment under SFAS 131.

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which is required to be
adopted in years beginning after June 15, 1999. The Company is currently
evaluating the impact adoption of SFAS 133 will have on financial position,
operating results, and cash flow.

The American Institute of Certified Public Accountants issued Statement
of Position 98-1, "Accounting For the Costs of Computer Software Developed or
Obtained For Internal Use" ("SOP 98-1"), on March 4, 1998. SOP 98-1 provides
guidelines for accounting for costs of computer software developed for internal
use. SOP 98-1 is effective for financial statements for fiscal years beginning
after December 15, 1998. The adoption of SOP 98-1 is not expected to materially
impact the Company's results of operations, financial position, or cash flow.

Market Risk

As of December 31, 1998, the Company's investment portfolio consisted
of corporate bonds, floating rate notes, and municipal obligations. The primary
objectives of the Company's investment activities are to preserve principal,
meet liquidity needs, and maximize yields. To meet these objectives, the Company
invests in only high credit quality debt securities with average maturities of
less than twelve months. The Company also limits the percentage of total
investments that may be invested in any one issuer. Corporate investments as a
group are also limited to a maximum percentage of the Company's investment
portfolio.

The Company's investments are subject to interest rate risk. An
increase in interest rates could subject the Company to a decrease in the market
value of its investments. These risks are mitigated by the ability of the
Company to hold these investments to maturity. A hypothetical 60 basis point
increase in interest rates would result in an approximate $156,000 decrease
(less than 0.3%) in the fair value of the Company's available-for-sale
securities.

The Company purchases a portion of the wafers it uses in production
from Japanese suppliers in purchases denominated in Japanese Yen. An adverse
change in the foreign exchange rate would have an effect on the price the
Company pays for a portion of the wafers used in production over the long term.
The Company attempts to mitigate its exposure to risks from foreign currency
fluctuations by purchasing forward foreign exchange contracts to hedge firm
purchase commitments denominated in foreign currencies. The Company's forward
contracts are subject to foreign exchange risk. The Company's accounting
policies for these contracts are based on the Company's designation of the
contracts as hedging transactions. The criteria the Company uses for designating
a contract as a hedge includes the contract's effectiveness in risk reduction
and one-to-one matching of the derivative financial instrument to the underlying
transaction being hedged. Forward exchange contracts are short term and do not
hedge purchases that will be made for anticipated longer-term wafer needs. An
adverse change of 10% in exchange rates would result in a decline in income
before taxes of approximately $860,000.

All of the potential changes noted above are based upon sensitivity
analysis performed on the Company's financial position at December 31, 1998.
Actual results may differ materially.

Year 2000 Risks

Other Risks

The Company's operating results are subject to general economic
conditions and a variety of risks characteristic of the semiconductor industry
(including booking and shipment uncertainties, wafer supply fluctuations, and
price erosion) or specific to the Company, any of which could cause the
Company's operating results to differ materially from past results. For a
discussion of such risks, see "Risk Factors" in Part I of the Company's Annual
Report on Form 10-K for 1998, which is incorporated herein by this reference.

Quarterly Information

The following table presents certain unaudited quarterly results for
each of the eight quarters in the period ended January 3, 1999. In the opinion
of management, this information has been presented on the same basis as the
audited consolidated financial statements appearing elsewhere in this Annual
Report and all necessary adjustments (consisting only of normal recurring
accruals) have been included in the amounts stated below to present fairly the
unaudited quarterly results when read in conjunction with the audited
consolidated financial statements of the Company and notes thereto. These
quarterly operating results, however, are not indicative of the results for any
future period.

<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------------
Jan. 3, Oct. 4, June 28, Mar. 29, Dec. 28, Sept. 28, June 29, Mar. 30,
1999 1998 1998 1998 1997 1997 1997 1997
--------- -------- ---------- --------- ---------- --------- ---------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net revenues.......................... $ 40,174 $ 38,628 $ 37,160 $ 38,465 $ 37,012 $ 38,220 $ 40,823 $ 39,803
Cost of revenues...................... 15,797 15,245 14,815 15,785 15,287 15,788 16,731 16,439
--------- -------- ---------- --------- ---------- --------- ---------- ---------
Gross profit.......................... 24,377 23,383 22,345 22,680 21,725 22,432 24,092 23,364
Research and development.............. 8,483 7,960 7,527 7,250 6,816 6,641 6,461 6,547
Selling, general, and administrative.. 10,359 10,411 10,392 10,581 10,313 10,355 10,394 10,131
--------- -------- ---------- --------- ---------- --------- ---------- ---------
Income from operations................ 5,535 5,012 4,426 4,849 4,596 5,436 7,237 6,686
Net income............................ $ 4,118 $ 3,837 $ 3,419 $ 3,613 $ 3,382 $ 3,921 $ 4,934 $ 4,531
Net income per share:
Basic (1)........................... $ 0.20 $ 0.18 $ 0.16 $ 0.17 $ 0.16 $ 0.19 $ 0.24 $ 0.24
========= ======== ========== ========= ========== ========= ========== =========
Diluted (1)......................... $ 0.19 $ 0.18 $ 0.16 $ 0.17 $ 0.16 $ 0.18 $ 0.23 $ 0.21
========= ======== ========== ========= ========== ========= ========== =========
Shares used in computing net income
per share:
Basic............................... 21,091 21,449 21,288 21,163 21,032 20,956 20,834 18,636
========= ======== ========== ========= ========== ========= ========== =========
Diluted............................. 22,201 21,724 21,968 21,864 21,623 22,172 21,890 22,082
========= ======== ========== ========= ========== ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------------
Jan. 3, Oct. 4, June 28, Mar. 29, Dec. 28, Sept. 28, June 29, Mar. 30,
1999 1998 1998 1998 1997 1997 1997 1997
--------- -------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Net Revenues:
Net revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues...................... 39.3 39.5 39.9 41.0 41.3 41.3 41.0 41.3
--------- -------- ---------- --------- ---------- --------- ---------- ---------
Gross margin.......................... 60.7 60.5 60.1 59.0 58.7 58.7 59.0 58.7
Research and development.............. 21.1 20.6 20.3 18.9 18.4 17.4 15.8 16.4
Selling, general, and administrative.. 25.8 27.0 28.0 27.5 27.9 27.1 25.5 25.5
--------- -------- ---------- --------- ---------- --------- ---------- ---------
Income from operations................ 13.8 13.0 11.9 12.6 12.4 14.2 17.7 16.8
Net income............................ 10.3 9.9 9.2 9.4 9.1 10.3 12.1 11.4

- ------------------------------------------------
<FN>
(1) The earnings per share amounts for the first three quarters of 1997 have been
restated to comply with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share."
</FN>
</TABLE>
<PAGE>

ACTEL CORPORATION

CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 13,947 $ 7,763
Short-term investments.............................................................. 56,449 51,272
Accounts receivable, net............................................................ 20,820 25,135
Inventories, net.................................................................... 25,669 20,472
Deferred income taxes............................................................... 18,169 20,782
Notes receivable from officers...................................................... 356 364
Other current assets................................................................ 3,102 1,475
------------ ------------
Total current assets.......................................................... 138,512 127,263
Property and equipment, net............................................................ 14,592 15,081
Investment in Chartered Semiconductor.................................................. 10,680 10,680
Other assets, net...................................................................... 15,924 6,970
------------ ------------
$ 179,708 $ 159,994
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 11,525 $ 12,440
Accrued salaries and employee benefits.............................................. 4,960 4,718
Other accrued liabilities........................................................... 828 1,391
Income taxes payable................................................................ 3,370 1,507
Deferred income..................................................................... 31,971 30,928
------------ ------------
Total current liabilities..................................................... 52,654 50,984

Commitments and contingencies

Shareholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized; 1,000,000 issued and
converted to common stock, and none outstanding................................... -- --
Common stock, $.001 par value; 55,000,000 shares authorized; 21,181,930 and
21,046,894 shares issued and outstanding at December 31, 1998 and 1997,
respectively...................................................................... 21 21
Additional paid-in capital.......................................................... 92,092 85,965
Retained earnings .................................................................. 34,763 22,973
Accumulated Other Comprehensive Income ............................................. 178 51
------------ ------------
Total shareholders' equity.................................................... 127,054 109,010
------------ ------------
$ 179,708 $ 159,994
============ ============

</TABLE>

<PAGE>

ACTEL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues............................................................ $ 154,427 $ 155,858 $ 148,779
Costs and expenses:
Cost of revenues..................................................... 61,642 64,244 64,420
Research and development............................................. 31,220 26,465 23,934
Selling, general, and administrative................................. 41,743 41,194 38,395
------------ ------------ ------------
Total costs and expenses....................................... 134,605 131,903 126,749
------------ ------------ ------------
Income from operations.................................................. 19,822 23,955 22,030
Interest expense........................................................ -- -- (13)
Interest income and other, net.......................................... 2,380 1,842 1,068
------------ ------------ ------------
Income before taxes..................................................... 22,202 25,797 23,085
Tax provision........................................................... 7,215 9,029 8,147
------------ ------------ ------------
Net income.............................................................. $ 14,987 $ 16,768 $ 14,938
============ ============ ============
Net income per share:
Basic................................................................ $ 0.71 $ 0.82 $ 0.84
============ ============ ============
Diluted.............................................................. $ 0.68 $ 0.76 $ 0.70
============ ============ ============
Shares used in computing net income per share:
Basic................................................................ 21,251 20,370 17,826
============ ============ ============
Diluted.............................................................. 21,921 21,968 21,485
============ ============ ============
</TABLE>

<PAGE>

ACTEL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share amounts)

<TABLE>
<CAPTION>
Retained Accumulated
Additional Earnings/ Other Total
Common Paid-In (Accumulated Comprehensive Shareholders'
Stock Capital Deficit) Income Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995............ $ 18 $ 59,638 $ (8,733) $ (3) $ 50,920
Issuance of 429,745 shares of common
stock under employee stock plans..... -- 2,955 -- -- 2,955
Tax benefit from exercise of stock
options.............................. -- 540 -- -- 540
Net income.............................. -- -- 14,938 -- 14,938
Other comprehensive income:
Change in unrealized gain on
investments........................ -- -- -- 4 4
------------
Comprehensive income.................. 14,942
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996............ $ 18 $ 63,133 $ 6,205 $ 1 $ 69,357
============ ============ ============ ============ ============
Conversion of 1,000,000 shares of
redeemable, convertible preferred
stock into 2,631,578 shares of
common stock......................... 3 18,144 -- -- 18,147
Issuance of 423,813 shares of common
stock under employee stock plans..... -- 3,970 -- -- 3,970
Tax benefit from exercise of stock -- 718 -- -- 718
options..............................
Net income.............................. -- -- 16,768 -- 16,768
Other comprehensive income:
Change in unrealized gain on
investments........................ -- -- -- 50 50
------------
Comprehensive income.................. 16,818
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997............ $ 21 $ 85,965 $ 22,973 $ 51 $ 109,010
============ ============ ============ ============ ============
Issuance of 785,036 shares of common
stock under employee stock plans..... 1 7,599 -- -- 7,600
Issuance of 25,000 shares of common
stock for patent acquisition......... -- 366 -- -- 366
Tax benefit from exercise of stock -- 1,097 -- -- 1,097
options..............................
Net income.............................. -- -- 14,987 -- 14,987
Other comprehensive income:
Change in unrealized gain on
investments....................... -- -- -- 127 127
------------
Comprehensive income.................. 15,114
Repurchase of common stock.............. (1) (2,935) (3,197) -- (6,133)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998............ $ 21 $ 92,092 $ 34,763 $ 178 $ 127,054
============ ============ ============ ============ ============
</TABLE>

<PAGE>

ACTEL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income........................................................... $ 14,987 $ 16,768 $ 14,938
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................................... 9,320 8,358 6,755
Loss on disposal of fixed assets................................... -- 175 --
Changes in operating assets and liabilities:
Accounts receivable.............................................. 4,315 4,360 (11,690)
Inventories...................................................... (5,197) 6,376 878
Deferred income taxes............................................ 2,613 (5,050) (6,373)
Other current assets & notes receivable from officers............ (1,619) 577 (319)
Accounts payable, accrued salaries and employee benefits, and
other accrued liabilities...................................... 1,724 (1,048) 5,140
Deferred income.................................................. 1,043 3,542 8,238
------------ ------------ ------------
Net cash provided by operating activities............................ 27,186 34,058 17,567
Investing activities:
Purchases of property and equipment.................................. (7,646) (6,764) (7,786)
Purchases of available-for-sale securities........................... (134,630) (157,753) (49,429)
Sales and maturities of available for sale securities................ 129,580 132,156 26,096
Investment in Chartered Semiconductor................................ -- -- (3,611)
Investment in GateField including purchase of design center, preferred
stock and other intangible assets ................................. (10,000) ---- ----
Other assets......................................................... 227 (1,447) 126
------------ ------------ ------------
Net cash used in investing activities................................ (22,469) (33,808) (34,604)
Financing activities:
Sale of common stock................................................. 7,600 3,970 2,955
Repurchase of common stock........................................... (6,133) -- --
Principal payments under notes payable and capital lease obligations.
-- -- (66)
------------ ------------ ------------
Net cash provided by financing activities............................ 1,467 3,970 2,889
Net increase (decrease) in cash and cash equivalents.................... 6,184 4,220 (14,148)
Cash and cash equivalents, beginning of year............................ 7,763 3,543 17,691
------------ ------------ ------------
Cash and cash equivalents, end of year.................................. $ 13,947 $ 7,763 $ 3,543
============ ============ ============
Supplemental disclosures of cash flows information and non-cash
investing and financing activities:
Cash paid during the year for interest............................... $ -- $ -- $ 2
Cash paid during the year for taxes.................................. 2,207 15,398 12,370
Tax benefits from exercise of stock options.......................... 1,097 718 540
Issuance of common stock for patent acquisition...................... 366 -- --
Conversion of preferred stock into common stock...................... -- (18,147) --
</TABLE>

<PAGE>

ACTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Actel Corporation (the "Company") was incorporated under the laws of
California on October 17, 1985. The Company designs, develops, and markets field
programmable gate arrays ("FPGAs") and associated development system software
and programming hardware. The Company also provides design services, including
FPGA, application specific integrated circuit ("ASIC"), and system design,
software development and implementation, and development of prototypes, first
articles and production units. Net revenues from the sale of FPGAs accounted for
97% of the Company's net revenues for 1998, compared with 98% for 1997 and 97%
for 1996. Design services, which the Company acquired from GateField Corporation
("GateField") in the third quarter of 1998, accounted for 1% of the Company's
net revenues for 1998.

FPGAs are logic integrated circuits that adapt the microprocessing and
memory capabilities of electronic systems to specific applications. The
Company's operating results are therefore subject to a variety of risks
characteristic of the semiconductor industry, including booking and shipment
uncertainties, wafer yield fluctuations, and price erosion, as well as general
economic conditions. FPGAs are used by designers of communication, computer,
industrial control, military/aerospace, and other electronic systems to
differentiate their products and get them to market faster. Information on the
Company's sales by geographic area is included in Note 11.

Advertising and Promotion Costs

The Company's policy is to expense advertising and promotion costs as
they are incurred. The Company's advertising and promotion expenses were
approximately $3,454,000, $4,050,000, and $3,595,000 for 1998, 1997, and 1996,
respectively.

Basis of Presentation

The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.

Beginning in 1998, the Company's fiscal year ends on the first Sunday
in January, instead of the Sunday closest to December 31. Fiscal 1998 was a
fifty-three week fiscal year, rather than a normal fifty-two week fiscal year,
but that would also have been the case under the old policy. Fiscal 1998, 1997,
and 1996 ended on January 3, 1999, December 28, 1997, and December 29, 1996,
respectively. For ease of presentation, December 31 has been utilized as the
fiscal year-end for all years in the consolidated financial statements and
accompanying notes.

Cash Equivalents and Short-Term Investments

For financial statement purposes, the Company considers all highly
liquid debt instruments with insignificant interest rate risk and with a
maturity of three months or less when purchased to be cash equivalents. Cash
equivalents consist primarily of cash deposits in money market funds that are
available for withdrawal without restriction. Short-term investments consist
principally of state and local municipal obligations.

The Company accounts for its investment in accordance with the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Management determines
the appropriate classification of debt securities at the time of purchase and
re-evaluates such designation as of each balance sheet date. At December 31,
1998, all debt securities are designated as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses reported as a component of comprehensive income in
shareholders' equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest and other income. Realized gains and
losses and declines in value judged to be other than temporary on
available-for-sale securities are included in interest income and other. The
cost of securities sold is based on the specific identification method. Interest
and dividends on securities classified as available-for-sale are included in
interest income and other.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash investments and trade
receivables. The Company invests in securities of A, A1, or P1 grade. The
Company is exposed to credit risks in the event of default by the financial
institutions or issuers of investments to the extent of amounts recorded on the
balance sheet. The Company manufactures and sells its products to customers in
diversified industries. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral. The Company
is exposed to credit risks in the event of insolvency by its customers and
limits its exposure to accounting losses by limiting the amount of credit
extended whenever deemed necessary. Three of the Company's distributors - Unique
(Wyle), Arrow, and Pioneer -- accounted for approximately 14%, 14%, and 9% of
the Company's net revenues for 1998, respectively. The same three distributors
accounted in the aggregate for approximately 46% of the Company's net revenues
for 1997 and 39% for 1996. Unique replaced Wyle as a distributor in the second
half of 1998. Unique and Wyle are both part of the worldwide Veba Electronics
Group. The loss of any one of these distributors could have a materially adverse
effect on the Company's results of operations and financial position.

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

Cash and Cash Equivalents. The carrying amount reported in
the balance sheets for cash and cash equivalents approximate fair
value.

Investment Securities. The fair values for marketable debt
securities are based on quoted market prices.

Foreign Currency Exchange Contracts. The fair value of the
Company's foreign currency exchange forward contracts are estimated
based on quoted market prices of comparable contracts.

Impact of Recently Issued Accounting Standards

As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of SFAS 130 had no impact on
the Company's net income or shareholders' equity. SFAS 130 requires unrealized
gains or losses on the Company's available-for-sale securities, which prior to
adoption were reported separately in shareholders' equity to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.

The following schedule of other comprehensive income shows the gross
current-period gain and the reclassification adjustment. Due to the immaterial
components of other comprehensive income in 1998, 1997 and 1996, tax amounts
were nominal.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Unrealized gain on available-for-sale securities........................ $ 178 $ 51 $ 1
Less reclassification adjustment for gain realized in net income........ (51) (1) 3
Other comprehensive income.............................................. $ 127 $ 50 $ 4
</TABLE>

During 1998, the Company adopted the Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"), which established standards for the way public
enterprises report information in annual statements and financial reports
regarding operating segments, products, services, geographic areas, and major
customers. The Company currently has one reportable segment under SFAS 131. See
Note 11 of Notes to the Consolidated Financial Statements.

Income Taxes

The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, the liability method is used in accounting
for income taxes. Deferred tax assets and liabilities are determined based on
the differences between financial reporting and the tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value). Given the volatility of the market for the
Company's products, the Company makes inventory provisions for potentially
excess and obsolete inventory based on backlog and forecast demand. However,
such backlog demand is subject to revisions, cancellations, and rescheduling.
Actual demand will inevitably differ from such backlog and forecast demand, and
such differences may be material to the financial statements.

Off-Balance-Sheet Risk

The Company enters into foreign exchange contracts to hedge firm
purchase commitments denominated in foreign currencies. The Company does not use
forward foreign exchange contracts for speculative or trading purposes. The
Company's accounting policies for these instruments are based on the Company's
designation of such instruments as hedging transactions. The criteria the
Company uses for designating an instrument as a hedge includes its effectiveness
in exposure reduction and one-to-one matching of the derivative financial
instrument to the underlying transaction being hedged. Gains and losses on these
contracts are recognized upon maturity of the contracts and are included in cost
of sales. If the criteria for designation of these instruments as hedging
transactions is not met, then the instruments would be marked to market, with
gains and losses recognized in that period. At December 31, 1998, the Company
had foreign exchange contracts maturing in January 1999 to purchase Japanese yen
for approximately $85,000 at an average rate of 137 yen per dollar.

In addition, the Company had an outstanding standby letter of credit in
the amount of approximately $1,062,000 at December 31, 1998.

Property and Equipment

Property and equipment are carried at cost less accumulated
depreciation (see Note 2). Depreciation and amortization have been provided on a
straight-line basis over the following estimated useful lives:

Equipment......................................... 2 to 5 years
Furniture and fixtures............................ 3 to 5 years
Leasehold improvements............................ Estimated useful life or
lease term, whichever
is shorter

Revenue Recognition

Revenue from product shipped to end customers is generally recorded at
the time of shipment. Revenue related to products shipped subject to customers'
evaluation is recognized upon final acceptance. Shipments to distributors are
made under agreements allowing certain rights of return and price protection on
unsold merchandise. For that reason, the Company defers recognition of revenues
and related cost of revenues on sales of products to distributors until such
products are sold by the distributor. Royalty income is recognized upon the sale
by others of products subject to royalties. Design Services revenues are
recognized as the services are performed.

Stock-Based Compensation

The Company accounts for stock-based awards to employees using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, no
compensation cost has been recognized for its fixed cost stock option plans or
its associated stock purchase plan. The Company provides additional pro forma
disclosures as required under Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation" ("SFAS 123").

Use of Estimates

The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimated.

2. Balance Sheet Detail
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------------ ------------
(in thousands)
<S> <C> <C>
Accounts receivable:
Trade accounts receivable.......................................................... $ 22,374 $ 26,767
Allowance for doubtful accounts.................................................... (1,554) (1,632)
------------ ------------
$ 20,820 $ 25,135
============ ============

Inventories:
Purchased parts and raw materials.................................................. $ 1,285 $ 3,681
Work-in-process.................................................................... 12,052 8,438
Finished goods..................................................................... 12,332 8,353
------------ ------------
$ 25,669 $ 20,472
============ ============
Property and equipment:
Equipment.......................................................................... $ 39,711 $ 33,664
Furniture and fixtures............................................................. 2,267 2,171
Leasehold improvements............................................................. 4,728 4,476
------------ ------------
46,706 40,311
Accumulated depreciation and amortization.......................................... (32,114) (25,230)
------------ ------------
$ 14,592 $ 15,081
============ ============
</TABLE>

Depreciation expense was approximately $8,134,563, $7,481,000, and
$5,879,000 for 1998, 1997,and 1996, respectively.
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------------ ------------
(in thousands)
<S> <C> <C>
Other Assets:
GateField intangible asset (net of accumulated amortization)....................... $ 1,948 $ --
GateField product marketing agreement.............................................. 6,000 --
GateField preferred stock.......................................................... 1,650 --
Texas instrument intangible asset (net of accumulated amortization)................ 668 1,545
Other.............................................................................. 5,658 5,425
------------ ------------
$ 15,924 $ 6,970
============ ============
</TABLE>

Amortization expense was approximately $1,185,000 (amortization
attributable to the GateField transaction was $252,000), $877,000, and $876,000
for 1998, 1997, and 1996, respectively. Texas Instrument intangible asset is
being amortized over its estimated useful life of five years. For further
discussion on GateField, see Note 5 of Notes to Consolidated Financial
Statements.

3. Available-for-Sale Securities

The following is a summary of available-for-sale securities at December
31, 1998 and 1997:

<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Values
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1998
Corporate bonds........................................ $ 3,500 $ -- $ -- $ 3,500
Commercial paper....................................... 4,415 -- -- 4,415
Floating rate notes.................................... 5,500 -- -- 5,500
Municipal obligations.................................. 47,271 180 (2) 47,449
------------ ------------ ------------ ------------
Total available-for-sale securities.................... 60,686 180 (2) 60,864
Less amounts classified as cash equivalents............. (4,415) -- -- (4,415)
------------ ------------ ------------ ------------
Total short-term investments.............................. $ 56,271 $ 180 $ (2) $ 56,449
============ ============ ============ ============

December 31, 1997
Municipal obligations.................................. $ 51,222 $ 50 $ -- $ 51,272
Less amounts classified as cash equivalents............. -- -- -- --
------------ ------------ ------------ ------------
Total short-term investments.............................. $ 51,222 $ 50 $ -- $ 51,272
============ ============ ============ ============
</TABLE>

The adjustments to net unrealized gains and (losses) on investments
included as a separate component of shareholders' equity totaled approximately
$127,000, $50,000, and $4,000 for the years ended December 31, 1998, 1997, and
1996, respectively. Realized gains and losses during 1998, 1997, and 1996 were
not material.

See Note 1 for discussion of how fair values were determined and the
Company's policy of accounting for investments.

The expected maturities of the Company's investments at December 31,
1998 are shown below. Expected maturities may differ from contractual maturities
because the issuers of the securities may have the right to prepay obligations
without prepayment penalties.

Available-for-sale (in thousands):
Due in less than one year.................................... $ 30,117
Due in one year or more...................................... 26,332
------------
$ 56,449
============

A significant proportion of the Company's securities represent
investments in floating rate municipal bonds with contractual maturities greater
than ten years. However, the interest rates on these debt securities generally
reset every ninety days, at which time the Company has the option to sell the
security or roll-over the investment at the new interest rate. As it is not the
Company's intention to hold these securities until their contractual maturities,
these amounts have been classified as short-term investments and are assumed to
have maturities of 90 days for average maturity calculations.

4. Investment in Chartered Semiconductor

The Company holds an equity investment of approximately $10,680,000 in
Chartered Semiconductor Manufacturing Ltd ("Chartered Semiconductor"), a
semiconductor company located in Singapore. The Company's investment in
Chartered Semiconductor amounts to less than 2% of total equity in Chartered
Semiconductor. The investment in Chartered Semiconductor is accounted for under
the cost method; therefore, changes in the value of the investment are not
recognized unless impairment in the value of the investment is deemed by
management to be "other than temporary."

5. GateField

In the third quarter of 1998, the Company entered into a product
marketing rights agreement with, and purchased convertible stock of, GateField.
Simultaneously, the Company acquired the Design Services Business Unit of
GateField in a transaction accounted for as a purchase. Consideration paid in
these transactions totaled $10,447,000, consisting entirely of cash.

The Company also purchased from GateField its Design Services Business
Unit located in Mt. Arlington, New Jersey. The Actel Design Services Group
provides varying levels of design services, including: design methodology and
tool consulting; turnkey FPGA and ASIC design; IP development and integration;
board and system design; software design and implementation; and development of
prototypes, first articles, and production units. The Company is the first FPGA
provider to offer system-level design expertise, expanding the Company's ability
to support a greater portion of customers' overall design and risk management.
The Design Services Group is a secure facility certified to handle government,
military, and proprietary designs. The Design Services Group is not involved in
the development efforts underlying the product marketing rights agreement. The
net assets of the Design Services Group were valued at $447,000 and consist
principally of fixed assets, accounts receivable, deposits, and accounts
payable. Intangible assets were valued at $2,350,000 and consist of $300,000
related to backlog, $1,000,000 related to workforce-in-place, and $1,050,000
related to goodwill. Backlog is being amortized over its estimated useful life
of six months. The Design Services Group workforce and goodwill are being
amortized over their estimated useful life of five years and are included in
"Other assets."

6. Line of Credit

The Company has a line of credit with a bank that provides for
borrowings not to exceed $5,000,000. The agreement contains covenants that
require the Company to maintain certain financial ratios and levels of net
worth. At December 31, 1998 the Company was in compliance with the covenants for
the line of credit. Borrowings against the line of credit bear interest at the
bank's prime rate. There were no borrowings against the line of credit at
December 31, 1998. The line of credit expires in May 1999.

7. Commitments

The Company leases its facilities and certain equipment under
non-cancellable lease agreements. The principal facility lease expired in June
1998, and provided for two consecutive five-year renewal options. The Company
has elected to take the first five-year renewal option. The current lease
agreement expires in June 2003, with one additional five-year renewal option.
The equipment leases are accounted for as operating leases. The lease terms
expire at various dates through September 2001. All of these leases require the
Company to pay property taxes, insurance, and maintenance and repair costs. At
December 31, 1998, the Company had no capital lease obligations.

Future minimum lease payments under all non-cancellable leases are as
follows:

Operating
Leases
------------
1999............................................................ $ 3,683
2000............................................................ 3,548
2001............................................................ 3,413
2002............................................................ 3,039
2003............................................................ 1,227
------------
Total minimum lease payments.................................... $ 14,910
============

Rental expense under operating leases was approximately $3,282,730,
$2,481,313, and $1,615,000 for 1998, 1997, and 1996, respectively.

8. Retirement Plan

Effective December 10, 1987, the Company adopted a tax deferred savings
plan for the benefit of qualified employees. The plan is designed to provide
employees with an accumulation of funds at retirement. Employees may elect at
any time to have salary reduction contributions made to the plan.

The Company may make contributions to the plan at the discretion of the
Board of Directors. The first contributions to the plan by the Company were made
in March 1998, based on net revenues and net income for the 1997 fiscal year.
The Company also made distributions to the plan in January 1999, based on net
revenues and net income for the 1998 fiscal year. For 1998, the plan provided
for a maximum contribution of 5.0% of an eligible employee's gross earnings or
$1,500, whichever is less, if the Company achieved its net revenue and net
income goals. To be eligible for the contribution, an employee must have been
hired on or before July 15, 1998, and been an active, regular employee on
December 31, 1998. Since the Company did not achieve its net revenue or net
income goals in 1998 for purposes of the plan, the amount of the contribution
was reduced to 1.5% of an eligible employee's gross earnings, up to a maximum of
$1,500. The aggregate amount contributed to the plan for the 1998 plan year was
$387,166. In the 1997 plan year, the aggregate amount contributed was $340,750.
The contributions vest annually, retroactively from an eligible employee's date
of hire, at the rate of 25% per year. In addition, contributions become fully
vested upon retirement from the Company at age 65. There is no guarantee the
Company will make any contributions to the plan in the future, regardless of its
financial performance. If the Company, at its discretion, chooses to make a
contribution again in the future, the amount could be higher or lower.

9. Shareholders' Equity

Stock Repurchase

The Company authorized a stock repurchase program in September 1998
whereby up to one million shares of the Company's common stock may be purchased
from time to time in the open market at the discretion of management. During
1998, the Company repurchased 675,000 shares of common stock for $6.1 million.
The Company plans to reissue these shares.

Stock Option Plans

The Company has adopted stock option plans under which officers,
employees and consultants may be granted incentive stock options or nonqualified
options to purchase shares of the Company's common stock. At December 31, 1998,
8,393,454 shares of common stock were reserved for issuance under these plans,
of which 284,299 were available for grant. In January 1998, the Board of
Directors authorized the Company to exchange stock options granted under these
plans to all employees (except officers with more than one year seniority) and
having an exercise price greater than $11.75 for options with an exercise price
of $11.75 (the fair market value of the Company's stock on January 26, 1998,
when the exchange was effected). Under the terms of this stock option repricing,
no portion of any repriced option was exercisable until July 27, 1998, but
normal vesting schedules were not impacted. Options representing the right to
purchase 1,702,141 shares of common stock were repriced.

The Company has also adopted a Directors' Stock Option Plan, under
which directors who are not employees of the Company may be granted nonqualified
options to purchase shares of the Company's common stock. At December 31, 1998,
230,000 shares of common stock were reserved for issuance under such plan, of
which 92,500 were available for grant.

The Company grants stock options under its plans at a price equal to
the fair value of the Company's common stock on the date of grant. Subject to
continued service, options generally vest over a period of four years and expire
ten years from the date of grant.

The following table summarizes the Company's stock option activity and
related information for the three years ended December 31, 1998:

<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
-------------- ----------- -------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1...... 4,252,115 $ 13.98 3,542,836 $ 12.38 2,506,331 $ 10.17
Granted....................... 3,626,060 11.44 1,252,895 17.39 2,633,911 14.24
Exercised..................... (495,997) 9.50 (214,821) 8.29 (204,344) 6.60
Cancelled..................... (2,330,338) 16.57 (328,795) 13.40 (1,393,062) 12.79
Outstanding at December 31....
-------------- -------------- --------------
5,051,840 11.41 4,252,115 13.98 3,542,836 12.38
============== ============== ==============
</TABLE>

The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------------
Options Outstanding Options Exercisable
---------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number of Contract Exercise Number of Exercise
Range of Exercise Prices Shares Life Price Shares Price
- --------------------------------------------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
$ 1.80 - $ 9.40.................... 540,009 5.34 years $ 7.51 416,912 $ 6.98
9.50 - 10.00.................... 78,300 8.18 9.84 24,399 9.50
10.06.................... 919,613 9.57 10.06 9,311 10.06
10.25 - 10.50.................... 26,043 7.69 10.28 10,843 10.31
10.63.................... 633,945 6.65 10.63 373,470 10.63
10.88 - 11.13.................... 318,517 9.33 11.09 7,487 11.11
11.75.................... 1,477,476 8.17 11.75 351,723 11.75
11.88 - 14.88.................... 611,722 8.35 13.54 57,643 13.53
15.00 - 22.38.................... 443,215 8.22 16.45 53,511 17.06
22.69.................... 3,000 8.67 22.69 1,125 22.69
----------- -----------
1.80 - 22.69.................... 5,051,840 8.03 11.41 1,306,424 10.14
=========== ===========
</TABLE>

At December 31, 1997, 1,099,059 outstanding options were exercisable; at
December 31, 1996, 691,944 outstanding options were exercisable. The
weighted-average fair value of options granted during 1998, 1997, and 1996 were
$4.69, $7.38, and $4.92 respectively.

Employee Stock Purchase Plan

The Company has adopted an Employee Stock Purchase Plan (the "ESPP"),
under which eligible employees may designate not more than 15% of their cash
compensation to be deducted each pay period for the purchase of common stock (up
to a maximum of $25,000 worth of common stock in any year). At December 31,
1998, 3,019,680 shares of common stock were authorized for issuance under the
ESPP. The ESPP is administered in consecutive, overlapping offering periods of
up to 24 months each, with each offering period divided into four consecutive
six-month purchase periods beginning August 1 and February 1 of each year.
Pursuant to the terms of the ESPP, all participants were automatically withdrawn
from all offering periods on July 31, 1998, and automatically re-enrolled in the
new offering period that began on August 1, 1998. On the last business day of
each purchase period, shares of common stock are purchased with employees'
payroll deductions accumulated during the six months at a price per share equal
to 85% of the market price of the common stock on the first day of the
applicable offering period or the last day of the purchase period, whichever is
lower. There were 291,469 and 208,992 shares issued under the ESPP in 1998 and
1997, respectively, and 1,965,503 remained available for issuance at December
31, 1998. The weighted-average fair value of employee stock purchase rights
granted during 1998, 1997, and 1996 were $5.52, $4.69, and $5.46 respectively.

Pro Forma Disclosures

Pro forma information regarding net income and net income per share is
required by SFAS 123, which also requires that the information be determined as
if the Company had accounted for its stock-based awards to employees granted
subsequent to December 31, 1994, under the fair value method. The fair value for
these stock-based awards to employees was estimated at the date of grant using
the Black-Scholes pricing model with the following weighted-average assumptions
for 1998, 1997, and 1996: risk-free interest rates of 5.34%, 5.95%, and 5.84%,
respectively; no dividend yield; volatility factor of the expected market price
of the Company's common stock of 51%, 48%, and 50%, respectively; and a weighted
average expected life for the options and employee stock purchase rights of four
years and two years respectively.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's stock-based awards to employees have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock-based awards to employees.

For purposes of pro forma disclosures, the estimated fair value of the
Company's stock-based awards to employees is amortized to expense over the
options' vesting period (for options). The Company's pro forma information is as
follows:
<TABLE>
<CAPTION>

Year Ended December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Pro forma net income.................................................... $ 5,117 $ 11,405 $ 10,452
Pro forma earnings per share:
Basic................................................................ 0.24 0.56 0.59
Diluted.............................................................. 0.24 0.54 0.50
</TABLE>

Since SFAS 123 is applicable only to awards granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until the year ended
December 31, 1999. The effects on pro forma disclosures of applying SFAS 123 are
not likely to be representative of the effects on pro forma disclosures in
future years.

10. Tax Provision

The tax provision consists of:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Federal - current....................................................... $ 3,565 $ 11,585 $ 12,150
Federal - deferred...................................................... 1,416 (4,544) (5,571)
State - current......................................................... 592 2,304 2,460
State - deferred........................................................ 1,197 (506) (1,089)
Foreign - current....................................................... 445 190 197
------------ ------------ ------------
$ 7,215 $ 9,029 $ 8,147
============ ============ ============
</TABLE>

The tax provision reconciles to the amount computed by multiplying
income before tax by the U.S. statutory rate as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Provision at statutory rate............................................ $ 7,771 $ 9,029 $ 8,079
Change in valuation allowance........................................... (440) (440) (432)
Federal research credits................................................ (856) (772) (425)
State taxes, net of federal benefit..................................... 1,163 1,169 891
Other................................................................... (423) 43 34
------------ ------------ ------------
Tax provision........................................................... $ 7,215 $ 9,029 $ 8,147
============ ============ ============
</TABLE>

Significant components of the Company's deferred tax assets and
liabilities for federal and state income taxes are as follows:

<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------------ ------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Depreciation................................................................... $ 1,618 $ 219
Distributor reserve............................................................ 12,452 12,350
Charge for in-process research expenses........................................ 4,752 5,450
Inventories.................................................................... 1,455 5,323
Other, net..................................................................... 3,917 3,905
------------ ------------
24,194 27,247
Valuation allowance............................................................ (2,166) (2,606)
------------ ------------
Net deferred tax assets................................................ $ 22,028 $ 24,641
============ ============
</TABLE>

The valuation allowance declined by approximately $440,000 during 1997.

11. Segment Disclosures

The Company operates in a single industry segment: designing,
developing, and marketing FPGAs. Net revenue from FPGA sales was 97%, 98%, and
97% for the years ended December 31, 1998, 1997, and 1996, respectively. The
Company also derives revenues from the sale of systems software and hardware,
which is used to program the FPGAs. The Company also performs design services,
including FPGA, ASIC, and system design; software development and
implementation; and development of prototypes, first articles and production
units. Design Services, which the Company acquired from GateField. in the third
quarter of 1998, accounted for 1% of the Company's net revenue in 1998.

The Chief Executive Officer has been identified as the Chief Operating
Decision Maker (CODM) because he has final authority over resource allocation
decisions and performance assessment. The CODM does not receive discrete
financial information about asset allocation, expense allocation, or
profitability from its system sales business or Design Services.

The Company markets its products in the United States and in foreign
countries through its sales personnel, independent sales representatives, and
distributors. The Company's geographic sales are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1998 1997 1996
-------------------------- -------------------------- --------------------------
(in thousands, except percentages)

<S> <C> <C> <C> <C> <C> <C>
United States................. $ 102,817 67% $ 107,308 69% $ 99,131 67%
Export:
Europe................... 29,675 19 26,239 17 26,105 18
Japan.................... 10,658 7 13,328 8 15,340 10
Other international...... 11,277 7 8,983 6 8,203 5
------------ ------------ ------------ ------------ ------------ ------------
$ 154,427 100% $ 155,858 100% $ 148,779 100%
============ ============ ============ ============ ============ ============
</TABLE>

As is common in the semiconductor industry, the Company generates
significant revenues from the sales of its products through distributors. The
Company's principal distributors are Unique Technologies, Inc. ("Unique") and
Pioneer-Standard Electronics, Inc. ("Pioneer") in North America and Arrow
Electronics, Inc. and Zeus Electronics (collectively, "Arrow") worldwide. Unique
replaced Wyle Electronics Marketing Group ("Wyle") as a distributor in the
second half of 1998. Unique and Wyle are both part of the worldwide Veba
Electronics Group. The following table sets forth, for each of the last three
years, the percentage of revenues derived from all customers accounting for 10%
or more of net revenues in any of such years:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Wyle/Unique............................................................. 14% 17% 14%
Arrow................................................................... 14% 17% 14%
Pioneer................................................................. 9% 12% 11%
</TABLE>

The Company does not recognize revenue on product shipped to a distributor until
the distributor resells the product to its customer.

12. Patent Infringement

QuickLogic

Lemelson

Other

As is typical in the semiconductor industry, the Company has been
notified of claims that it may be infringing patents owned by others. Management
does not believe that any of these claims will have a materially adverse effect
on the Company's financial condition or trends in operating results. Were an
unfavorable outcome to occur, however, there exists the possibility of a
material adverse impact on the results of operations or cash flows of the period
in which the unfavorable outcome occurs. As it has in the past, the Company may
obtain licenses under patents that it is alleged to infringe. The Company is
currently in license negotiations with several companies, including two
semiconductor manufacturers with significantly greater financial and
intellectual property resources than the Company.

13. Earnings Per Share

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"), beginning with the
financial statements for the year ended December 31, 1997, and all share and per
share data for prior periods have been adjusted retroactively to comply with
SFAS 128.

The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
(in thousands, except per share amounts)
Basic:
Average common shares outstanding....................................... 21,251 20,370 17,826
------------ ------------ ------------
Shares used in computing net income per share........................... 21,251 20,370 17,836
============ ============ ============
Net income.............................................................. $ 14,987 $ 16,768 $ 14,938
============ ============ ============
Net income per share.................................................... $ 0.71 $ 0.82 $ 0.84
============ ============ ============

Diluted:
Average common shares outstanding....................................... 21,251 20,370 17,826
Net effect of dilutive stock options, warrants, and convertible preferred
stock - based on the treasury stock method........................... 670 1,598 3,659
------------ ------------ ------------
Shares used in computing net income per share........................... 21,921 21,968 21,485
============ ============ ============
Net income.............................................................. $ 14,987 $ 16,768 $ 14,938
============ ============ ============
Net income per share.................................................... $ 0.68 $ 0.76 $ 0.70
============ ============ ============
</TABLE>

Outstanding options to purchase approximately 1,096,000, 623,000 and
120,000 shares, for the years 1998, 1997, and 1996, respectively, under the
Company's Stock Option Plan were not included in the calculation to derive
diluted income per share as their inclusion would have had an anti-dilutive
effect.

<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS AND SHAREHOLDERS

ACTEL CORPORATION

We have audited the accompanying consolidated balance sheets of Actel
Corporation as of December 31, 1998 and 1997, and the related consolidated
statements of income, cash flows, and shareholders' equity for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Actel
Corporation at December 31, 1998 and 1997 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

San Jose, California
January 21, 1999

<PAGE>
STOCK LISTING

Actel's common stock has been traded on the over-the-counter market since
the Company's initial public offering (IPO) on August 2, 1993, and is quoted on
the NASDAQ National Market System under the symbol "ACTL." The Company has never
paid cash dividends on its common stock and has no present plans to do so.

On March 29, 1999, there were 315 shareholders of record. Since many
shareholders have their shares held of record in the name of their brokerage
firm, the actual number of shareholders is estimated by the Company to be about
9,000.

During the last two years, the quarterly high and low sale prices for the
common stock were:

1998 High Low
- --------------------------------------------------- ------------ ------------
First Quarter...................................... $ 16.125 $ 10.75
Second Quarter..................................... 15.75 10.75
Third Quarter...................................... 13.125 9.00
Fourth Quarter..................................... 20.75 7.6875

1997 High Low
- --------------------------------------------------- ------------ ------------
First Quarter...................................... $ 29.125 $ 17.875
Second Quarter..................................... 22.125 15.375
Third Quarter...................................... 24.125 15.75
Fourth Quarter..................................... 19.25 11.25

EXHIBIT 21

ACTEL CORPORATION

--------------------------------------

Subsidiaries

Actel Europe, Ltd., a U.K. corporation

Actel Europe SARL, a French corporation

Actel GmbH, a German corporation

Actel Pan-Asia Corporation, a Nevada corporation

Actel Pan-Asia, Hong Kong Ltd., a Hong Kong corporation

Actel Japan, KK, a Japanese corporation

EXHIBIT 23

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report (Form
10-K) of Actel Corporation of our report dated January 21, 1999, included in the
1998 Annual Report to Shareholders of Actel Corporation.

Our audits also included the financial statement schedule of Actel
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements as a whole, presents
fairly in all material respects the information set forth therein.

We also consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-74492, Form S-8 No. 333-3398, and Form S-8 No.
333-71627) of our report dated January 21, 1999, with respect to the
consolidated financial statements of Actel Corporation incorporated by reference
in its Annual Report (Form 10-K) for the year ended December 31, 1998, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Actel
Corporation.
/s/ Ernst & Young LLP

San Jose, California
April 2, 1999

EXHIBIT 24

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints John C. East, Henry L. Perret, and
David L. Van De Hey, and each of them acting individually, as his
attorney-in-fact, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------------- ----------------------------------------- -------------
<S> <C> <C>
/s/ John C. East President and Chief Executive Officer April 2, 1999
- ------------------------------------ (Principal Executive Officer) and
(John C. East) Director

/s/ Henry L. Perret Vice President of Finance and Chief April 2, 1999
- ------------------------------------ Financial Officer (Principal Financial
(Henry L. Perret) and Accounting Officer)

/s/ Jos C. Henkens Director April 2, 1999
- ------------------------------------
(Jos C. Henkens)

/s/ Jacob S. Jacobsson Director April 2, 1999
- ------------------------------------
(Jacob S. Jacobsson)

/s/ Frederic N. Schwettmann Director April 2, 1999
- ------------------------------------
(Frederic N. Schwettmann)

/s/ Robert G. Spencer Director April 2, 1999
- ------------------------------------
(Robert G. Spencer)
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