##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended January 2, 2005                                                   
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-21970





ACTEL CORPORATION


(Exact name of Registrant as specified in its charter)


|                                                                                          |  |                                         
|----------------------------------------------------------------------------------------- |  | ----------------------------------------
|California                                                                                |  | 77-0097724                              
|(State or other jurisdiction of
    incorporation or organization)                        |  | (I.R.S. Employer
    Identification No.)
|                                                                                         
|2061 Stierlin Court
    Mountain View, California(Address of principal executive offices) |  | 94043-4655(Zip Code)                    

(650) 318-4200


(Registrants telephone number, including area code)





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


Preferred Stock Purchase Rights


(Title of class)





þ o


þ


þ o


July 5, 2002 $371,000,000.


March 3, 2005: 25,167,938.





In this Annual Report on Form 10-K, Actel Corporation
and its consolidated subsidiaries are referred to as
we, us, our, or
Actel. You should read the information in this
Annual Report with the Risk Factors at the end of Item 1.
Unless otherwise indicated, the information in this Annual
Report is given as of March 3, 2005, and we undertake no
obligation to update any of the information, including
forward-looking statements. All forward-looking statements are
made under the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Statements containing 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 Risk Factors could cause actual
results to differ materially from those projected in the
forward-looking statements.










---

TABLE OF CONTENTS



|              |                                                                                                                         |  |  |  |  |  |  | 
|------------- | ----------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | ITEM 1. BUSINESS                                                                                                       
|              | ITEM 2. PROPERTIES                                                                                                     
|              | ITEM 3. LEGAL PROCEEDINGS                                                                                              
|              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                            
|PART II      
|              | ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|              | ITEM 6. SELECTED FINANCIAL DATA                                                                                        
|              | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                          
|              | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                    
|              | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                    
|              | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                           
|              | ITEM 9A. CONTROLS AND PROCEDURES                                                                                       
|              | ITEM 9B. OTHER INFORMATION                                                                                             
|PART III     
|              | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                            
|              | ITEM 11. EXECUTIVE COMPENSATION                                                                                        
|              | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                                
|              | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                
|              | ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                        
|PART IV      
|              | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                       
|SIGNATURES   
|EXHIBIT INDEX
|EXHIBIT 21   
|EXHIBIT 23   
|EXHIBIT 24   
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32   



---



##### Table of Contents






PART I







|        |         
|------- | --------
|ITEM 1. | BUSINESS

Overview












http://www.actel.com


Industry Background




1



---



##### Table of Contents















2



---



##### Table of Contents













Strategy






3



---



##### Table of Contents







|  |                   
|- | ------------------
| | Value-Based Market







|  |                        
|- | -----------------------
| | High-Reliability Market



Products and Services






| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | reprogrammable FPGAs based on Flash technology,                  
|
| |  | one-time programmable FPGAs based on antifuse
    technology, and
|
| |  | high-reliability (HiRel) FPGAs.                                  



4



---



##### Table of Contents





|  |      
|- | -----
| | FPGAs









| |   |            
| | - | -----------
| |  | Flash FPGAs



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Flash-based FPGAs include the ProASIC3, ProASIC3E, ProASIC
    PLUS, and ProASIC families. The combination of a fine-grained,
    single-chip ASIC-like architecture and nonvolatile Flash
    configuration memory makes our Flash-based FPGAs economical
    alternatives to ASICs for low- and medium-speed applications.
    Unlike other FPGAs available on the market today, which are
    either volatile or non-reprogrammable, our Flash devices are
    nonvolatile and reprogrammable.



| |   |           
| | - | ----------
| |  | ProASIC3/E



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On January 24, 2005, we announced the ProASIC3 and
    ProASIC3E families, our third generation of Flash-based
    programmable logic solutions. The ProASIC3/E families were
    designed to address the market demand for full-featured,
    cost-effective FPGAs in consumer, automotive, and other
    price-sensitive applications. Ranging in density from 30,000 to
    3,000,000 gates, the new ProASIC3/E families offer integrated
    secure in-system programmability (ISP) using Advanced
    Encryption Standard (AES) encryption, 64-bit 66 MHz
    Peripheral Component Interconnect (PCI) performance, and
    the FPGA industrys first on-chip user Flash memory. We
    market the ProASIC3/E families as the worlds lowest cost
    FPGAs. Samples are available through our early access program,
    with production quantities scheduled for the end of 2005.



| |   |             
| | - | ------------
| |  | ProASIC PLUS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The ProASIC PLUS family of FPGAs, which was first shipped for
    revenue in 2002, consists of seven devices: the 75,000-gate
    APA075; the 150,000-gate APA150; the 300,000-gate APA300; the
    450,000-gate APA450; the 600,000-gate APA600; the 750,000-gate
    APA750; and the 1,000,000-gate APA1000. As our second-generation
    Flash family, ProASIC PLUS devices offer added features and
    improved user-configurable inputs and outputs (I/Os) and ISP
    compared with the first-generation ProASIC family. Manufactured
    on a 0.22-micron embedded Flash process at UMC, the ProASIC PLUS
    family can be ordered in approximately 136 speed, package, and
    temperature variations.



| |   |        
| | - | -------
| |  | ProASIC



| |                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The ProASIC family of FPGAs, which was first shipped for revenue
    in 1999, consists of four products: the 100,000-gate A500K050;
    the 290,000-gate A500K130; the 370,000-gate A500K180; and the
    475,000-gate A500K270. Manufactured on a 0.25-micron embedded
    Flash process at Infineon, the family can be ordered in
    approximately 30 speed, package, and temperature variations.

5



---



##### Table of Contents





| |   |               
| | - | --------------
| |  | Antifuse FPGAs



| |                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our antifuse-based FPGAs include the Axcelerator, eX, SX-A, SX,
    MX, and legacy families, all of which are nonvolatile, secure,
    reliable, live at power-up, single-chip solutions. Our antifuse
    FPGA devices span six process generations, with each offering
    higher performance, lower power consumption, and improved
    economies of scale.



| |   |            
| | - | -----------
| |  | Axcelerator



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Axcelerator family of FPGAs, which was first shipped for
    revenue in 2002, consists of five devices: the 125,000-gate
    AX125; the 250,000-gate AX250; the 500,000-gate AX500; the
    1,000,000-gate AX1000; and the 2,000,000-gate AX2000.
    Manufactured on a 0.15-micron, seven-layer metal antifuse
    process at UMC, the family can be ordered in approximately 204
    speed, package, and temperature variations. The Axcelerator
    family was targeted at high-speed communications and bridging
    applications and designed to deliver high performance, logic
    utilization, and design security with low power consumption.



| |   |   
| | - | --
| |  | eX



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The eX family of FPGAs, which was first shipped for revenue in
    2001, consists of three devices: the 3,000-gate eX64; the
    6,000-gate eX128; and the 12,000-gate eX256. Manufactured on a
    0.25-micron antifuse process at UMC, the family can be ordered
    in approximately 66 speed, package, and temperature variations.
    The eX family was designed for the e-appliance market of
    internet-related consumer electronics and includes a sleep mode
    to conserve battery power. eX devices also provide a small form
    factor, high design security, and a straightforward design
    process. We market the eX family as high-performance single-chip
    programmable replacements for low-capacity ASICs.



| |   |            
| | - | -----------
| |  | SX-A and SX



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The SX-A family of FPGAs, which was first shipped for revenue in
    1999, consists of four products: the 12,000-gate A54SX08A; the
    24,000-gate A54SX16A; the 48,000-gate A54SX32A; and the
    108,000-gate A54SX72A. Manufactured on a 0.22-micron antifuse
    process at UMC and on a 0.25-micron antifuse process at
    Matsushita, the family can be ordered in approximately 253
    speed, package, and temperature variations.                                                                                                                                                  
|
| | The SX family of FPGAs, which was first shipped for revenue in
    1998, consists of four products: the 12,000-gate A54SX08; the
    24,000-gate A54SX16 and A54SX16P; and the 48,000-gate A54SX32.
    Manufactured on a 0.35-micron antifuse process at Chartered, the
    family can be ordered in approximately 200 speed, package, and
    temperature variations.                                                                                                                                                                                                                       
|
| | SX was the first family to be built on our fine-grained,
    sea of modules metal-to-metal architecture. We
    market the SX-A and SX families as programmable devices with
    ASIC-like speed, power consumption, and pricing in volume
    production. In addition, the SX-A family offers I/ O
    capabilities that provide full support for
    hot-swapping. Hot swapping allows system boards to
    be exchanged while systems are running, a capability important
    to many portable, consumer, networking, telecommunication, and
    fault-tolerant computing applications.



| |   |   
| | - | --
| |  | MX



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The MX family of FPGAs, which was first shipped for revenue in
    1997, consists of six products: the 3,000-gate A40MX02; the
    6,000-gate A40MX04; the 14,000-gate A42MX09; the 24,000-gate
    A42MX16; the 36,000-gate A42MX24; and the 54,000-gate A42MX36.
    Manufactured on 0.45-micron antifuse processes at Chartered and
    Winbond, the family can be ordered in approximately 330 speed,
    package, and temperature variations. We market the MX family as
    a line of low-cost, single-chip, mixed-voltage programmable
    ASICs for 5.0-volt applications.

6



---



##### Table of Contents





| |   |                
| | - | ---------------
| |  | Legacy Products



| |                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The MX family incorporates the best features of our legacy FPGAs
    and over time should replace those earlier products in new
    5.0-volt commercial designs. Legacy products include the DX, XL,
    ACT 3, ACT 2, and ACT 1 families.



| |   |          
| | - | ---------
| |  | DX and XL



| |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The 3200DX family of FPGAs, which was first shipped for revenue
    in 1995, consists of five products: the 12,000-gate A3265DX; the
    20,000-gate A32100DX; the 24,000-gate A32140DX; the 36,000-gate
    A32200DX; and the 52,000-gate A32300DX. Manufactured on a
    0.6-micron antifuse process at Chartered, the family can be
    ordered in approximately 171 speed, package, and temperature
    variations.
|
| | The 1200XL family of FPGAs, which was first shipped for revenue
    in 1995, consists of three products: the 6,000-gate A1225XL; the
    9,000-gate A1240XL; and the 16,000-gate A1280XL. Manufactured on
    a 0.6-micron antifuse process at Chartered, the family can be
    ordered in approximately 126 speed, package, and temperature
    variations.                                                           
|
| | The DX and XL families were designed to integrate system logic
    previously implemented in multiple programmable logic circuits.
    The DX family also offers fast dual-port SRAM, which is
    typically used for high-speed buffering.                                                                                                                                                                            



| |   |      
| | - | -----
| |  | ACT 3



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The ACT 3 family of FPGAs, which was first shipped for revenue
    in 1993, consists of five products: the 3,000-gate A1415; the
    6,000-gate A1425; the 9,000-gate A1440; the 11,000-gate A1460;
    and the 20,000-gate A14100. Manufactured on a 0.6-micron
    antifuse process at Chartered and a 0.8-micron antifuse process
    at Winbond, the family can be ordered in approximately 189
    speed, package, and temperature variations. The family was
    designed for applications requiring high speed and a high number
    of I/Os.



| |   |      
| | - | -----
| |  | ACT 2



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The ACT 2 family of FPGAs, which was first shipped for revenue
    in 1991, consists of three products: the 6,000-gate A1225; the
    9,000-gate A1240; and the 16,000-gate A1280. Manufactured on
    1.0- and 0.9-micron antifuse processes at Matsushita, the family
    can be ordered in approximately 73 speed, package, and
    temperature variations. ACT 2 was our second-generation FPGA
    family and featured a two-module architecture optimized for
    combinatorial and sequential logic designs.



| |   |      
| | - | -----
| |  | ACT 1



| |                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The ACT 1 family of FPGAs, which was first shipped for revenue
    in 1988, consists of two products: the 2,000-gate A1010 and the
    4,000-gate A1020. Manufactured on 1.0- and 0.9-micron antifuse
    processes at Matsushita, the family can be ordered in
    approximately 95 speed, package, and temperature variations. ACT
    1 was the original family of antifuse FPGAs.



| |   |            
| | - | -----------
| |  | HiRel FPGAs



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our HiRel FPGAs include automotive products, which are offered
    in plastic packages; military/avionics (Mil/Av) products, which
    are offered in plastic or ceramic (hermetic) packages; and
    radiation tolerant (Rad Tolerant) and radiation hardened (Rad
    Hard) products, which are offered in hermetic packages. We
    believe that we are the leading supplier of high reliability
    FPGAs. Our FPGAs have been designed into numerous military and
    aerospace applications, including command and data handling,
    attitude reference and control, communication payload, and
    scientific instrument interfaces. Our space-qualified FPGAs have
    been on board more than 100 launches and accepted for
    flight-unit applications on more than 300 satellites.

7



---



##### Table of Contents





| |   |           
| | - | ----------
| |  | Automotive



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | To address the rapidly growing and cost-sensitive automotive
    electronics market, we introduced in 2003 an automotive line of
    FPGAs covering a wide range of densities, voltages, and
    features. We offer extended automotive temperature versions of
    all members of our eX, SX-A, and MX antifuse families. On
    February 9, 2004, we announced the availability of our
    Flash-based ProASIC PLUS FPGAs, with densities up to 1,000,000
    gates, in extended automotive temperature range versions. Our
    ProASIC PLUS automotive devices are suitable for telematics and
    other in-cab applications that require flexible,
    high-reliability solutions, including navigation, speech
    recognition, passenger control and comfort systems, intelligent
    occupant sensors, and heads-up displays. Due to the
    tamper-resistant nature of our Flash and antifuse technologies,
    our automotive line is also appropriate for occupant safety
    systems, electronic engine control modules, and other
    under-the-hood powertrain management systems. We market our
    automotive line as the FPGA industrys broadest automotive
    product portfolio that addresses the unique needs of vehicle
    designers.



| |   |       
| | - | ------
| |  | Mil/Av



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Mil/Av devices are offered in three packaging and screening
    options: military-temperature plastic (MTP),
    military-temperature hermetic (MTH), and MIL-STD 883
    Class B hermetic (Class B). MTP devices are offered in
    plastic packages and screened to military temperature
    specifications. MTH devices are offered in hermetic packages and
    screened to military temperature specifications. Class B
    devices are offered in hermetic packages and screened to MIL-STD
    883 Class B specifications.                                                                                                                                                                                                                                                                               
|
| | All members of our antifuse FPGAs families (except for the AX125
    and the three eX devices) are offered in MTP packaging and
    screening. We have received complete Qualified Manufacturers
    Listing (QML) certification for the full line of MTP
    antifuse FPGAs, which can be integrated into design applications
    that would otherwise require higher-cost ceramic-packaged
    devices. The QML plastic certification also permits customers to
    integrate commercial and military production without
    compromising quality or reliability.                                                                                                                                                                                                                                                 
|
| | We offer 22 devices in MTH or Class B packaging and
    screening: the 2,000-gate A1010B; the 4,000-gate A1020B; the
    6,000-gate A1425A; the 9,000-gate A1240A; the 11,000-gate
    A1460A; the 16,000-gate A1280A and A1280XL; the 20,000-gate
    A14100A and A32100DX; the 24,000-gate A54SX16; the 36,000-gate
    A32200DX; the 48,000-gate A54SX32 and A54SX32A; the 54,000-gate
    A42MX36; the 108,000-gate A54SX72A; the 250,000-gate AX250; the
    300,000-gate APA300; the 500,000-gate AX500; the 600,000-gate
    APA600; the 1,000,000-gate APA1000 and AX1000; and the
    2,000,000-gate AX2000. Hermetic-packaged Mil/ Av devices are
    appropriate for avionics, munitions, harsh industrial
    environments, and ground-based equipment when radiation
    survivability is not critical.



| |   |             
| | - | ------------
| |  | Rad Tolerant



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On February 11, 2004, we announced the introduction of the
    RTAX250S FPGA, extending our RTAX-S family to three devices. On
    July 6, 2004, we announced the availability of engineering
    samples for all three devices, which have features optimized for
    space applications, including hardened registers that offer
    practical immunity to single-event upsets and usable
    error-corrected onboard random access memory (RAM). We believe
    that these features, in combination with proven reliability at
    extreme temperatures, live-at-power-up functionality on a single
    chip, and an expanded set of I/O standards, enable the RTAX-S
    family to meet the density, performance, and
    radiation-resistance requirements of many satellite bus and
    payload applications, including command and data handling,
    attitude and orbit control, and spacecraft power and
    environmental controls. We market the RTAX-S family as a
    radiation-tolerant alternative to hard-wired ASICs for bus and
    payload applications in low-, mid-, and geosynchronous-earth
    orbit satellites.
|
| | On June 21, 2004, we announced the availability of our
    radiation-tolerant RTSX-S family of FPGAs from UMCs wafer
    foundry. The new family provided customers with an alternate
    source for                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

8



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | our 0.25-micron devices, which have been widely adopted for
    radiation-intensive space-flight applications. To help assure
    that the devices from UMC meet the stringent requirements of
    space-flight systems, the parts have been subjected to numerous
    qualification, reliability, and radiation tests. See the Risk
    Factors set forth at the end of Item 1 of this Annual
    Report on Form 10-K for more information.                                                                                                                                                                                                                                                                                                                   
|
| | Our Rad Tolerant family of FPGAs consists of ten products: the
    4,000-gate RT1020; the 6,000-gate RT1425A; the 11,000-gate
    RT1460A; the 16,000-gate RT1280A; the 20,000-gate RT14100A; the
    48,000-gate RT54SX32S; the 108,000-gate RT54SX72S; the
    250,000-gate RTAX250S; the 1,000,000-gate RTAX1000S; and the
    2,000,000-gate RTAX2000S. These Rad Tolerant FPGAs are offered
    with Class B or Class E (extended flow/space)
    qualification and total dose radiation test reports are provided
    on each segregated lot of devices. The RT54SX32S is also offered
    in a chip carrier land grid package small enough to enable the
    assembly of tested and programmed FPGAs into multi-chip modules
    for space applications.
|
| | Rad Tolerant FPGAs are designed to meet the logic requirements
    for all types of military, commercial, and civilian space
    applications, including satellites, launch vehicles, and
    deep-space probes. They provide cost-effective alternatives to
    radiation-hardened devices when radiation survivability is
    important but not essential. In addition, Rad Tolerant devices
    have design- and pin-compatible commercial versions for
    prototyping.                                                                                                                                                                                                                                                                                    



| |   |         
| | - | --------
| |  | Rad Hard



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Rad Hard family of FPGAs, which was first shipped for
    revenue in 1996, consists of two products: the 4,000-gate RH1020
    and the 16,000-gate RH1280. The two products were manufactured
    on a radiation-hardened 0.8-micron antifuse process by BAE and
    are shipped with full QML Class V screening. The Rad Hard
    family was designed to meet the demands of applications
    requiring guaranteed levels of radiation survivability. Rad Hard
    FPGAs are appropriate for military and civilian satellites, deep
    space probes, planetary missions, and other applications in
    which radiation survivability is essential.



|  |                                 
|- | --------------------------------
| | Supporting Products and Services





| |   |            
| | - | -----------
| |  | IP Products



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | IP products allow system designers to leverage proven, pre-built
    IP cores optimized for our devices, which streamlines their
    design process, shortens time to market, and reduces design cost
    and risk. Targeting the aerospace, automotive, communications,
    consumer, industrial, and military markets, our IP cores
    complement the nonvolatile, secure, and low-power
    characteristics of our Flash and antifuse FPGAs. Our offering
    includes approximately 34 bus interface, 23 communications, 12
    data security, five memory control, 16 multimedia and error
    correction, and 27 processor and peripheral IP cores. The IP
    cores are available in evaluation, register transfer language
    (RTL), or netlist formats.
|
| | Data security is an integral part of our leading solutions for
    secure semiconductor devices. We have industry-standard data
    encryption IP cores and partnerships that meet the stringent
    needs of the security marketplace. Our security IP portfolio
    includes Data Encryption Standard (DES), Triple DES, and AES
    cores designed and targeted to work with our Flash and antifuse
    FPGAs. We are partnering with experts in the area of data
    security who offer their services to integrate these cores into
    our devices.                                                                                                                                                                                                         
|
| | On January 24, 2005, we announced the availability of more
    than 90 IP cores to support our new ProASIC3 and ProASIC3E
    device families. The ported cores leverage the advanced features
    of the ProASIC3/E devices, including enhanced I/O and memory.
    Delivering a broad IP library at the time of                                                                                                                                                                                                                                                                                                                                                                                                                                                 

9



---



##### Table of Contents



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | product introduction allows our customers to begin designing
    complete systems with the ProASIC3/ E devices.



| |   |            
| | - | -----------
| |  | DirectCores



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We design, verify, support, and maintain DirectCore IP products,
    which are optimized for use with our devices. These cores come
    complete as pre-implemented, synthesizable building blocks that
    have been thoroughly tested and verified in our FPGAs. A number
    of them are certified for operation to a standard, such as PCI
    or MIL-STD-1553. Approximately 23 DirectCore IP cores are
    available from us or through our distributors or sales
    representatives. We offer evaluation, single-use, and
    unlimited-use licenses for our IP cores, which are delivered
    with full documentation and support. On October 25, 2004,
    we announced a new Web-based IP evaluation program that allows
    customers to access and download free evaluation versions of
    DirectCore IP products from our Web site.



| |   |               
| | - | --------------
| |  | CompanionCores



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our CompanionCore Alliance Program is a cooperative effort
    between us and independent third-party IP core developers to
    produce and provide a wide selection of proven, pre-built
    synthesizable semiconductor IP cores optimized for use in our
    FPGAs and compatible with our suite of design and development
    tools. These CompanionCore IP cores are licensed, supported, and
    maintained directly by the partners.                                                                                                               
|
| | On February 9, 2004, we announced that a new CompanionCore
    Alliance Program partner, Intelliga Integrated Design, had
    optimized its local interconnect network and controller area
    network (CAN) cores to support our automotive- and
    industrial-temperature grade devices. We now offer more than 30
    IP cores specifically designed and optimized for in-cab and
    under-the-hood automotive applications.                                                                                                                         
|
| | Approximately 92 CompanionCore IP cores are available from our
    CompanionCore Alliance Program partners, including ten from 4i2i
    Communications Ltd; six from CAST, Inc.; five from Eureka
    Technology Inc.; nine from Helion Technology Ltd.; two from
    Intelliga Integrated Design; 26 from Inicore, Inc. (Inicore); 25
    from Memec Design; and nine from MorethanIP GmbH. A number of
    licensing models are available from our CompanionCore Alliance
    partners, including single-use, multiple-use, and evaluation
    licenses.



| |   |                                
| | - | -------------------------------
| |  | Design and Development Software



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our software strategy is to provide our customers with all of
    the tools necessary for them to define, verify, and implement
    their designs in our FPGAs by combining tools from leading EDA
    vendors with our custom developed tools into a single FPGA
    integrated design environment (IDE). We also work closely with
    our EDA partners to ensure that new releases of our custom
    developed tools are supported in their software and design
    flows. Our EDA partners include Aldec, Inc.; Cadence Design
    Systems, Inc. (Cadence); Celoxica Limited; Magma Design
    Automation, Inc. (Magma); Mentor Graphics Corporation (Mentor
    Graphics); SynaptiCAD, Inc. (SynaptiCAD); Synopsys, Inc.
    (Synopsys); and Synplicity, Inc. (Synplicity).



| |   |       
| | - | ------
| |  | Libero



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Libero IDE is a comprehensive FPGA design and development
    software suite that supports all of our Flash and antifuse FPGA
    families and provides users with start-to-finish design flow
    guidance and control. The Libero IDE provides complete tool
    interoperability; a streamlined design flow; management of all
    design, run, and log files; seamless passing of all design data
    between tools from schematic/HDL entry through place-and-route;
    and device programming. The entire design can be created and
    managed through the Libero IDEs user interface, which
    provides a step-by-step graphical illustration of the design
    flow process.
|
| | Running on Microsoft Windows operating systems, the Libero IDE
    is available in several editions. The Libero IDE Silver edition,
    which we offer for free, contains our Designer physical                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

10



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | design implementation tool suite and a project manager as well
    as Actel Edition (AE) versions of the following third party
    tools: Mentor Graphics ViewDraw AE schematic capture;
    SynaptiCADs Waveformer Lite AE testbench generator; and
    Synplicitys Synplify AE synthesis tools. The Libero IDE
    Gold edition also includes Mentor Graphics ModelSim AE
    simulator. The Libero IDE Silver and Gold editions support our
    FPGAs through 300,000 gates as well as the new A3PE600 ProASIC3E
    device. The most comprehensive edition, Libero IDE Platinum,
    also includes Magmas PALACE AE physical synthesis tools
    and supports all of our currently released devices.
|
| | On January 24, 2005, we announced that our Libero 6.1 IDE
    provides complete support for our new Flash-based ProASIC3 and
    ProASIC3E devices. The software is optimized for the
    architectural features of the ProASIC3 and ProASIC3E devices,
    including the on-chip FlashROM, which can be programmed
    independently of the FPGA core. In addition, the Libero 6.1 IDE
    includes Synplicitys Synplify Pro AE, which offers many
    features beyond Synplify AE to improve device performance and
    design time. Synplify Pro AE requires a separate license and can
    be used with any Libero IDE edition.                                                                         



| |   |         
| | - | --------
| |  | Designer



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For customers who want to us their own design and verification
    tools, our Designer software is available as a standalone
    interactive design implementation tool suite. It is compatible
    with the most popular design entry and verification packages,
    including those from Cadence, Mentor Graphics, Synopsys, and
    Synplicity. The Designer software includes all of the tools
    required for a complete physical design implementation system,
    from importing a netlist through place-and-route, timing and
    physical constraints entry, timing and power analysis, and
    programming file generation. In addition to a step-by-step
    design flow, the tool suite also provides access to many
    features that streamline or facilitate completion of the design,
    including floorplanning tools. Running on Microsoft Windows, Sun
    Solaris, or Red Hat Linux operating systems, the Designer
    software is offered in a Platinum edition that supports all of
    our devices, including the new ProASIC3/ E Flash families, and a
    free Gold edition that supports all devices up to 300,000 gates
    as well as the smallest member of each family.



| |   |                     
| | - | --------------------
| |  | Programming Hardware



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Programmers execute instructions included in files obtained from
    the Designer tool suite to program our FPGAs. In addition to
    programmers, we offer adapter modules, which must be used with
    the Silicon Sculptor II programmer; surface-mount sockets
    and prototyping adapter boards, which make it easier to
    prototype designs using our antifuse FPGAs; and accessories. In
    addition, we support programmers offered by BP Microsystems, Inc.



| |   |                    
| | - | -------------------
| |  | Silicon Sculptor II



| |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All of our FPGAs can be programmed by the Silicon
    Sculptor II programmer. The Silicon Sculptor II
    programmer is a compact, single-device programmer with
    stand-alone software for the personal computer (PC). Silicon
    Sculptor II was designed to allow concurrent programming of
    multiple units from the same PC. The Silicon Sculptor II is
    manufactured for us by BP Microsystems.



| |   |         
| | - | --------
| |  | FlashPro



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our family of FlashPro device programmers provides ISP support
    for the ProASIC3/E, ProASIC PLUS, and ProASIC FPGA families. The
    ISP feature permits devices to be programmed after they are
    mounted on a printed circuit board. Running on Microsoft Windows
    operating systems, all FlashPro programmers permit multiple
    Flash devices to be programmed in a Joint Test Action Group
    (JTAG) chain. Since any nonprogrammable devices in the JTAG
    chain are automatically skipped, a single JTAG chain can be used
    for all JTAG devices, which increases flexibility for
    post-production and field upgrades. All FlashPro programmers
    also use industry-standard test and programming language files,
    so there is no delay between product release and

11



---



##### Table of Contents



| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | programming support. In addition, the same graphical user
    interface (GUI) is used for all FlashPro series
    programmers, which are manufactured for us by First Silicon
    Solutions, Inc. (FS2).



| |   |          
| | - | ---------
| |  | FlashPro3



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The FlashPro3 programmer is targeted at the ProASIC3 and
    ProASIC3E families, our latest generation of Flash devices. This
    newest programmer offers high-speed performance through the use
    of Universal Serial Bus (USB) 2.0 and is compliant for full
    use of the 480 Mbps bandwidth. The FlashPro3 programmer can
    connect to any PC with a USB port and can operate either with
    USB 1.1 (full-speed) or USB 2.0 (both high-speed and full-speed
    modes). By using USB hubs, multiple FlashPro3 programmers can be
    connected to a single PC, enabling the end-user to set up a
    small-scale production environment with concurrent ISP occurring
    across multiple boards.



| |   |              
| | - | -------------
| |  | FlashPro Lite



| |                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The FlashPro Lite programmer is used exclusively with the
    ProASIC PLUS family and connects to a PC by means of the
    parallel port. A replaceable programming cable connects the
    FlashPro Lite to the target board, which powers the programmer.
    This portable, low-cost programmer permits customers to program
    ProASIC PLUS devices at almost any location using a laptop
    computer.



| |   |         
| | - | --------
| |  | FlashPro



| |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The FlashPro programmer can be used with both the ProASIC PLUS
    and Pro ASIC families. The choice of USB port or parallel port
    is made in the FlashPro software GUI. The FlashPro programmer
    has its own power supply, so the target board does not need to
    be powered up to support ISP. Like FlashPro3 programmers,
    multiple FlashPro programmers can be connected by USB hubs to a
    single PC.



| |   |                                             
| | - | --------------------------------------------
| |  | Debugging Tool Kits and Demonstration Boards



| |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our design diagnostics and debugging tool kits and accessories
    permit designers to improve productivity and reduce time to
    market by removing the guesswork typically associated with the
    process of system verification. We offer different tools kits
    for our Flash and antifuse products. Our development kits and
    demonstration boards and accessories permit users to evaluate
    particular products.



| |   |                                           
| | - | ------------------------------------------
| |  | Design Diagnostics and Debugging Tool Kits



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our antifuse FPGAs contain internal circuitry that provides
    built-in access to every node in a design, enabling real-time
    observation and analysis of a devices internal logic
    nodes. Silicon Explorer II is an integrated verification
    and logic analysis tool kit for the PC that accesses the probe
    circuitry. Silicon Explorer II Lite is a less expensive
    version of Silicon Explorer II for customers who have a
    logic analysis system.
|
| | The FS2 CLAM (Configurable Logic Analyzer Module) System
    provides logic analyzer capabilities for our Flash-based FPGAs.
    Embedded in our Flash devices, the CLAM System can
    simultaneously trace and trigger on up to 256 channels from an
    available 1024 predefined signals in the FPGA. The FS2 CLAM
    hardware probe is offered by FS2.                                                                                                              



| |   |                                          
| | - | -----------------------------------------
| |  | Development Kits and Demonstration Boards



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On November 1, 2004, we announced the availability of a
    starter kit for our antifuse-based Axcelerator FPGA. Available
    in both a basic evaluation and an advanced prototyping version,
    the starter kit features an evaluation board with an Axcelerator
    device, the Libero Gold IDE, tutorials, and support
    documentation. In addition, users can submit custom Axcelerator
    designs and receive free, programmed samples through our new
    Online Prototyping Service. The advanced prototyping kit
    includes a programming socket module adapter and a six-month
    loaner program certificate for our Silicon Sculptor II
    programmer.

12



---



##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 2004, we also announced the availability of an enhanced
    starter kit for our Flash-based ProASIC PLUS FPGAs. In addition,
    we offer ProASIC PLUS and Axcelerator evaluation platforms; a
    ProASIC PLUS ISP demonstration evaluation platform; CorePCI,
    Core1553, and CorePCIX evaluation boards; and Core1553BRM, Core
    429, and Platform8051 development kits.                       
|
| | On January 24, 2005, we announced a starter kit to support
    our new Flash-based ProASIC3 and ProASIC3E FPGA families.
    Expected to be available in the second quarter of 2005, the
    starter kit includes an evaluation board with a ProASIC3E
    device, the Libero Gold 6.1 IDE, a FlashPro3 programmer, USB
    cable, programming cable, power supply, tutorials, and support
    documentation.



| |   |                
| | - | ---------------
| |  | Resource Center



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Launched in 2002, our Web-based Resource Center is intended to
    provide information on a variety of industry-wide issues related
    to the continued displacement of hard-wired ASICs by FPGAs.
    Targeted at FPGA and ASIC designers and system architects, the
    website includes technology tutorials, frequently-asked
    questions, market overviews, application notes, white papers,
    extensive glossaries of industry terms, and links to other
    relevant articles and third-party resources. Additional topics
    will be added as appropriate.



| |   |      
| | - | -----
| |  | Power



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Power Resource Center provides design engineers with
    information about the power characteristics of FPGAs as well as
    tools to estimate and design for low-power applications. The
    four basic power components that need to be examined when
    evaluating the power consumption of different FPGA technologies
    are static power, dynamic power, in-rush (or power-up) power,
    and configuration power. While the three primary FPGA
    technologies differ widely in their power consumption
    characteristics, only Flash and antifuse are (like ASICs) true
    live-at-power-up technologies that do not exhibit power-up
    current spikes.



| |   |          
| | - | ---------
| |  | Packaging



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Packaging Resource Center contains technical package
    details, discussions on the latest environmental issues, related
    industry articles and links, and design implementation tools.
    This portal was created as the primary source for technical
    information about our FPGA packaging solutions, but also serves
    as an industry reference for IC packaging issues and topics that
    impact the FPGA design community. Our objective is to
    consistently deliver packages that provide the necessary
    mechanical and environmental protection to ensure consistent
    reliability and performance. On March 22, 2004, we
    announced the availability of green and lead-free
    packaging options for all of our antifuse- and Flash-based FPGA
    product families.



| |   |                 
| | - | ----------------
| |  | Soft/Firm Errors



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On April 19, 2004, we announced the results of a
    comprehensive third-party investigation verifying that FPGAs
    based on Flash and antifuse technologies are immune to
    configuration upsets caused by high-energy neutrons naturally
    generated in the earths atmosphere. The study also
    determined that SRAM-based FPGAs are vulnerable to
    neutron-induced configuration loss not only under high-altitude
    conditions, as traditionally believed, but also in ground-based
    applications, including automotive, medical, telecommunications,
    data storage, and communications. A neutron-induced functional
    failure in an SRAM-based FPGA can result in a complete system
    failure. The tests followed the industry-prescribed test
    methodology and were conducted at the Los Alamos National
    Laboratory in New Mexico. The results of the independent study
    are documented in a report (Radiation Results of SER
    [Soft-Error Rate] Test of Actel, Xilinx, and Altera FPGA
    Instances) that is available in our Soft/ Firm Errors
    Resource Center. This website also contains technology
    tutorials, white papers, a comprehensive glossary, and relevant
    links.

13



---



##### Table of Contents





| |   |                         
| | - | ------------------------
| |  | Embedded Design Security



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Secure systems and ultimately the underlying silicon
    technologies are becoming increasingly vital in protecting
    valuable IP. Without taking the necessary precautions,
    corporations may experience major security breaches, resulting
    in design theft and other malicious damage. But assessing
    security risks and the potential associated loss can be
    difficult. The purpose of our Embedded Design Security Resource
    Center is to provide semiconductor and design professionals with
    a database of information about these vulnerabilities.
    Organizations concerned with security can now access detailed
    information and links about design security, security
    countermeasures, affected systems, and solutions to defeat
    unfriendly attacks. Our solution is a range of nonvolatile,
    single-chip FPGAs that offer practically unbreakable design
    security.



| |   |         
| | - | --------
| |  | Services



| |                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In addition to the system design, online protyping, and volume
    programming services that we offer, our Solution Partners
    Program provides customers with access to a broad range of
    design resources, application expertise, and products from
    strategic partners worldwide that complement our products and
    services.



| |   |                         
| | - | ------------------------
| |  | Protocol Design Services



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | With our acquisition of the Protocol Design Services Group from
    GateField Corporation (GateField) in August 1998, we became the
    first FPGA provider to offer system-level design expertise. The
    Design Services organization operates out of a secure facility
    located in Mt. Arlington, New Jersey, and is certified to handle
    government, military, and proprietary designs. The organization
    provides varying levels of design services to customers,
    including FPGA, ASIC, and system design; software development
    and implementation; and development of prototypes, first
    articles, and production units. Our Protocol Design Services
    team has participated in the development of a wide range of
    applications, including optical networks, routers, cellular
    phones, digital cameras, embedded DSP systems, automotive
    electronics, navigation systems, compilers, custom processors,
    and avionics systems.



| |   |                   
| | - | ------------------
| |  | Online Prototyping



| |                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On November 1, 2004, we announced our new Online Protoyping
    Service, a Web-based sample delivery program. Intended to make
    it easy for designers to evaluate and prototype with no up-front
    investment, the new program allows them to request free samples
    of programmed FPGAs through a Web-based interface. The program
    currently supports our antifuse-based Axcelerator, SX-A, eX and
    MX families.



| |   |                   
| | - | ------------------
| |  | Volume Programming



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We offer high-volume programming for all device and package
    types in our programming center, which is located at our factory
    in Mountain View, California. Our facility is ISO 9001:2000,
    PURE, QML, and STACK certified (see BUSINESS 
    Manufacturing and Assembly). As part of the programming process,
    we offer ink marking for customer-specific marking needs. Volume
    programming charges are based on the type of device and quantity
    per order.



| |   |                  
| | - | -----------------
| |  | Solution Partners



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On July 12, 2004, we announced the addition of five new
    members to our Solution Partners Program, which is a cooperative
    effort between us and third-party providers of FPGA design
    services, embedded software, and hardware products. The Solution
    Partners Program is intended to help accelerate the time to
    market for designs based on our devices by enabling designers to
    leverage FPGA design expertise and products tailored
    specifically for our devices. Solution Partner products and
    services are available directly from the partners, who are
    responsible for pricing, warranty, and technical support.
    Joining the Program were Barco-Silex, Capitol Automation, Comit
    Systems, Intrinsix Corporation, and Silicon Interfaces, all of
    whom develop customer-specific electronic

14



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | products for the wired and wireless communications and
    networking markets. On February 14, 2005, we announced that
    four more new partners had joined the Solution Partners Program:
    Altium Limited, Data I/O Corporation, Device Engineering Inc.,
    and GAO Research Inc. The Program currently has 22 members.

Markets and Applications






|  |                       
|- | ----------------------
| | Military and Aerospace









| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our radiation-tolerant and radiation-hardened FPGAs had returned
    to Mars, playing critical roles throughout the American and
    European missions.                               
|
| |  | Our Flash-based FPGAs were chosen by Hamilton Sundstrand, a
    division of United Technologies Corporation, for the F-35 Joint
    Strike Fighter project.                           
|
| |  | More than 400 of our radiation-tolerant and radiation-hardened
    FPGAs have been utilized by the European Space Agency and its
    contractors as part of the Rosetta space mission.
|
| |  | Our Axcelerator FPGAs had been selected by BAE as part of
    BAEs Archerfish naval mine disposal system.                                                                            



|  |           
|- | ----------
| | Industrial



15



---



##### Table of Contents









| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | Aviom exclusively used our Flash-based ProASIC PLUS FPGA devices
    throughout its portfolio of audio network products.                 
|
| |  | Our Flash-based FPGAs were selected by Indesign for use in its
    wireless high-fidelity audio platform.                                
|
| |  | Our Flash-based FPGAs were chosen by the Monterey Bay Aquarium
    Research Institute for use in its advanced underwater
    seismograph.



|  |               
|- | --------------
| | Communications







|  |                      
|- | ---------------------
| | Consumer and Computer





| |   |         
| | - | --------
| |  | Consumer



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The high performance, low power consumption, and low cost of
    antifuse FPGAs make them appropriate for use in products
    enabling the portability of the internet, or
    e-appliances, and other high-volume electronic
    systems targeted for consumers. E-appliance applications include
    MP3 music-off-the-internet players, digital cable
    set-top boxes, DSL and cable modems, digital cameras, digital
    film, multimedia products, and smart-card readers. Our customers
    in the consumer market include: Channel, Datel Inc., IC Boss,
    and Shinyoung Hitech Co., Ltd.
|
| | On January 7, 2004, we announced that Crest Audio, a
    manufacturer of professional audio systems, had selected our
    APA075 ProASIC PLUS FPGA devices for its new line of advanced
    multichannel digital amplifier products.                                                                                                                                                                                                                                                                                                                                                                    



| |   |         
| | - | --------
| |  | Computer



| |                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | FPGAs reduce the time to market for computer systems and
    facilitate early completion of production models so that
    development of hardware and software can occur in parallel. Our
    customers in the computer market include: Allied Telesis K.K.,
    Dialogic Corporation, Hewlett-Packard Company, and Sky Computer.

16



---



##### Table of Contents





|  |           
|- | ----------
| | Automotive



Sales and Distribution










Backlog




17



---



##### Table of Contents





Customer Service and Support








Manufacturing and Assembly






| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | Chartered in Singapore using 0.45- and 0.35-micron design rules;             
|
| |  | Infineon in Germany using 0.25-micron design rules;                          
|
| |  | Matsushita in Japan using 1.0-, 0.9-, 0.8-, and 0.25-micron
    design rules;
|
| |  | UMC in Taiwan using 0.25/0.22- and 0.15-micron design
    rules; and         
|
| |  | Winbond in Taiwan using 0.8- and 0.45-micron design rules.                   







18



---



##### Table of Contents







Strategic Relationships






|  |    
|- | ---
| | FS2



               Inicore






|  |               
|- | --------------
| | Memec (Unique)





|  |                
|- | ---------------
| | Mentor Graphics



Research and Development




19



---



##### Table of Contents







Competition














20



---



##### Table of Contents





Patents and Licenses












Employees




21



---



##### Table of Contents



Risk Factors




               Our
future revenues and operating results are likely to fluctuate
and may fail to meet expectations, which could cause our stock
price to decline.






| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | A variety of booking and shipping uncertainties may cause us
    to fall short of our quarterly revenue expectations.



| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | When we fall short of our quarterly revenue expectations, our
    operating results are likely to be adversely affected because
    most of our expenses are fixed and therefore do not vary with
    revenues.



| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We derive a large percentage of our quarterly revenues from
    bookings received during the quarter, making quarterly revenues
    difficult to predict.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our backlog (which generally may be cancelled or deferred by
    customers on short notice without significant penalty) at the
    beginning of a quarter typically accounts for about half of our
    revenues during the quarter. This means that we generate about
    half of our 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. In addition,
    we sometimes book a disproportionately large percentage of turns
    orders during the final weeks of the quarter. There are many
    factors that can cause a shortfall in turns orders, including
    declines in general economic conditions or the businesses of our
    customers, excess inventory in the channel, or conversion of our
    products to hard-wired ASICs or other competing products for
    price or other reasons. Any failure or delay in receiving
    expected turns orders would have an immediate and adverse impact
    on quarterly revenues.



| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We derive a significant percentage of our quarterly revenues
    from shipments made in the final weeks of the quarter, making
    quarterly revenues difficult to predict.



| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have often shipped a disproportionately large percentage of
    our quarterly revenues in the final weeks of the quarter, which
    makes it difficult to accurately project quarterly revenues. Any
    failure to effect scheduled shipments by the end of a quarter
    would have an immediate and adverse impact on quarterly revenues.



| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our military and aerospace shipments tend to be large and are
    subject to complex scheduling uncertainties, making quarterly
    revenues difficult to predict.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Orders from the military and aerospace customers tend to be
    large and irregular, which contributes to fluctuations in our
    net revenues and gross margins. These sales are also subject to
    more extensive governmental regulations, including greater
    import and export restrictions. Historically, it has been
    difficult to predict if and when export licenses will be
    granted, if required. In addition, products for military and
    aerospace applications require processing and testing that is
    more lengthy and stringent than for commercial applications,
    which increases the complexity of scheduling and forecasting as
    well as the risk of failure. It is often impossible to determine
    before the end of processing and testing whether products
    intended for military or aerospace applications will fail and,
    if they do fail, it is generally not possible for replacements
    to be processed and tested in time for shipment during the same
    quarter. Any failure to effect scheduled shipments by the end of
    a quarter would have an immediate and adverse impact on
    quarterly revenues.

22



---



##### Table of Contents





| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We derive a majority of our quarterly revenues from products
    resold by our distributors, making quarterly revenues difficult
    to predict.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We typically generate more than half of our quarterly revenues
    from sales made through distributors. Since we generally do not
    recognize revenue on the sale of a product to a distributor
    until the distributor resells the product, our quarterly
    revenues are dependent on, and subject to fluctuations in,
    shipments by our distributors. We are also highly dependent on
    the timeliness and accuracy of resale reports from our
    distributors. Late or inaccurate resale reports, particularly in
    the last month of the quarter, contribute to our difficulty in
    predicting and reporting our quarterly revenues and results of
    operations.



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An unanticipated shortage of products available for sale may
    cause us to fall short of expected quarterly revenues and
    operating results.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.
    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 and new products, such as
    our Flash-based ProASIC 3/E and antifuse-based Axcelerator FPGA
    families, are often more complex and/or more difficult to
    produce, increasing the risk of manufacturing-related defects.
    In addition, we may not discover defects or other errors in new
    products until after we have commenced volume production. Our
    failure to effect scheduled shipments by the end of a quarter
    due to unexpected supply constraints would have an immediate and
    adverse impact on quarterly revenues.



| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Unanticipated increases, or the failure to achieve
    anticipated reductions, in the cost of our products may cause us
    to fall short of expected quarterly operating results.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As is also common in the semiconductor industry, our independent
    wafer suppliers from time to time experience lower than
    anticipated yields of usable die. Wafer yields can decline
    without warning and may take substantial time to analyze and
    correct, particularly for a company like us that does not
    operate our own manufacturing facility, but instead utilizes
    independent facilities, all of which are offshore. Yield
    problems are most common on new processes or at new foundries,
    particularly when new technologies are involved. Our FPGAs are
    also manufactured using customized processing steps, which may
    increase the incidence of production yield problems as well as
    the amount of time needed to achieve satisfactory, sustainable
    wafer yields on new processes and new products. Lower than
    expected yields of usable die could reduce our gross margin,
    which would adversely affect our quarterly operating results. In
    addition, in order to win designs, we generally must price new
    products on the assumption that manufacturing cost reductions
    will be achieved, which often do not occur as soon as expected.
    The failure to achieve expected manufacturing or other cost
    reductions during a quarter could reduce our gross margin, which
    would adversely affect our quarterly operating results.



| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Unanticipated reductions in the average selling prices of our
    products may cause us to fall short of expected quarterly
    revenues and operating results.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The semiconductor industry is characterized by intense price
    competition. The average selling price of a product typically
    declines significantly between introduction and maturity. We
    sometimes are required by competitive pressures to reduce the
    prices of our new products more quickly than cost reductions can
    be achieved. We also sometimes approve price reductions on
    specific sales for strategic or other reasons. Declines in the
    average selling prices of our products will reduce quarterly
    revenues unless offset by greater unit sales or a shift in the
    mix of products sold toward higher-priced products. Declines in
    the average selling prices of our products will also reduce
    quarterly gross margin unless offset by reductions in
    manufacturing costs or by a shift in the mix of products sold
    toward higher-margin products.

23



---



##### Table of Contents



               In
preparing our financial statements, we make good faith estimates
and judgments that may change or turn out to be erroneous.




               Our
gross margin may decline as we increasingly compete with
hard-wired ASICs and serve the value-based market.




               We
may not win sufficient designs, or the designs we win may not
generate sufficient revenues, for us to maintain or expand our
business.




               Our
products are complex and may contain errors, manufacturing
defects, design defects, or otherwise fail to comply with our
specifications, any of which could lead to product liability, an
increase in our costs, and/or a reduction in our revenues.






24



---



##### Table of Contents











| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | Any error or defect in our products could have a material
    adverse effect on our revenues, operating results, and/or
    reputation.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If problems occur in the operation or performance of our
    products, we may experience delays in meeting key introduction
    dates or scheduled delivery dates to our customers, in part
    because our products are manufactured by third parties. These
    problems also could cause us to incur significant re-engineering
    costs, divert the attention of our engineering personnel from
    our product development efforts, and cause significant customer
    relations and business reputation problems. Any error or defect
    could require product replacement or recall or could obligate us
    to accept product returns. Any of the foregoing could have a
    material adverse effect on our financial results and business in
    both the short and long term.



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | Any product liability claim could pose a significant risk to
    our financial condition.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Product liability claims may be asserted with respect to our
    products. Our products are typically sold at prices that are
    significantly lower than the cost of the end-products into which
    they are incorporated. A defect or failure in our product could
    cause failure in our customers end-product, so we could
    face claims for damages that are much higher than the revenues
    and profits we receive from the products involved. In addition,
    product liability risks are particularly significant with
    respect to aerospace, automotive, and medical applications
    because of the risk of serious harm to users of these products.
    There can be no assurance that any insurance we carry would
    sufficiently protect us from any such claims.

25



---



##### Table of Contents



 We may be unsuccessful in defining, developing,
or selling competitive new or improved products at acceptable
margins.






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We announced our intention to develop SRAM-based FPGA products
    in 1996 and abandoned the development in 1999 principally
    because the product would no longer have been competitive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | We introduced our VariCore embeddable reprogrammable gate array
    (EPGA) logic core based on SRAM technology in 2001.
    Revenues from VariCore EPGAs did not materialize and the
    development of a more advanced VariCore EPGA was cancelled. In
    this case, a market that we believed would develop did not
    emerge.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | In 2001, we also launched our BridgeFPGA initiative to address
    the I/O problems created within the high-speed communications
    market by the proliferation of interface standards. The adoption
    of these interface standards created the need for designers to
    implement bridging functions to connect incompatible interface
    standards. We introduced Axcelerator, a high-speed antifuse FPGA
    with dedicated high-speed I/O circuits that can support multiple
    interface standards, in 2002. However, the development of
    subsequent BridgeFPGA products, which were expected to include
    embedded high-speed interface protocol controllers, was
    postponed in 2002. This was due principally to the prolonged
    downturn in the high-speed communications market. The
    development was cancelled in 2003 principally because the
    subsequent BridgeFPGA products would no longer have been
    competitive.





| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | Numerous factors can cause the development or introduction of
    new products to fail or be delayed.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | To develop and introduce a product, we must successfully
    accomplish all of the following:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | anticipate future customer demand and the technology that will
    be available to meet the demand;                                        
|
| |  | define the product and its architecture, including the
    technology, silicon, programmer, IP, software, and packaging
    specifications;
|
| |  | obtain access to advanced manufacturing process technologies;                                                                              
|
| |  | design and verify the silicon;                                                                                                             
|
| |  | develop and release evaluation software;                                                                                                   
|
| |  | lay out the architecture and implement programming;                                                                                        
|
| |  | tape out the product;                                                                                                                      
|
| |  | generate a mask of the product and evaluate the software;                                                                                  
|
| |  | manufacture the product at the foundry;                                                                                                    
|
| |  | verify the product; and                                                                                                                    
|
| |  | qualify the process, characterize the product, and release
    production software.                                                        



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Each of these steps is difficult and subject to failure or
    delay. In addition, the failure or delay of any step can cause
    the failure or delay of the entire development and introduction.
    No assurance can be given that our development and introduction
    schedules for new products or the supporting software or
    hardware will be met, that new products will gain market
    acceptance, or that we will respond effectively to new

26



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | technological changes or new product announcements by others.
    Any failure to successfully define, develop, market,
    manufacture, assemble, test, or program competitive new products
    could have a materially adverse effect on our business,
    financial condition, and results of operations.



| |   |                                                       
| | - | ------------------------------------------------------
| |  | New products are subject to greater operational risks.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our future success is highly dependent upon the timely
    development and introduction of competitive new products at
    acceptable margins. However, there are greater operational risks
    associated with new products. The inability of our wafer
    suppliers to produce advanced products; delays in commencing or
    maintaining volume shipments of new products; the discovery of
    product, process, software, or programming defects or failures;
    and any related product returns could each have a materially
    adverse effect on our business, financial condition, or results
    of operation.



| |   |                                                      
| | - | -----------------------------------------------------
| |  | New products are subject to greater technology risks.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As is common in the semiconductor industry, we have experienced
    from time to time in the past, and expect to experience in the
    future, difficulties and delays in achieving satisfactory,
    sustainable yields on new products. The fabrication of antifuse
    and Flash wafers is a complex process that requires a high
    degree of technical skill, state-of-the-art equipment, and
    effective cooperation between us and the foundry 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. Yield problems increase the cost of as well as
    time it takes us to bring our new products to market, which can
    create inventory shortages and dissatisfied customers. Any
    prolonged inability to obtain adequate yields or deliveries of
    new products could have a materially adverse effect on our
    business, financial condition, or results of operations.



| |   |                                                 
| | - | ------------------------------------------------
| |  | New products generally have lower gross margins.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our gross margin is the difference between the amount it costs
    us to make our products and the revenues we receive from the
    sale of our products. One of the most important variables
    affecting the cost of our products is manufacturing yields. With
    our customized antifuse and Flash manufacturing process
    requirements, we almost invariably experience difficulties and
    delays in achieving satisfactory, sustainable yields on new
    products. Until satisfactory yields are achieved, gross margins
    on new products are generally lower than on mature products.
    Depending upon the rate at which sales of new products ramp and
    the extent to which they displace mature products, the lower
    gross margins typically associated with new products could have
    a materially adverse effect on our operating results.

 We face intense competition and have some
competitive disadvantages that we may not be able to
overcome.






| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | Most of our current and potential competitors are larger and
    have more resources.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are much smaller than Xilinx and Altera, and additional
    competition is possible from major domestic and international
    semiconductor suppliers. All such companies are larger and have
    broader product lines, more extensive customer bases, and
    substantially greater financial and other resources than us,
    including the capability to manufacture their own wafers. We may
    not be able to overcome these competitive disadvantages.

27



---



##### Table of Contents





| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | Our antifuse technology is not reprogrammable, which is a
    competitive disadvantage in most cases.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All existing FPGAs not based on antifuse technology and certain
    CPLDs are reprogrammable. The one-time programmability of our
    antifuse FPGAs is necessary or desirable in some applications,
    but logic designers generally prefer to prototype with a
    reprogrammable logic device. This is because the designer can
    reuse the device if an error is made. The visibility associated
    with discarding a one-time programmable device often causes
    designers to select a reprogrammable device even when an
    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. Although we now offer reprogrammable Flash devices,
    we may not be able to overcome this competitive disadvantage.



| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | Our Flash and antifuse technologies are not manufactured on
    standard processes, which is a competitive disadvantage.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our 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 process steps than for the
    foundries standard manufacturing processes. Our dependence
    on customized processing steps means that, in contrast with
    competitors using standard manufacturing processes, we generally
    have more difficulty establishing relationships with independent
    wafer manufacturers; take longer to qualify a new wafer
    manufacturer; take 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 will
    not obtain early access to the most advanced processes. For
    example, we expect that our next generation Flash product
    families will be manufactured on a 90-nanometer process and have
    found it challenging to identify and procure fabrication process
    arrangements for our technology development activities. Any of
    these factors could be a material disadvantage against
    competitors using standard manufacturing processes. As a result
    of these factors, our products typically have been fabricated
    using processes at least one generation behind the processes
    used by competing products. As a consequence, we generally have
    not fully realized the benefits of our technologies. Although we
    are attempting to accelerate the rate at which our products are
    reduced to finer process geometries and obtain earlier access to
    advanced processes, we may not be able to overcome this
    competitive disadvantage.



|  |                                                                                                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------
| | Our business and operations may be disrupted by events that
    are beyond our control or the control of our business
    partners.





28



---



##### Table of Contents







|  |                                         
|- | ----------------------------------------
| | We have only limited insurance coverage.





|  |                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------
| | Our business depends on numerous independent third parties
    whose interests may diverge from our interests.





| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our independent wafer manufacturers may be unable or
    unwilling to satisfy our needs in a timely manner, which could
    harm our business.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We do not manufacture any of the semiconductor wafers used in
    the production of our FPGAs. Our wafers are currently
    manufactured by Chartered in Singapore, Infineon in Germany,
    Matsushita in Japan, UMC in Taiwan, and Winbond in Taiwan. Our
    reliance on independent wafer manufacturers to fabricate our
    wafers involves significant risks, including lack of control
    over capacity allocation, delivery schedules, the resolution of
    technical difficulties limiting production or reducing yields,
    and the development of new processes. Although we have supply
    agreements with some of our wafer manufacturers, a shortage of
    raw materials or production capacity could lead any of our wafer
    suppliers to allocate available capacity to other customers, or
    to internal uses in the case of Infineon, which could impair our
    ability to meet our product delivery obligations and may have a
    materially adverse effect on our business, financial condition,
    and results of operations.



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | Our limited volume and customized process requirements
    generally make us less attractive to independent wafer
    manufacturers.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The semiconductor industry has from time to time experienced
    shortages of manufacturing capacity. When production capacity is
    tight, the relatively small amount of wafers that we purchase
    from any foundry and the customized process steps that are
    necessary for our technologies put us at a disadvantage to
    foundry customers who purchase more wafers manufactured on
    standard processes. To secure an adequate supply of wafers, we
    may consider various transactions, including the use of
    substantial nonrefundable deposits, contractual purchase
    commitments, equity investments, or the formation of joint
    ventures. Any of these transactions could have a materially
    adverse effect on our business, financial condition, and results
    of operations.



| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | Identifying and qualifying new independent wafer
    manufacturers is difficult and might be unsuccessful.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our current independent wafer manufacturers were unable or
    unwilling to manufacture our products as required, we would have
    to identify and qualify additional foundries. No additional
    wafer foundries may be able or available to satisfy our
    requirements on a timely basis. Even if we are able to identify
    a new third party manufacturer, the costs associated with
    manufacturing our products may increase. In any event, the
    qualification process typically takes one year or longer, which
    could cause product shipment delays, and qualification may not
    be successful.



| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our independent assembly subcontractors may be unable or
    unwilling to meet our requirements, which could delay product
    shipments and result in the loss of customers or revenues.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely primarily on foreign subcontractors for the assembly and
    packaging of our products and, to a lesser extent, for testing
    of our finished products. Our reliance on independent
    subcontractors involves certain risks, including lack of control
    over capacity allocation and delivery schedules. We generally
    rely on one or two subcontractors to provide particular services
    and have from time to time experienced difficulties with the
    timeliness and quality of product deliveries. We have no
    long-term contracts with our

29



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | subcontractors and certain of those subcontractors sometimes
    operate at or near full capacity. Any significant disruption in
    supplies from, or degradation in the quality of components or
    services supplied by, our subcontractors could have a materially
    adverse effect on our business, financial condition, and results
    of operations.



| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our independent software and hardware developers and
    suppliers may be unable or unwilling to satisfy our needs in a
    timely manner, which could impair the introduction of new
    products or the support of existing products.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are dependent on independent software and hardware developers
    for the development, supply, maintenance, and support of some of
    our IP cores, design and development software, programming
    hardware, design diagnostics and debugging tool kits, and
    demonstration boards (or certain elements of those products).
    Our reliance on independent software and hardware developers
    involves certain risks, including lack of control over delivery
    schedules and customer support. Any failure of or significant
    delay by our independent developers to complete software and/or
    hardware under development in a timely manner could disrupt the
    release of our software and/or the introduction of our new
    FPGAs, which might be detrimental to the capability of our new
    products to win designs. Any failure of or significant delay by
    our independent suppliers to provide updates or customer support
    could disrupt our ability to ship products or provide customer
    support services, which might result in the loss of revenues or
    customers. Any of these disruptions could have a materially
    adverse effect on our business, financial condition, or results
    of operations.



| |   |                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our future performance will depend in part on the
    effectiveness of our independent distributors in marketing,
    selling, and supporting our products.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 2004, sales made through distributors accounted for 67% of
    our net revenues. Our distributors offer products of several
    different companies, so they may reduce their efforts to sell
    our products or give higher priority to other products. A
    reduction in sales effort, termination of relationship, failure
    to pay us for products, or discontinuance of operations because
    of financial difficulties or for other reasons by one or more of
    our current distributors could have a materially adverse effect
    on our business, financial condition, and results of operations.



| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | Distributor contracts generally can be terminated on short
    notice.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Although we have contracts with our distributors, the agreements
    are terminable by either party on short notice. On March 1,
    2003, we consolidated our distribution channel by terminating
    our agreement with Pioneer, which accounted for 26% of our net
    revenues in 2002. We also consolidated our distribution channel
    in 2001 by terminating our agreement with Arrow, which accounted
    for 13% of our net revenues in 2001. Unique, which accounted for
    33% of our net revenues in 2004, has been our sole distributor
    in North America since March 1, 2003. The loss of Unique as
    a distributor could have a materially adverse effect on our
    business, financial condition, or results of operations.



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | Fluctuations in inventory levels at our distributors can
    affect our operating results.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our distributors have occasionally built inventories in
    anticipation of significant growth in sales and, when such
    growth did not occur as rapidly as anticipated, substantially
    reduced the amount of product ordered from us in subsequent
    quarters. Such a slowdown in orders generally reduces our gross
    margin on future sales of newer products because we are unable
    to take advantage of any manufacturing cost reductions while the
    distributor depletes its inventory at lower average selling
    prices.



|  |                                                                                                                
|- | ---------------------------------------------------------------------------------------------------------------
| | We are subject to all of the risks and uncertainties
    associated with the conduct of international business.



| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | We depend on international operations for almost all of our
    products.



| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We purchase almost all of our wafers from foreign foundries and
    have almost all of our commercial products assembled, packaged,
    and tested by subcontractors located outside the United States.
    These

30



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | activities are subject to the uncertainties associated with
    international business operations, including trade barriers and
    other restrictions, changes in trade policies, governmental
    regulations, currency exchange fluctuations, reduced protection
    for intellectual property, war and other military activities,
    terrorism, changes in social, political, or economic conditions,
    and other disruptions or delays in production or shipments, any
    of which could have a materially adverse effect on our business,
    financial condition, or results of operations.



| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | We depend on international sales for a substantial portion of
    our revenues.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Sales to customers outside North America accounted for 45% of
    net revenues in 2004, and we expect that international sales
    will continue to represent a significant portion of our total
    revenues. International sales are subject to the risks described
    above as well as generally longer payment cycles, greater
    difficulty collecting accounts receivable, and currency
    restrictions. We also maintain foreign sales offices to support
    our international customers, distributors, and sales
    representatives, which are subject to local regulation.                                                                                                                                                                                                                                                                                                                                                                                          
|
| | In addition, international sales are subject to the export laws
    and regulations of the United States and other countries. The
    Strom Thurmond National Defense Authorization Act for 1999
    required, among other things, that communications satellites and
    related items (including components) be controlled on the
    U.S. Munitions List. The effect of the Act was to transfer
    jurisdiction over commercial communications satellites from the
    Department of Commerce to the Department of State and to expand
    the scope of export licensing applicable to commercial
    satellites. The need to obtain additional export licenses has
    caused significant delays in the shipment of some of our FPGAs.
    Any future restrictions or charges imposed by the United States
    or any other country on our international sales could have a
    materially adverse effect on our business, financial condition,
    or results of operations.

               Our
revenues and operating results have been and may again be
adversely affected by downturns or other changes in the general
economy, in the semiconductor industry, in our major markets, or
at our major customers.






| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | Our revenues and operating results may be adversely affected
    by future downturns in the semiconductor industry.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The semiconductor industry historically has been cyclical and
    periodically subject to significant economic downturns, which
    are characterized by diminished product demand, accelerated
    price erosion, and overcapacity. Beginning in the fourth quarter
    of 2000, we experienced (and the semiconductor industry in
    general experienced) reduced bookings and backlog cancellations
    due to excess inventories at communications, computer, and
    consumer equipment manufacturers and a general softening in the
    overall economy. During this downturn, which was severe and
    prolonged, we experienced lower revenues, which had a
    substantial negative effect on our results of operations. Any
    future downturns in the semiconductor industry may likewise have
    an adverse effect on our revenues and results of operations.



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | Our revenues and operating results may be adversely affected
    by future downturns in the communications market.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We estimate that sales of our products to customers in the
    communications market accounted for 27% of our net revenues for
    2004, 26% for 2003, and 25% for 2002, compared with 49% for 2001
    and 56% for 2000. Like the semiconductor industry in general,
    the communications market has been cyclical and periodically
    subject to significant downturns. Beginning with the fourth
    quarter of 2000, the communications market suffered its worst
    downturn in recent history. As a result, we experienced reduced
    revenues and results of operations. Any future downturns in the
    communications market may likewise have an adverse effect on our
    revenues and results of operations.

31



---



##### Table of Contents





| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | Our revenues and operating results may be adversely affected
    by future downturns in the military and aerospace market.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We estimate that sales of our products to customers in the
    military and aerospace industries, which carry higher overall
    gross margins than sales of products to other customers,
    accounted for 36% of our net revenues for 2004 and 2003,
    compared with 41% for 2002 and 26% for 2001. In general, we
    believe that the military and aerospace industries have
    accounted for a significantly greater percentage of our net
    revenues since the introduction of our Rad Hard FPGAs in 1996
    and our Rad Tolerant FPGAs in 1998. Any future downturn in the
    military and aerospace market could have an adverse effect on
    our revenues and results of operations.



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | Our revenues and operating results may be adversely affected
    by changes in the military and aerospace market.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 1994, Secretary of Defense William Perry directed the
    Department of Defense to avoid government-unique requirements
    when making purchases and rely more on the commercial
    marketplace. Under the Perry initiative, the
    Department of Defense must strive to increase access to
    commercial state-of-the-art technology and 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 had been part of military procurements for
    many years were cancelled in the interest of buying
    best-available commercial products. We believe that this trend
    toward the use of commercial off-the-shelf products has on
    balance helped our business. However, if this trend continued to
    the point where defense contractors customarily purchased
    commercial-grade parts rather than military-grade parts, the
    revenues and gross margins that we derive from sales to
    customers in the military and aerospace industries would erode,
    which could have a materially adverse effect on our business,
    financial condition, and results of operations. On the other
    hand, there are some signs that this trend toward the use of
    commercial off-the-shelf products is reversing. If defense
    contractors were to begin using more customized ASICs and fewer
    commercial off-the-shelf products, the revenues and gross
    margins that we derive from sales to customers in the military
    and aerospace industries may erode, which could have a
    materially adverse effect on our business, financial condition,
    and results of operations.



| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | Our revenues and operating results may be adversely affected
    by future downturns at any of our major customers.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A relatively small number of customers are responsible for a
    significant portion our net revenues. We have experienced
    periods in which sales to our major customers declined as a
    percentage of our net revenues. For example, Lockheed Martin
    accounted for 4% of our net revenues during 2004, compared with
    11% during 2003 and 3% during 2002. We believe that sales to a
    limited number of customers will continue to account for a
    substantial portion of net revenues in future periods. The loss
    of a major customer, or decreases or delays in shipments to
    major customers, could have a materially adverse effect on our
    business, financial condition, and results of operations.

               Any
acquisition we make may harm our business, financial condition,
or operating results.






| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In 1999, we acquired AGL for consideration valued at
    $7.2 million. We acquired AGL for technology used in the
    unsuccessful development of an SRAM-based FPGA.                                                                             
|
| |  | In 2000, we acquired Prosys Technology, Inc. (Prosys) for
    consideration valued at $26.2 million. We acquired Prosys
    for technology used in our VariCore EPGA logic core, which was
    introduced in 2001 but for which no market emerged.
|
| |  | Also in 2000, we completed our acquisition of GateField for
    consideration valued at $45.7 million. We acquired
    GateField for its Flash technology and ProASIC FPGA family. We
    introduced the second-                                  

32



---



##### Table of Contents



| |  |                                                                                                                                                                                                   
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | generation ProASIC PLUS product family in 2002, the
    third-generation ProASIC3/E families in 2005, and are currently
    the only company offering nonvolatile, reprogrammable Flash
    FPGAs.



 Changing accounting, corporate governance, public
disclosure, or tax rules or practices could have a materially
adverse effect on our business, financial condition, or results
of operations.






| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Proposed changes in accounting for equity compensation could
    adversely affect our operating results and our ability to
    attract and retain employees.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In December 2004, the Financial Accounting Standards Board
    (FASB) issued Statement of Financial Accounting Standards
    (SFAS) No. 123(R), Share-Based Payment: An
    Amendment of FASB Statements No. 123 and 95.
    SFAS No. 123(R) eliminates the ability to account for
    share-based compensation transactions using APB Opinion
    No. 25, Accounting for Stock Issued to
    Employees, and will instead require companies to recognize
    compensation expense, using a fair-value based method, for costs
    related to share-based payments including stock options and
    employee stock purchase plans. We will be required to implement
    the standard no later than the quarter that begins July 4,
    2005. The adoption of SFAS No. 123(R) could materially
    impact our results of operations.
|
| | In addition, we have historically used stock options as a key
    component of employee compensation in order to align
    employees interests with the interests of our
    shareholders, encourage employee retention, and provide
    competitive compensation packages. To the extent that
    SFAS No. 123(R) or other new regulations make it more
    difficult or expensive to grant options to employees, we may
    incur increased compensation costs, change our equity
    compensation strategy, or find it difficult to attract, retain,
    and motivate employees. Any of these results could materially
    and adversely affect our business and operating results.                                                                                                                                              



| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Compliance with the Sarbanes-Oxley Act of 2002 and related
    corporate governance and public disclosure requirements has
    resulted in significant additional expense and uncertainty.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changing laws, regulations, and standards relating to corporate
    governance and public disclosure, including the Sarbanes-Oxley
    Act of 2002 and new SEC regulations and Nasdaq National Market
    rules, have resulted in significant and uncertainty for
    companies such as ours. These new or changed laws, regulations,
    and standards are subject to varying interpretations, in many
    cases due to their lack of specificity. As a result, their
    application in practice may evolve over time as new guidance is
    provided by regulatory and governing bodies, which could result
    in continuing uncertainty regarding compliance

33



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | matters and higher costs necessitated by ongoing revisions to
    disclosure and governance practices. We are committed to
    maintaining high standards of corporate governance and public
    disclosure, and therefore intend to invest the resources
    necessary to comply with evolving laws, regulations, and
    standards. This investment may result in increased general and
    administrative expenses as well as a diversion of management
    time and attention from revenue-generating activities to
    compliance activities. If our efforts to comply with new or
    changed laws, regulations, and standards differ from the
    activities intended by regulatory or governing bodies, we might
    be subject to sanctions or investigation by regulatory
    authorities, such as the SEC or The Nasdaq National Market, or
    lawsuits and our reputation may be harmed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | We evaluated our internal controls systems in order to allow
    management to report on, and our independent public accountants
    to attest to, our internal controls, as required by
    Section 404 of the Sarbanes-Oxley Act. In performing the
    system and process evaluation and testing required to comply
    with the management certification and auditor attestation
    requirements of Section 404, we incurred significant
    additional expenses and a diversion of managements time,
    which adversely affected our operating results and financial
    condition. While we believe that our internal control procedures
    are adequate, no assurance can be given that we will be able to
    continue to comply with the requirements relating to internal
    controls and all other aspects of Section 404 in a timely
    fashion. If we were not able to comply with the requirements of
    Section 404 in a timely or adequate manner we might be
    subject to sanctions or investigation by regulatory authorities
    or lawsuits. Any such action could adversely affect our
    financial results and the market price of our Common Stock. In
    any event, we expect that we will continue to incur significant
    expenses and diversion of managements time to comply with
    the management certification and auditor attestation
    requirements of Section 404.



|  |                                                                                                                                                                                                                    
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may face significant business and financial risk from
    claims of intellectual property infringement asserted against
    us, and we may be unable to adequately enforce our intellectual
    property rights.







34



---



##### Table of Contents







|  |                                                                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be unable to attract or retain the personnel necessary
    to successfully develop our technologies, design our products,
    or operate, manage, or grow our business.





|  |                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------
| | We have some arrangements that may not be neutral toward a
    potential change of control and our Board of Directors could
    adopt others.







35



---



##### Table of Contents





|  |                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------
| | Our stock price may decline significantly, possibly for
    reasons unrelated to our operating performance.





| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | quarterly fluctuations in our financial results or the financial
    results of our competitors or other semiconductor companies;                            
|
| |  | changes in the expectations of analysts regarding our financial
    results or the financial results of our competitors or other
    semiconductor companies;
|
| |  | announcements of new products or technical innovations by us or
    by our competitors; or                                                                   
|
| |  | general conditions in the semiconductor industry, financial
    markets, or economy.                                                                         






|        |           
|------- | ----------
|ITEM 2. | PROPERTIES










|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS








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



|                   |  |     |            |  |          |  |            | 
|------------------ |  | --- | ---------- |  | -------- |  | ---------- | 
|Nominee            |  | For |            |  | Withheld | 
|                   |  |     |            |  |          | 
|John C. East       |  |     | 23,323,996 |  |          |  | 995,536    | 
|James R. Fiebiger  |  |     | 23,427,565 |  |          |  | 891,967    | 
|Jacob S. Jacobsson |  |     | 23,032,622 |  |          |  | 1,286,910  | 
|J. Daniel McCranie |  |     | 23,469,790 |  |          |  | 849,742    | 
|Henry L. Perret    |  |     | 9,734,434  |  |          |  | 14,585,098 | 
|Robert G. Spencer  |  |     | 22,851,099 |  |          |  | 1,468,433  | 



|           |  |         |           |  |         |  |       | 
|---------- |  | ------- | --------- |  | ------- |  | ----- | 
|For        |  | Against |           |  | Abstain | 
|           |  |         |           |  |         | 
|22,728,444 |  |         | 1,584,503 |  |         |  | 6,585 | 

36



---



##### Table of Contents



Executive Officers




|                    |  |     |    |  |          |                                                      
|------------------- |  | --- | -- |  | -------- | -----------------------------------------------------
|Name                |  | Age |    |  | Position
|                    |  |     |    |  |         
|John C. East        |  |     | 60 |  |          | President and Chief Executive Officer                
|Esmat Z. Hamdy      |  |     | 55 |  |          | Senior Vice President of Technology & Operations     
|Jon A. Anderson     |  |     | 46 |  |          | Vice President of Finance and Chief Financial Officer
|Anthony Farinaro    |  |     | 42 |  |          | Vice President & General Manager of Design Services  
|Paul V. Indaco      |  |     | 54 |  |          | Vice President of Worldwide Sales                    
|Dennis G. Kish      |  |     | 41 |  |          | Vice President of Marketing                          
|Barbara L. McArthur |  |     | 54 |  |          | Vice President of Human Resources                    
|Fares N. Mubarak    |  |     | 43 |  |          | Vice President of Engineering                        
|David L. Van De Hey |  |     | 49 |  |          | Vice President & General Counsel and Secretary       

Mr. East


Dr. Hamdy


Mr. Anderson


Mr. Farinaro


Mr. Indaco


37



---



##### Table of Contents



Mr. Kish


Ms. McArthur


Mr. Mubarak


Mr. Van De Hey







PART II







|        |                                                                                                                        
|------- | -----------------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR THE REGISTRANTS COMMON STOCK, RELATED
    SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
    SECURITIES



|               |  |      |       |  |      |   |       |      |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|               |  | 2004 |       |  | 2003 |  
|               |  |      |       |  |      |  
|               |  | High |       |  | Low  |   |       | High |  |   | Low   | 
|               |  |      |       |  |      |   |       |      |  |   |       | 
|First Quarter  |  | $    | 28.51 |  |      | $ | 20.14 |      |  | $ | 19.84 |  |  | $ | 14.26 | 
|Second Quarter |  |      | 23.98 |  |      |   | 16.62 |      |  |   | 23.00 |  |  |   | 16.80 | 
|Third Quarter  |  |      | 17.46 |  |      |   | 13.02 |      |  |   | 29.35 |  |  |   | 22.23 | 
|Fourth Quarter |  |      | 18.19 |  |      |   | 13.54 |      |  |   | 28.60 |  |  |   | 22.40 | 





38



---



##### Table of Contents








|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA

ACTEL CORPORATION


SELECTED CONSOLIDATED FINANCIAL DATA


|                                                                                                             |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |         |        |        |         |         |        |        |         | 
|------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------- | ------------------------------------- | ------------------------ | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | 
|                                                                                                             |                                                                           | Years Ended December 31,(1)           |                         
|                                                                                                             |                                                                           |                                       |                         
|                                                                                                             |                                                                           | 2004                                  |                          |        | 2003   |         |         | 2002   |        |         | 2001    |        |        | 2000    |        
|                                                                                                             |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |        
|                                                                                                             |                                                                           | (In thousands, except per share data) |                         
|Consolidated Statements of Operations Data:                                                                  |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |         |        |        |         |         |       
|Net revenues                                                                                                 |                                                                           | $                                     | 165,536                  |        |        | $       | 149,910 |        |        | $       | 134,368 |        |        | $       | 145,559 |        |        | $       | 226,419 |       
|Costs and expenses:                                                                                          |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |         |        |        |         |         |       
|                                                                                                             |                                                                           | Total Cost of revenues(2)             |                          |        | 70,451 |         |         |        | 59,734 |         |         |        | 52,935 |         |         |        | 62,210 |         |         |        | 84,680 |        
|                                                                                                             | Research and development                                                  |                                       |                          | 45,360 |        |         |         | 39,602 |        |         |         | 39,349 |        |         |         | 38,172 |        |         |         | 36,599 |       
|                                                                                                             | Selling, general, and administrative                                      |                                       |                          | 48,269 |        |         |         | 44,650 |        |         |         | 43,033 |        |         |         | 41,464 |        |         |         | 47,960 |       
|                                                                                                             | Amortization of goodwill and other acquisition-related
    intangibles(3) |                                       |                          | 2,651  |        |         |         | 2,670  |        |         |         | 2,724  |        |         |         | 14,757 |        |         |         | 8,056  |       
|                                                                                                             | Purchased in-process research and development(4)                          |                                       |                          |       |        |         |         |       |        |         |         |       |        |         |         |       |        |         |         | 10,646 |       
|                                                                                                             |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |        
|                                                                                                             |                                                                           |                                       | Total costs and expenses |        |        | 166,731 |         |        |        | 146,656 |         |        |        | 138,041 |         |        |        | 156,603 |         |        |        | 187,941 | 
|                                                                                                             |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |        
|Income (loss) from operations                                                                                |                                                                           |                                       | (1,195                   | )      |        |         | 3,254   |        |        |         | (3,673  | )      |        |         | (11,044 | )      |        |         | 38,478  |       
|Interest income and other, net of expense                                                                    |                                                                           |                                       | 2,935                    |        |        |         | 3,210   |        |        |         | 5,530   |        |        |         | 7,280   |        |        |         | 8,310   |       
|Gain (loss) on sales and write-downs of equity investments(5)(6)                                             |                                                                           |                                       |                         |        |        |         | 91      |        |        |         | (3,707  | )      |        |         |        |        |        |         | 28,329  |       
|                                                                                                             |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |        
|Income (loss) before tax (benefit) provision and equity interest
    in net (loss) of equity method investee |                                                                           |                                       | 1,740                    |        |        |         | 6,555   |        |        |         | (1,850  | )      |        |         | (3,764  | )      |        |         | 75,117  |       
|Equity interest in net (loss) of equity method investee(7)                                                   |                                                                           |                                       |                         |        |        |         |        |        |        |         |        |        |        |         |        |        |        |         | (2,445  | )     
|Tax (benefit) provision                                                                                      |                                                                           |                                       | (654                     | )      |        |         | 327     |        |        |         | (1,925  | )      |        |         | 937     |        |        |         | 31,227  |       
|                                                                                                             |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |        
|Net income (loss)                                                                                            |                                                                           | $                                     | 2,394                    |        |        | $       | 6,228   |        |        | $       | 75      |        |        | $       | (4,701  | )      |        | $       | 41,445  |       
|                                                                                                             |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |        
|Net income (loss) per share:                                                                                 |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |         |        |        |         |         |       
|                                                                                                             | Basic                                                                     |                                       | $                        | 0.09   |        |         | $       | 0.25   |        |         | $       | 0.00   |        |         | $       | (0.20  | )      |         | $       | 1.77   |       
|                                                                                                             |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |        
|                                                                                                             | Diluted                                                                   |                                       | $                        | 0.09   |        |         | $       | 0.24   |        |         | $       | 0.00   |        |         | $       | (0.20  | )      |         | $       | 1.58   |       
|                                                                                                             |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |        
|Shares used in computing net income (loss) per share:                                                        |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |         |        |        |         |         |       
|                                                                                                             | Basic                                                                     |                                       |                          | 25,584 |        |         |         | 24,808 |        |         |         | 24,302 |        |         |         | 23,743 |        |         |         | 23,447 |       
|                                                                                                             |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |        
|                                                                                                             | Diluted                                                                   |                                       |                          | 26,421 |        |         |         | 26,300 |        |         |         | 25,252 |        |         |         | 23,743 |        |         |         | 26,233 |       
|                                                                                                             |                                                                           |                                       |                          |        |        |         |         |        |        |         |         |        |        |         |        

|                                 |  |                       |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|-------------------------------- |  | --------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------- | 
|                                 |  | As of December 31,(1) |        
|                                 |  |                       |        
|                                 |  | 2004                  |         |  | 2003 |   |         | 2002 |  |   | 2001    |  |  | 2000 |        
|                                 |  |                       |         |  |      |   |         |      |  |   |         |  |  |      |        
|                                 |  | (In thousands)        |        
|Consolidated Balance Sheet Data: |  |                       |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|Working capital                  |  | $                     | 194,472 |  |      | $ | 191,078 |      |  | $ | 169,939 |  |  | $    | 161,246 |  |  | $ | 146,952 | 
|Total assets                     |  |                       | 315,290 |  |      |   | 316,757 |      |  |   | 293,321 |  |  |      | 290,082 |  |  |   | 312,434 | 
|Total shareholders equity       |  |                       | 264,793 |  |      |   | 264,433 |      |  |   | 242,314 |  |  |      | 237,680 |  |  |   | 230,101 | 






|    |                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our fiscal year ends on the first Sunday after December 30.
    For ease of presentation, December 31 has been indicated as
    the year end for all fiscal years.

39



---



##### Table of Contents



ACTEL CORPORATION


SELECTED CONSOLIDATED FINANCIAL
DATA  (Continued)




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | During the fourth quarter of 2004 we incurred incremental
    charges of $3.2 million for expenses associated with the
    testing of the RTSX-S space qualified FPGAs and the write down
    of RTSX-S inventory from the original manufacturer.                                                                                                                                                                                                                 
|   
|(3) | Beginning in 2002, we ceased to amortize goodwill in accordance
    with SFAS No. 142, Goodwill and Other Intangible
    Assets. Instead, goodwill is subject to annual impairment
    tests and written down only when identified as impaired.
    Non-goodwill intangible assets with definite lives continue to
    be amortized under SFAS No. 141 and 142. See
    Notes 1 and 2 of Notes to Consolidated Financial Statements
    for further information.
|   
|(4) | The 2000 expenses represent charges for in-process research and
    development arising from our acquisitions of Prosys
    ($5.6 million) and GateField ($5.0 million).                                                                                                                                                                                                                                                                                          
|   
|(5) | During 2002, we realized losses on sales and write downs of our
    strategic equity investments totaling $3.7 million. See
    Note 3 of Notes to Consolidated Financial Statements for
    further information.                                                                                                                                                                                                                                                 
|   
|(6) | During the second quarter of 2000, we sold all of our shares of
    Chartered Semiconductor Manufacturing Ltd. common stock for
    proceeds of $39.0 million, resulting in a one-time gain of
    $28.3 million.                                                                                                                                                                                                                                                 
|   
|(7) | Represents our equity share of net losses of GateField in
    accordance with the equity method of accounting prior to our
    acquisition of GateField, which was completed on
    November 15, 2000.                                                                                                                                                                                                                                                            

40



---



##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

Overview








|  |               
|- | --------------
| | Semiconductors





|  |      
|- | -----
| | Logic





|  |     
|- | ----
| | PLDs





|  |         
|- | --------
| | Strategy





|  |             
|- | ------------
| | Technologies



41



---



##### Table of Contents





| |   |         
| | - | --------
| |  | Antifuse



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The one-time programmability of our antifuse FPGAs is desirable
    in certain military and aerospace applications, but commercial
    customers generally prefer to use reprogrammable FPGAs, and
    FPGAs based on all other types of technologies are
    reprogrammable. In addition, we are the only sizeable company
    that uses antifuse technology, which means that we bear the
    entire burden of developing and proving antifuse processes
    (including yields and reliability) and products (including
    switching elements and architectures). It also means that our
    FGPAs using antifuse technology are at least one and often two
    generations behind the FPGAs of our competitors using SRAM and
    other technologies manufactured on standard processes.



| |   |      
| | - | -----
| |  | Flash



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We believe that our long-term future lies with Flash technology,
    which permits us to make FPGAs that are both non-volatile and
    reprogrammable. While our Flash technology is unique, the
    process is very similar to the standard embedded Flash memory
    process, so we will be able to share with others most of the
    burden of developing and proving the process. While Flash
    technology has trailed SRAM technology by only about one half of
    a generation, our Flash FPGAs are still at least one generation
    behind the SRAM FPGAs of our competitors.



|  |        
|- | -------
| | Markets





| |   |            
| | - | -----------
| |  | Value-Based



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We think that the value based market, which is primarily
    concerned about cost, will grow the most of any FPGA market
    segment and is the best fit for our technologies. Xilinx and
    Altera are also aggressively offering low-priced products, so we
    might not gain share even in this segment of the FPGA market,
    but were optimistic because we think these customers most
    value the advantages of our technologies. Selling more low-price
    products may make it more difficult to maintain our gross
    margins from quarter to quarter.



| |   |                 
| | - | ----------------
| |  | High-Reliability



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We believe that we are the worlds leading supplier of
    military, avionics, and space-grade FPGAs, but we are seeing
    increased competition from Xilinx and Aeroflex Incorporated.
    This is a market in which the customers are extremely
    conscientious and demand the very highest levels of quality and
    reliability. To that end, we have conducted analysis of and
    experiments on the reliability of our RTSX-S space-qualified
    FPGAs over the last eighteen months at the behest of an ad-hoc
    industry group, and we anticipate that those investigations will
    continue for at least several more months. See the Risk Factors
    set forth at the end of Item 1 of this Annual Report on
    Form 10-K for more information.



|  |               
|- | --------------
| | Key Indicators



42



---



##### Table of Contents



Results of Operations




|                                                                       |  |                          |       |   |      |  |       |      |  |  |       |  
|---------------------------------------------------------------------- |  | ------------------------ | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                                                       |  | Years Ended December 31, |      
|                                                                       |  |                          |      
|                                                                       |  | 2004                     |       |   | 2003 |  |       | 2002 | 
|                                                                       |  |                          |       |   |      |  |       |      | 
|Net revenues                                                           |  |                          | 100.0 | % |      |  | 100.0 | %    |  |  | 100.0 | %
|Cost of revenues                                                       |  |                          | 42.6  |   |      |  | 39.8  |      |  |  | 39.4  |  
|                                                                       |  |                          |       |   |      |  |       |      | 
|Gross margin                                                           |  |                          | 57.4  |   |      |  | 60.2  |      |  |  | 60.6  |  
|Research and development                                               |  |                          | 27.4  |   |      |  | 26.4  |      |  |  | 29.3  |  
|Selling, general, and administrative                                   |  |                          | 29.1  |   |      |  | 29.8  |      |  |  | 32.0  |  
|Amortization of goodwill and other acquisition-related
    intangibles |  |                          | 1.6   |   |      |  | 1.8   |      |  |  | 2.0   |  
|                                                                       |  |                          |       |   |      |  |       |      | 
|Income (loss) from operations                                          |  |                          | (0.7  | ) |      |  | 2.2   |      |  |  | (2.7  | )
|Interest income and other, net of expense                              |  |                          | 1.8   |   |      |  | 2.1   |      |  |  | 4.1   |  
|Gain (loss) on sales and write-downs of equity investments             |  |                          | 0.0   |   |      |  | 0.1   |      |  |  | (2.8  | )
|                                                                       |  |                          |       |   |      |  |       |      | 
|Income (loss) before tax (benefit) provision                           |  |                          | 1.1   |   |      |  | 4.4   |      |  |  | (1.4  | )
|Tax (benefit) provision                                                |  |                          | (0.3  | ) |      |  | 0.2   |      |  |  | (1.5  | )
|                                                                       |  |                          |       |   |      |  |       |      | 
|Net income (loss)                                                      |  |                          | 1.4   | % |      |  | 4.2   | %    |  |  | 0.1   | %
|                                                                       |  |                          |       |   |      |  |       |      | 



               Net
Revenues








43



---



##### Table of Contents





|                |  |      |    |   |      |  |    |      |  |  |    |  
|--------------- |  | ---- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|                |  | 2004 |    |   | 2003 |  |    | 2002 | 
|                |  |      |    |   |      |  |    |      | 
|Pioneer         |  |      |   |   |      |  | 6  | %    |  |  | 26 | %
|Unique          |  |      | 33 | % |      |  | 41 | %    |  |  | 22 | %
|Lockheed Martin |  |      | 4  | % |      |  | 11 | %    |  |  | 3  | %





               Gross
Margin










|  |                               
|- | ------------------------------
| | Research and Development (R&D)



44



---



##### Table of Contents









|  |                                            
|- | -------------------------------------------
| | Selling, General, and Administrative (SG&A)







|  |                                                                       
|- | ----------------------------------------------------------------------
| | Amortization of Goodwill and Other Acquisition-Related
    Intangibles





|  |                                          
|- | -----------------------------------------
| | Interest Income and Other, Net of Expense





|  |                                                      
|- | -----------------------------------------------------
| | Losses on Sales and Write-Downs of Equity Investments



45



---



##### Table of Contents







|  |                        
|- | -----------------------
| | Tax (Benefit)/Provision



Financial Condition, Liquidity, and Capital Resources




|                                                                                                            |  |  |       |   
|----------------------------------------------------------------------------------------------------------- |  |  | ----- | --
|Cash, cash equivalents, and short-term investments                                                          |  |  | (2.3  | )%
|Accounts receivable, net                                                                                    |  |  | (13.9 | ) 
|Inventories                                                                                                 |  |  | 6.6   |   
|Current deferred income taxes                                                                               |  |  | 18.3  |   
|Prepaid expenses and other current assets                                                                   |  |  | 35.7  |   
|Property and equipment, net                                                                                 |  |  | 14.4  |   
|Other assets, net (primarily deferred income taxes and purchased
    intangible assets other than goodwill) |  |  | (20.4 | ) 
|Total assets                                                                                                |  |  | (0.5  | ) 
|Total current liabilities                                                                                   |  |  | (5.5  | ) 
|Total liabilities                                                                                           |  |  | (3.5  | ) 
|Shareholders equity                                                                                        |  |  | 0.1   |   



|  |                                                   
|- | --------------------------------------------------
| | Cash, Cash Equivalents, and Short-Term Investments







46



---



##### Table of Contents











|                             |  |                        |        |      |      |   |        |      |  |   |       |  |  |      |       |  |      |   |       |           |  |   |       |  |  |   |        | 
|---------------------------- |  | ---------------------- | ------ | ---- | ---- | - | ------ | ---- |  | - | ----- |  |  | ---- | ----- |  | ---- | - | ----- | --------- |  | - | ----- |  |  | - | ------ | 
|                             |  | Payments Due by Period |       
|                             |  |                        |       
|                             |  |                        |        | 2010 |     
|                             |  | Total                  |        |      | 2005 |   |        | 2006 |  |   | 2007  |  |  | 2008 |       |  | 2009 |   |       | and Later | 
|                             |  |                        |        |      |      |   |        |      |  |   |       |  |  |      |       |  |      |   |       |           | 
|                             |  | (In thousands)         |       
|Operating leases             |  | $                      | 25,693 |      |      | $ | 2,862  |      |  | $ | 2,837 |  |  | $    | 2,846 |  |      | $ | 2,695 |           |  | $ | 2,652 |  |  | $ | 11,801 | 
|Royalty/licensing agreements |  | $                      | 26,028 |      |      |   | 9,281  |      |  |   | 6,456 |  |  |      | 4,206 |  |      |   | 2,380 |           |  |   | 2,005 |  |  |   | 1,700  | 
|                             |  |                        |        |      |      |   |        |      |  |   |       |  |  |      |       |  |      |   |       |           | 
|Total                        |  | $                      | 51,721 |      |      | $ | 12,143 |      |  | $ | 9,293 |  |  | $    | 7,052 |  |      | $ | 5,075 |           |  | $ | 4,657 |  |  | $ | 13,501 | 
|                             |  |                        |        |      |      |   |        |      |  |   |       |  |  |      |       |  |      |   |       |           | 







|  |                    
|- | -------------------
| | Accounts Receivable



47



---



##### Table of Contents





|  |            
|- | -----------
| | Inventories







|  |                       
|- | ----------------------
| | Property and Equipment





|  |         
|- | --------
| | Goodwill





|  |             
|- | ------------
| | Other Assets





|  |                    
|- | -------------------
| | Current Liabilities



48



---



##### Table of Contents





|  |                     
|- | --------------------
| | Shareholders Equity



Impact of Recently Issued Accounting Standards










Critical Accounting Policies and Estimates




49



---



##### Table of Contents







|  |            
|- | -----------
| | Inventories







50



---



##### Table of Contents





|  |                               
|- | ------------------------------
| | Intangible Assets and Goodwill









|  |             
|- | ------------
| | Income Taxes





|  |              
|- | -------------
| | Legal Matters



51



---



##### Table of Contents





|  |         
|- | --------
| | Revenues



Risks




Quarterly Information




|                                                      |            |                                                    |        |        |          |   |        |          |  |   |          |        |  |          |        |        |          |   |        |          |  |   |          |        |  |   |        |        |  |   |        |        | 
|----------------------------------------------------- | ---------- | -------------------------------------------------- | ------ | ------ | -------- | - | ------ | -------- |  | - | -------- | ------ |  | -------- | ------ | ------ | -------- | - | ------ | -------- |  | - | -------- | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                      |            | Quarterly Operating Results Three Months Ended     |       
|                                                      |            |                                                    |       
|                                                      |            | Dec. 31,                                           |        |        | Sep. 30, |   |        | Jun. 30, |  |   | Mar. 31, |        |  | Dec. 31, |        |        | Sep. 30, |   |        | Jun. 30, |  |   | Mar. 31, |       
|                                                      |            | 2004                                               |        |        | 2004     |   |        | 2004     |  |   | 2004     |        |  | 2003     |        |        | 2003     |   |        | 2003     |  |   | 2003     |       
|                                                      |            |                                                    |        |        |          |   |        |          |  |   |          |        |  |          |        |        |          |   |        |          |  |   |          |       
|                                                      |            | (Unaudited, in thousands except per share amounts) |       
|Statements of Operations Data:                        |            |                                                    |        |        |          |   |        |          |  |   |          |        |  |          |        |        |          |   |        |          |  |   |          |        |  |   |        |        |  |   |        |       
|Net revenues                                          |            | $                                                  | 40,256 |        |          | $ | 39,439 |          |  | $ | 43,688   |        |  | $        | 42,153 |        |          | $ | 40,555 |          |  | $ | 38,405   |        |  | $ | 36,609 |        |  | $ | 34,341 |       
|Gross profit                                          |            |                                                    | 19,392 |        |          |   | 23,403 |          |  |   | 26,634   |        |  |          | 25,656 |        |          |   | 25,220 |          |  |   | 23,319   |        |  |   | 22,025 |        |  |   | 19,612 |       
|(Loss)/income from operations                         |            |                                                    | (5,400 | )      |          |   | (855   | )        |  |   | 2,541    |        |  |          | 2,519  |        |          |   | 2,462  |          |  |   | 1,965    |        |  |   | 441    |        |  |   | (1,614 | )     
|Net/(loss) income                                     |            |                                                    | (3,167 | )      |          |   | 517    |          |  |   | 2,504    |        |  |          | 2,540  |        |          |   | 2,328  |          |  |   | 2,283    |        |  |   | 1,386  |        |  |   | 231    |       
|Net (loss)/income per share:                          |            |                                                    |        |        |          |   |        |          |  |   |          |        |  |          |        |        |          |   |        |          |  |   |          |        |  |   |        |        |  |   |        |       
|                                                      | Basic      |                                                    | $      | (0.12  | )        |   | $      | 0.02     |  |   | $        | 0.10   |  |          | $      | 0.10   |          |   | $      | 0.09     |  |   | $        | 0.09   |  |   | $      | 0.06   |  |   | $      | 0.01   | 
|                                                      |            |                                                    |        |        |          |   |        |          |  |   |          |        |  |          |        |        |          |   |        |          |  |   |          |       
|                                                      | Diluted(1) |                                                    | $      | (0.12  | )        |   | $      | 0.02     |  |   | $        | 0.09   |  |          | $      | 0.09   |          |   | $      | 0.09     |  |   | $        | 0.08   |  |   | $      | 0.05   |  |   | $      | 0.01   | 
|                                                      |            |                                                    |        |        |          |   |        |          |  |   |          |        |  |          |        |        |          |   |        |          |  |   |          |       
|Shares used in computing net income (loss) per share: |            |                                                    |        |        |          |   |        |          |  |   |          |        |  |          |        |        |          |   |        |          |  |   |          |        |  |   |        |        |  |   |        |       
|                                                      | Basic      |                                                    |        | 25,368 |          |   |        | 25,600   |  |   |          | 25,749 |  |          |        | 25,620 |          |   |        | 25,339   |  |   |          | 25,005 |  |   |        | 24,550 |  |   |        | 24,338 | 
|                                                      |            |                                                    |        |        |          |   |        |          |  |   |          |        |  |          |        |        |          |   |        |          |  |   |          |       
|                                                      | Diluted(1) |                                                    |        | 25,368 |          |   |        | 25,930   |  |   |          | 26,584 |  |          |        | 27,324 |          |   |        | 27,235   |  |   |          | 27,101 |  |   |        | 25,776 |  |   |        | 25,087 | 
|                                                      |            |                                                    |        |        |          |   |        |          |  |   |          |        |  |          |        |        |          |   |        |          |  |   |          |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For the fourth quarter of 2004, we incurred a quarterly net loss
    and the inclusion of stock options in the shares used for
    computing diluted earnings per share would have been
    anti-dilutive and reduced the loss per share. Accordingly, all
    Common Stock equivalents (such as stock options) have been
    excluded from the shares used to calculate diluted earnings per
    share for that period.

52



---



##### Table of Contents



|                                 |  |                    |       |   |          |  |       |          |  |  |          |   |  |          |       |   |          |  |       |          |  |  |          |   |  |  |       |   |  |  |       |  
|-------------------------------- |  | ------------------ | ----- | - | -------- |  | ----- | -------- |  |  | -------- | - |  | -------- | ----- | - | -------- |  | ----- | -------- |  |  | -------- | - |  |  | ----- | - |  |  | ----- | -
|                                 |  | Three Months Ended |      
|                                 |  |                    |      
|                                 |  | Dec. 31,           |       |   | Sep. 30, |  |       | Jun. 30, |  |  | Mar. 31, |   |  | Dec. 31, |       |   | Sep. 30, |  |       | Jun. 30, |  |  | Mar. 31, |  
|                                 |  | 2004               |       |   | 2004     |  |       | 2004     |  |  | 2004     |   |  | 2003     |       |   | 2003     |  |       | 2003     |  |  | 2003     |  
|                                 |  |                    |       |   |          |  |       |          |  |  |          |   |  |          |       |   |          |  |       |          |  |  |          |  
|As a Percentage of Net Revenues: |  |                    |       |   |          |  |       |          |  |  |          |   |  |          |       |   |          |  |       |          |  |  |          |   |  |  |       |   |  |  |       |  
|Net revenues                     |  |                    | 100.0 | % |          |  | 100.0 | %        |  |  | 100.0    | % |  |          | 100.0 | % |          |  | 100.0 | %        |  |  | 100.0    | % |  |  | 100.0 | % |  |  | 100.0 | %
|Gross profit                     |  |                    | 48.2  |   |          |  | 59.3  |          |  |  | 61.0     |   |  |          | 60.9  |   |          |  | 62.2  |          |  |  | 60.7     |   |  |  | 60.2  |   |  |  | 57.1  |  
|(Loss)/income from operations    |  |                    | (13.4 | ) |          |  | (2.2  | )        |  |  | 5.8      |   |  |          | 6.0   |   |          |  | 6.1   |          |  |  | 5.1      |   |  |  | 1.2   |   |  |  | (4.7  | )
|Net (loss)/income                |  |                    | (7.9  | ) |          |  | 1.3   |          |  |  | 5.7      |   |  |          | 6.0   |   |          |  | 5.7   |          |  |  | 5.9      |   |  |  | 3.8   |   |  |  | 0.7   |  






|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK







53



---



##### Table of Contents








|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ACTEL CORPORATION


CONSOLIDATED BALANCE SHEETS


|                                     |                                                                                                                                                                          |                            |         |         |         |   |         |         |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                     |                                                                                                                                                                          | December 31,               |        
|                                     |                                                                                                                                                                          |                            |        
|                                     |                                                                                                                                                                          | 2004                       |         |         | 2003    |  
|                                     |                                                                                                                                                                          |                            |         |         |         |  
|                                     |                                                                                                                                                                          | (In thousands, except      |        
|                                     |                                                                                                                                                                          | share and per share        |        
|                                     |                                                                                                                                                                          | amounts)                   |        
|ASSETS                              
|Current assets:                      |                                                                                                                                                                          |                            |         |         |         |   |         |        
|                                     | Cash and cash equivalents                                                                                                                                                |                            | $       | 6,405   |         |   | $       | 13,648  |        
|                                     | Short-term investments                                                                                                                                                   |                            |         | 148,297 |         |   |         | 144,765 |        
|                                     | Accounts receivable, net                                                                                                                                                 |                            |         | 17,686  |         |   |         | 20,537  |        
|                                     | Inventories                                                                                                                                                              |                            |         | 41,218  |         |   |         | 38,664  |        
|                                     | Deferred income taxes                                                                                                                                                    |                            |         | 22,230  |         |   |         | 18,786  |        
|                                     | Prepaid expenses and other current assets                                                                                                                                |                            |         | 4,831   |         |   |         | 3,561   |        
|                                     |                                                                                                                                                                          |                            |         |         |         |  
|                                     |                                                                                                                                                                          | Total current assets       |         |         | 240,667 |   |         |         | 239,961 | 
|Property and equipment, net          |                                                                                                                                                                          |                            | 22,804  |         |         |   | 19,935  |        
|Goodwill                             |                                                                                                                                                                          |                            | 32,142  |         |         |   | 32,142  |        
|Other assets, net                    |                                                                                                                                                                          |                            | 19,677  |         |         |   | 24,719  |        
|                                     |                                                                                                                                                                          |                            |         |         |         |  
|                                     |                                                                                                                                                                          | $                          | 315,290 |         |         | $ | 316,757 |        
|                                     |                                                                                                                                                                          |                            |         |         |         |  
|                                    
|LIABILITIES AND SHAREHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                                          |                            |         |         |         |   |         |        
|                                     | Accounts payable                                                                                                                                                         |                            | $       | 11,397  |         |   | $       | 13,140  |        
|                                     | Accrued salaries and employee benefits                                                                                                                                   |                            |         | 6,776   |         |   |         | 7,081   |        
|                                     | Other accrued liabilities                                                                                                                                                |                            |         | 4,364   |         |   |         | 6,117   |        
|                                     | Deferred income on shipments to distributors                                                                                                                             |                            |         | 23,658  |         |   |         | 22,545  |        
|                                     |                                                                                                                                                                          |                            |         |         |         |  
|                                     |                                                                                                                                                                          | Total current liabilities  |         |         | 46,195  |   |         |         | 48,883  | 
|Deferred compensation plan liability |                                                                                                                                                                          |                            | 3,258   |         |         |   | 2,658   |        
|Deferred rent liability              |                                                                                                                                                                          |                            | 1,044   |         |         |   | 783     |        
|                                     |                                                                                                                                                                          |                            |         |         |         |  
|                                     |                                                                                                                                                                          | Total liabilities          |         |         | 50,497  |   |         |         | 52,324  | 
|Commitments and contingencies        |                                                                                                                                                                          |                            |         |         |         |   |         |        
|Shareholders equity:                |                                                                                                                                                                          |                            |         |         |         |   |         |        
|                                     | Preferred stock, $.001 par value; 4,500,000 shares
    authorized; 1,000,000 issued and converted to common stock; and
    none outstanding                              |                            |         |        |         |   |         |        |        
|                                     | Series A Preferred stock, $.001 par value;
    500,000 shares authorized; none issued or outstanding                                                                     |                            |         |        |         |   |         |        |        
|                                     | Common Stock, $.001 par value; 55,000,000 shares
    authorized; 25,409,155 and 25,388,746 shares issued and
    outstanding at December 31, 2004 and 2003, respectively |                            |         | 25      |         |   |         | 25      |        
|                                     | Additional paid-in capital                                                                                                                                               |                            |         | 188,631 |         |   |         | 184,674 |        
|                                     | Retained earnings                                                                                                                                                        |                            |         | 76,577  |         |   |         | 79,518  |        
|                                     | Unearned compensation cost                                                                                                                                               |                            |         |        |         |   |         | (44     | )      
|                                     | Accumulated other comprehensive (loss)/income                                                                                                                            |                            |         | (440    | )       |   |         | 260     |        
|                                     |                                                                                                                                                                          |                            |         |         |         |  
|                                     |                                                                                                                                                                          | Total shareholders equity |         |         | 264,793 |   |         |         | 264,433 | 
|                                     |                                                                                                                                                                          |                            |         |         |         |  
|                                     |                                                                                                                                                                          | $                          | 315,290 |         |         | $ | 316,757 |        
|                                     |                                                                                                                                                                          |                            |         |         |         |  



54



---



##### Table of Contents



ACTEL CORPORATION


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                           |                                                 |                                 |         |        |         |   |         |        |         |   |         |        |         | 
|---------------------------------------------------------- | ----------------------------------------------- | ------------------------------- | ------- | ------ | ------- | - | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                                                           |                                                 | Years Ended December 31,        |        
|                                                           |                                                 |                                 |        
|                                                           |                                                 | 2004                            |         |        | 2003    |   |         | 2002   |        
|                                                           |                                                 |                                 |         |        |         |   |         |        |        
|                                                           |                                                 | (In thousands, except per share |        
|                                                           |                                                 | amounts)                        |        
|Net revenues                                               |                                                 | $                               | 165,536 |        |         | $ | 149,910 |        |         | $ | 134,368 |       
|Costs and expenses:                                        |                                                 |                                 |         |        |         |   |         |        |         |   |         |       
|                                                           | Cost of revenues                                |                                 |         | 70,451 |         |   |         | 59,734 |         |   |         | 52,935 |        
|                                                           | Research and development                        |                                 |         | 45,360 |         |   |         | 39,602 |         |   |         | 39,349 |        
|                                                           | Selling, general, and administrative            |                                 |         | 48,269 |         |   |         | 44,650 |         |   |         | 43,033 |        
|                                                           | Amortization of acquisition-related intangibles |                                 |         | 2,651  |         |   |         | 2,670  |         |   |         | 2,724  |        
|                                                           |                                                 |                                 |         |        |         |   |         |        |        
|                                                           |                                                 | Total costs and expenses        |         |        | 166,731 |   |         |        | 146,656 |   |         |        | 138,041 | 
|                                                           |                                                 |                                 |         |        |         |   |         |        |        
|Income (loss) from operations                              |                                                 |                                 | (1,195  | )      |         |   | 3,254   |        |         |   | (3,673  | )     
|Interest income and other, net of expense                  |                                                 |                                 | 2,935   |        |         |   | 3,210   |        |         |   | 5,530   |       
|Gain (loss) on sales and write-downs of equity investments |                                                 |                                 |        |        |         |   | 91      |        |         |   | (3,707  | )     
|                                                           |                                                 |                                 |         |        |         |   |         |        |        
|Income (loss) before tax (benefit) provision               |                                                 |                                 | 1,740   |        |         |   | 6,555   |        |         |   | (1,850  | )     
|Tax (benefit) provision                                    |                                                 |                                 | (654    | )      |         |   | 327     |        |         |   | (1,925  | )     
|                                                           |                                                 |                                 |         |        |         |   |         |        |        
|Net income                                                 |                                                 | $                               | 2,394   |        |         | $ | 6,228   |        |         | $ | 75      |       
|                                                           |                                                 |                                 |         |        |         |   |         |        |        
|Net income per share:                                      |                                                 |                                 |         |        |         |   |         |        |         |   |         |       
|                                                           | Basic                                           |                                 | $       | 0.09   |         |   | $       | 0.25   |         |   | $       | 0.00   |        
|                                                           |                                                 |                                 |         |        |         |   |         |        |        
|                                                           | Diluted                                         |                                 | $       | 0.09   |         |   | $       | 0.24   |         |   | $       | 0.00   |        
|                                                           |                                                 |                                 |         |        |         |   |         |        |        
|Shares used in computing net income per share:             |                                                 |                                 |         |        |         |   |         |        |         |   |         |       
|                                                           | Basic                                           |                                 |         | 25,584 |         |   |         | 24,808 |         |   |         | 24,302 |        
|                                                           |                                                 |                                 |         |        |         |   |         |        |        
|                                                           | Diluted                                         |                                 |         | 26,421 |         |   |         | 26,300 |         |   |         | 25,252 |        
|                                                           |                                                 |                                 |         |        |         |   |         |        |        



55



---



##### Table of Contents



ACTEL CORPORATION


CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
OTHER


COMPREHENSIVE INCOME/(LOSS)


|                                                                            |                                                 |                                      |    |   |                 |   |         |          |  |   |              |             |  |              |      |   |               |   |      |               |  |   |     |      |   |   |         |       |  
|--------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------ | -- | - | --------------- | - | ------- | -------- |  | - | ------------ | ----------- |  | ------------ | ---- | - | ------------- | - | ---- | ------------- |  | - | --- | ---- | - | - | ------- | ----- | -
|                                                                            |                                                 |                                      |    |   |                 |   |         |          |  |   |              | Accumulated |  |              |     
|                                                                            |                                                 |                                      |    |   |                 |   |         | Notes    |  |   | Unearned     |             |  | Other        |      |   | Total         |  
|                                                                            |                                                 | Common                               |    |   | Additional      |   |         | Retained |  |   | Receivable   |             |  | Compensation |      |   | Comprehensive |   |      | Shareholders | 
|                                                                            |                                                 | Stock                                |    |   | Paid-in Capital |   |         | Earnings |  |   | from Officer |             |  | Cost         |      |   | Income        |   |      | Equity        | 
|                                                                            |                                                 |                                      |    |   |                 |   |         |          |  |   |              |             |  |              |      |   |               |   |      |               | 
|                                                                            |                                                 | (In thousands, except share amounts) |    |   |                
|Balance at December 31, 2001                                                |                                                 | $                                    | 24 |   |                 | $ | 162,324 |          |  | $ | 75,207       |             |  | $            | (368 | ) |               | $ | (314 | )             |  | $ | 807 |      |   | $ | 237,680 |      
|                                                                            |                                                 |                                      |    |   |                 |   |         |          |  |   |              |             |  |              |      |   |               |   |      |               | 
|Net income                                                                  |                                                 |                                      |   |   |                 |   |        |          |  |   | 75           |             |  |              |     |   |               |   |     |               |  |   |    |      |   |   | 75      |      
|Other comprehensive income (loss):                                          |                                                 |                                      |    |   |                 |   |         |          |  |   |              |             |  |              |      |   |               |   |      |               |  |   |     |      |   |   |         |      
|                                                                            | Change in unrealized gain (loss) on investments |                                      |    |  |                 |   |         |         |  |   |              |            |  |              |      |  |               |   |      |              |  |   |     | (56  | ) |   |         | (56   | )
|                                                                            |                                                 |                                      |    |   |                 |   |         |          |  |   |              |             |  |              |      |   |               |   |      |               | 
|                                                                            | Comprehensive income (loss)                     |                                      |    |   |                 |   |         |          |  |   |              |             |  |              |      |   |               |   |      |               |  |   |     |      |   |   |         | 19    |  
|Issuance of 784,073 shares of Common Stock under employee
    stock plans,  |                                                 |                                      |   |   |                 |   | 9,430   |          |  |   |             |             |  |              |     |   |               |   |     |               |  |   |    |      |   |   | 9,430   |      
|Repurchase of 663,482 shares of Common Stock                                |                                                 |                                      |   |   |                 |   | (5,907  | )        |  |   | (1,992       | )           |  |              |     |   |               |   |     |               |  |   |    |      |   |   | (7,899  | )    
|Repayment of note receivable from officer                                   |                                                 |                                      |   |   |                 |   |         |          |  |   |             |             |  |              | 368  |   |               |   |     |               |  |   |    |      |   |   | 368     |      
|Amortization of unearned compensation cost                                  |                                                 |                                      |   |   |                 |   |        |          |  |   |             |             |  |              |     |   |               |   | 135  |               |  |   |    |      |   |   | 135     |      
|Tax benefit from exercise of stock options                                  |                                                 |                                      |   |   |                 |   | 2,581   |          |  |   |             |             |  |              |     |   |               |   |     |               |  |   |    |      |   |   | 2,581   |      
|                                                                            |                                                 |                                      |    |   |                 |   |         |          |  |   |              |             |  |              |      |   |               |   |      |               | 
|Balance at December 31, 2002                                                |                                                 | $                                    | 24 |   |                 | $ | 168,428 |          |  | $ | 73,290       |             |  | $            |     |   |               | $ | (179 | )             |  | $ | 751 |      |   | $ | 242,314 |      
|                                                                            |                                                 |                                      |    |   |                 |   |         |          |  |   |              |             |  |              |      |   |               |   |      |               | 
|Net income                                                                  |                                                 |                                      |   |   |                 |   |        |          |  |   | 6,228        |             |  |              |     |   |               |   |     |               |  |   |    |      |   |   | 6,228   |      
|Other comprehensive income (loss):                                          |                                                 |                                      |    |   |                 |   |         |          |  |   |              |             |  |              |      |   |               |   |      |               |  |   |     |      |   |   |         |      
|                                                                            | Change in unrealized gain (loss) on investments |                                      |    |  |                 |   |         |         |  |   |              |            |  |              |      |  |               |   |      |              |  |   |     | (491 | ) |   |         | (491  | )
|                                                                            |                                                 |                                      |    |   |                 |   |         |          |  |   |              |             |  |              |      |   |               |   |      |               | 
|                                                                            | Comprehensive income (loss)                     |                                      |    |   |                 |   |         |          |  |   |              |             |  |              |      |   |               |   |      |               |  |   |     |      |   |   |         | 5,737 |  
|Issuance of 1,212,206 shares of Common Stock under employee
    stock plans |                                                 |                                      | 1  |   |                 |   | 16,246  |          |  |   |             |             |  |              |     |   |               |   |     |               |  |   |    |      |   |   | 16,247  |      
|Amortization of unearned compensation cost                                  |                                                 |                                      |   |   |                 |   |        |          |  |   |             |             |  |              |     |   |               |   | 135  |               |  |   |    |      |   |   | 135     |      
|Balance at December 31, 2003                                                |                                                 | $                                    | 25 |   |                 | $ | 184,674 |          |  | $ | 79,518       |             |  | $            |     |   |               | $ | (44  | )             |  | $ | 260 |      |   | $ | 264,433 |      
|                                                                            |                                                 |                                      |    |   |                 |   |         |          |  |   |              |             |  |              |      |   |               |   |      |               | 



56



---



##### Table of Contents



ACTEL CORPORATION


CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
OTHER


COMPREHENSIVE INCOME/(LOSS)  (Continued)


|                                                                                                                      |                                                 |                                      |    |   |                 |   |         |          |  |          |              |             |              |   |   |               |  |   |               |   |  |   |      |      |   |   |         |       |  
|--------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------ | -- | - | --------------- | - | ------- | -------- |  | -------- | ------------ | ----------- | ------------ | - | - | ------------- |  | - | ------------- | - |  | - | ---- | ---- | - | - | ------- | ----- | -
|                                                                                                                      |                                                 |                                      |    |   |                 |   |         |          |  |          |              | Accumulated |              |   |  
|                                                                                                                      |                                                 |                                      |    |   |                 |   |         | Notes    |  | Unearned |              |             | Other        |   |   | Total         | 
|                                                                                                                      |                                                 | Common                               |    |   | Additional      |   |         | Retained |  |          | Receivable   |             | Compensation |   |   | Comprehensive |  |   | Shareholders |  
|                                                                                                                      |                                                 | Stock                                |    |   | Paid-in Capital |   |         | Earnings |  |          | from Officer |             | Cost         |   |   | Income        |  |   | Equity        |  
|                                                                                                                      |                                                 |                                      |    |   |                 |   |         |          |  |          |              |             |              |   |   |               |  |   |               |  
|                                                                                                                      |                                                 | (In thousands, except share amounts) |   
|Balance at December 31, 2003                                                                                          |                                                 | $                                    | 25 |   |                 | $ | 184,674 |          |  | $        | 79,518       |             |              | $ |  |               |  | $ | (44           | ) |  | $ | 260  |      |   | $ | 264,433 |      
|                                                                                                                      |                                                 |                                      |    |   |                 |   |         |          |  |          |              |             |              |   |   |               |  |   |               |   | 
|Net income                                                                                                            |                                                 |                                      |   |   |                 |   |        |          |  |          | 2,394        |             |              |   |  |               |  |   |              |   |  |   |     |      |   |   | 2,394   |      
|Other comprehensive income (loss):                                                                                    |                                                 |                                      |    |   |                 |   |         |          |  |          |              |             |              |   |   |               |  |   |               |   |  |   |      |      |   |   |         |      
|                                                                                                                      | Change in unrealized gain (loss) on investments |                                      |    |  |                 |   |         |         |  |          |              |            |              |   |   |              |  |   |               |  |  |   |      | (700 | ) |   |         | (700  | )
|                                                                                                                      |                                                 |                                      |    |   |                 |   |         |          |  |          |              |             |              |   |   |               |  |   |               |   | 
|                                                                                                                      | Comprehensive income (loss)                     |                                      |    |   |                 |   |         |          |  |          |              |             |              |   |   |               |  |   |               |   |  |   |      |      |   |   |         | 1,694 |  
|Issuance of stock options to consultant                                                                               |                                                 |                                      |   |   |                 |   | 74      |          |  |          |             |             |              |   |  |               |  |   |              |   |  |   |     |      |   |   | 74      |      
|Amortization of unearned compensation cost                                                                            |                                                 |                                      |   |   |                 |   |        |          |  |          |             |             |              |   |  |               |  |   | 44            |   |  |   |     |      |   |   | 44      |      
|Issuance of 682,106 shares of Common Stock under employee
    stock plans                                             |                                                 |                                      | 1  |   |                 |   | 8,174   |          |  |          |             |             |              |   |  |               |  |   |              |   |  |   |     |      |   |   | 8,175   |      
|Repurchase of 691,697 shares of Common Stock                                                                          |                                                 |                                      | (1 | ) |                 |   | (4,888  | )        |  |          | (4,738       | )           |              |   |  |               |  |   |              |   |  |   |     |      |   |   | (9,627  | )    
|Cashless exercise of options to purchase 54,563 shares of
    Common Stock using 30,563 mature shares of Common Stock |                                                 |                                      |    |   |                 |   | 597     |          |  |          | (597         | )           |              |   |   |               |  |   |               |   |  |   |      |      |   |   |        |      
|                                                                                                                      |                                                 |                                      |    |   |                 |   |         |          |  |          |              |             |              |   |   |               |  |   |               |   | 
|Balance at December 31, 2004                                                                                          |                                                 | $                                    | 25 |   |                 | $ | 188,631 |          |  | $        | 76,577       |             |              | $ |  |               |  | $ |              |   |  | $ | (440 | )    |   | $ | 264,793 |      
|                                                                                                                      |                                                 |                                      |    |   |                 |   |         |          |  |          |              |             |              |   |   |               |  |   |               |   | 



57



---



##### Table of Contents



ACTEL CORPORATION


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                       |                                                                                       |                                              |                                                                                             |          |        |        |         |          |        |        |        |          |        |        |  
|------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------------------------------------------------------------- | -------- | ------ | ------ | ------- | -------- | ------ | ------ | ------ | -------- | ------ | ------ | -
|                                                                                                       |                                                                                       | Years Ended December 31,                     |                                                                                            
|                                                                                                       |                                                                                       |                                              |                                                                                            
|                                                                                                       |                                                                                       | 2004                                         |                                                                                             |          | 2003   |        |         | 2002     |       
|                                                                                                       |                                                                                       |                                              |                                                                                             |          |        |        |         |          |       
|                                                                                                       |                                                                                       | (In thousands)                               |                                                                                            
|Operating activities:                                                                                  |                                                                                       |                                              |                                                                                             |          |        |        |         |          |        |        |        |         
|                                                                                                       | Net income                                                                            |                                              | $                                                                                           | 2,394    |        |        | $       | 6,228    |        |        | $      | 75       |       
|                                                                                                       | Adjustments to reconcile net income to net cash provided by
    operating activities: |                                              |                                                                                             |          |        |        |         |          |        |        |        |          |       
|                                                                                                       |                                                                                       | Depreciation and amortization                |                                                                                             |          | 10,496 |        |         |          | 10,168 |        |        |          | 10,012 |       
|                                                                                                       |                                                                                       | Stock compensation cost recognized           |                                                                                             |          | 118    |        |         |          | 135    |        |        |          | 135    |       
|                                                                                                       |                                                                                       | Impairment of equity investments             |                                                                                             |          |       |        |         |          |       |        |        |          | 3,041  |       
|                                                                                                       |                                                                                       | Changes in operating assets and liabilities: |                                                                                             |          |        |        |         |          |        |        |        |          |        |       
|                                                                                                       |                                                                                       |                                              | Accounts receivable                                                                         |          |        | 2,851  |         |          |        | (2,922 | )      |          |        | (856   | )
|                                                                                                       |                                                                                       |                                              | Inventories                                                                                 |          |        | (2,554 | )       |          |        | (4,073 | )      |          |        | 1,747  |  
|                                                                                                       |                                                                                       |                                              | Deferred income taxes                                                                       |          |        | (517   | )       |          |        | 8,363  |        |          |        | 104    |  
|                                                                                                       |                                                                                       |                                              | Prepaid expenses and other current assets                                                   |          |        | (1,270 | )       |          |        | 1,407  |        |          |        | 246    |  
|                                                                                                       |                                                                                       |                                              | Accounts payable, accrued salaries and employee benefits, and
    other accrued liabilities |          |        | (2,736 | )       |          |        | 4,512  |        |          |        | (4,002 | )
|                                                                                                       |                                                                                       |                                              | Deferred income on shipments to distributors                                                |          |        | 1,113  |         |          |        | (3,914 | )      |          |        | (299   | )
|                                                                                                       |                                                                                       |                                              | Tax benefits from exercise of stock options                                                 |          |        |       |         |          |        |       |        |          |        | 2,581  |  
|                                                                                                       |                                                                                       |                                              |                                                                                             |          |        |        |         |          |       
|                                                                                                       | Net cash provided by operating activities                                             |                                              |                                                                                             | 9,895    |        |        |         | 19,904   |        |        |        | 12,784   |       
|Investing activities:                                                                                  |                                                                                       |                                              |                                                                                             |          |        |        |         |          |        |        |        |         
|                                                                                                       | Purchases of property and equipment                                                   |                                              |                                                                                             | (10,714  | )      |        |         | (11,229  | )      |        |        | (8,827   | )     
|                                                                                                       | Purchases of available-for-sale securities                                            |                                              |                                                                                             | (166,356 | )      |        |         | (179,276 | )      |        |        | (177,473 | )     
|                                                                                                       | Sales and maturities of available for sale securities                                 |                                              |                                                                                             | 161,657  |        |        |         | 149,315  |        |        |        | 181,763  |       
|                                                                                                       | Changes in other long term assets                                                     |                                              |                                                                                             | (273     | )      |        |         | 480      |        |        |        | 149      |       
|                                                                                                       |                                                                                       |                                              |                                                                                             |          |        |        |         |          |       
|                                                                                                       | Net cash used in investing activities                                                 |                                              |                                                                                             | (15,686  | )      |        |         | (40,710  | )      |        |        | (4,388   | )     
|Financing activities:                                                                                  |                                                                                       |                                              |                                                                                             |          |        |        |         |          |        |        |        |         
|                                                                                                       | Repayment of note-receivable from officer                                             |                                              |                                                                                             |         |        |        |         |         |        |        |        | 368      |       
|                                                                                                       | Issuance of Common Stock under employee stock plans                                   |                                              |                                                                                             | 8,175    |        |        |         | 16,247   |        |        |        | 9,430    |       
|                                                                                                       | Repurchase of Common Stock                                                            |                                              |                                                                                             | (9,627   | )      |        |         |         |        |        |        | (7,899   | )     
|                                                                                                       |                                                                                       |                                              |                                                                                             |          |        |        |         |          |       
|                                                                                                       | Net cash (used in) provided by financing activities                                   |                                              |                                                                                             | (1,452   | )      |        |         | 16,247   |        |        |        | 1,899    |       
|Net (decrease) increase in cash and cash equivalents                                                   |                                                                                       |                                              | (7,243                                                                                      | )        |        |        | (4,559  | )        |        |        | 10,295 |         
|Cash and cash equivalents, beginning of year                                                           |                                                                                       |                                              | 13,648                                                                                      |          |        |        | 18,207  |          |        |        | 7,912  |         
|                                                                                                       |                                                                                       |                                              |                                                                                             |          |        |        |         |          |       
|Cash and cash equivalents, end of year                                                                 |                                                                                       | $                                            | 6,405                                                                                       |          |        | $      | 13,648  |          |        | $      | 18,207 |         
|                                                                                                       |                                                                                       |                                              |                                                                                             |          |        |        |         |          |       
|Supplemental disclosures of cash flow information and
    non-cash investing and financing activities: |                                                                                       |                                              |                                                                                             |          |        |        |         |          |        |        |        |         
|Cash paid/(received) during the year for income taxes                                                  |                                                                                       | $                                            | 431                                                                                         |          |        | $      | (12,367 | )        |        | $      | (157   | )       



58



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                                                
|-- | ---------------------------------------------------------------
|1. | Organization and Summary of Significant Accounting
    Policies







|  |                                
|- | -------------------------------
| | Advertising and Promotion Costs





|  |                      
|- | ---------------------
| | Basis of Presentation







|  |                                 
|- | --------------------------------
| | Cash Equivalents and Investments









59



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










60



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|  |                             
|- | ----------------------------
| | Concentration of Credit Risk









|  |                                    
|- | -----------------------------------
| | Fair Value of Financial Instruments





| |   |                 
| | - | ----------------
| |  | Accounts Payable



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | The carrying amount reported in the balance sheets for accounts
    payable approximates fair value.



| |   |                          
| | - | -------------------------
| |  | Cash and Cash Equivalents



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | The carrying amounts reported in the balance sheets for cash and
    cash equivalents approximate fair value.



| |   |                    
| | - | -------------------
| |  | Insurance Contracts



| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | The fair value of our insurance contracts (entered into in
    connection with our deferred compensation plan) is based upon
    cash surrender value.



| |   |                      
| | - | ---------------------
| |  | Investment Securities



| |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The fair values for marketable debt and equity securities are
    based on quoted market prices. Strategic equity investments in
    non-public companies with no readily available market value are
    carried on the balance sheet at cost as adjusted for impairment
    losses. If reductions in the market value of marketable equity
    securities to an amount that is below cost are deemed by us to
    be other than

61



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | temporary, the reduction in market value will be realized, with
    the resulting loss in market value reflected on the income
    statement.



|  |                                                   
|- | --------------------------------------------------
| | Goodwill and other Acquisition-Related Intangibles









|  |                                               
|- | ----------------------------------------------
| | Impact of Recently Issued Accounting Standards





62



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|  |             
|- | ------------
| | Income Taxes





|  |            
|- | -----------
| | Inventories





63



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|  |              
|- | -------------
| | Legal Matters



64



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|  |                 
|- | ----------------
| | Product Warranty





|  |                       
|- | ----------------------
| | Property and Equipment



|                       |  |  |                         | 
|---------------------- |  |  | ----------------------- | 
|Equipment              |  |  | 2 to 5 years            | 
|Furniture and fixtures |  |  | 3 to 5 years            | 
|Leasehold improvements |  |  | Remaining term of lease | 





|  |                    
|- | -------------------
| | Revenue Recognition







|  |                         
|- | ------------------------
| | Stock-Based Compensation





65



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                 |  |               |      |   |                            |  |      |      |  |  |      |   |  |      |      |   |      |  |      |   |  |  |      |  
|-------------------------------- |  | ------------- | ---- | - | -------------------------- |  | ---- | ---- |  |  | ---- | - |  | ---- | ---- | - | ---- |  | ---- | - |  |  | ---- | -
|                                 |  | Stock Options |      |   | Stock Purchase Plan Rights | 
|                                 |  |               |      |   |                            | 
|Year Ended December 31,          |  | 2004          |      |   | 2003                       |  |      | 2002 |  |  | 2004 |   |  | 2003 |      |   | 2002 | 
|                                 |  |               |      |   |                            |  |      |      |  |  |      |   |  |      |      |   |      | 
|Expected life of options (years) |  |               | 4.18 |   |                            |  | 4.29 |      |  |  | 4.14 |   |  |      | 1.24 |   |      |  | 1.26 |   |  |  | 1.14 |  
|Expected stock price volatility  |  |               | 0.57 |   |                            |  | 0.62 |      |  |  | 0.66 |   |  |      | 0.56 |   |      |  | 0.62 |   |  |  | 0.66 |  
|Risk-free interest rate          |  |               | 3.0  | % |                            |  | 2.3  | %    |  |  | 3.7  | % |  |      | 2.3  | % |      |  | 1.8  | % |  |  | 2.2  | %





|                                                          |                                                                                                                       |                                 |        |         |      |   |        |         |   |   |         |         |  
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ------ | ------- | ---- | - | ------ | ------- | - | - | ------- | ------- | -
|                                                          |                                                                                                                       | Years Ended December 31,        |       
|                                                          |                                                                                                                       |                                 |       
|                                                          |                                                                                                                       | 2004                            |        |         | 2003 |   |        | 2002    |  
|                                                          |                                                                                                                       |                                 |        |         |      |   |        |         |  
|                                                          |                                                                                                                       | (In thousands, except per share |       
|                                                          |                                                                                                                       | amounts)                        |       
|Net income applicable to common shareholders, as reported |                                                                                                                       | $                               | 2,394  |         |      | $ | 6,228  |         |   | $ | 75      |        
|Add back:                                                 |                                                                                                                       |                                 |        |         |      |   |        |         |   |   |         |        
|                                                          | Stock-based employee compensation included in reported net income                                                     |                                 |        | 118     |      |   |        | 135     |   |   |         | 135     |  
|Less:                                                     |                                                                                                                       |                                 |        |         |      |   |        |         |   |   |         |        
|                                                          | Total stock-based employee compensation expense determined under
    the fair value method for all awards, net of tax |                                 |        | (12,411 | )    |   |        | (12,094 | ) |   |         | (17,827 | )
|                                                          |                                                                                                                       |                                 |        |         |      |   |        |         |  
|Pro forma net loss applicable to common shareholders      |                                                                                                                       | $                               | (9,899 | )       |      | $ | (5,731 | )       |   | $ | (17,617 | )      
|                                                          |                                                                                                                       |                                 |        |         |      |   |        |         |  
|Earnings per share as reported:                           |                                                                                                                       |                                 |        |         |      |   |        |         |   |   |         |        
|                                                          | Basic                                                                                                                 |                                 | $      | 0.09    |      |   | $      | 0.25    |   |   | $       | 0.00    |  
|                                                          |                                                                                                                       |                                 |        |         |      |   |        |         |  
|                                                          | Diluted                                                                                                               |                                 | $      | 0.09    |      |   | $      | 0.24    |   |   | $       | 0.00    |  
|                                                          |                                                                                                                       |                                 |        |         |      |   |        |         |  
|Pro forma (loss) earnings per share:                      |                                                                                                                       |                                 |        |         |      |   |        |         |   |   |         |        
|                                                          | Basic                                                                                                                 |                                 | $      | (0.39   | )    |   | $      | (0.23   | ) |   | $       | (0.72   | )
|                                                          |                                                                                                                       |                                 |        |         |      |   |        |         |  
|                                                          | Diluted                                                                                                               |                                 | $      | (0.39   | )    |   | $      | (0.23   | ) |   | $       | (0.72   | )
|                                                          |                                                                                                                       |                                 |        |         |      |   |        |         |  



66



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|  |                 
|- | ----------------
| | Use of Estimates





|   |                     
|-- | --------------------
|2. | Balance Sheet Detail

|                        |                                           |                |        |         |      |   |        |         |  
|----------------------- | ----------------------------------------- | -------------- | ------ | ------- | ---- | - | ------ | ------- | -
|                        |                                           | December 31,   |       
|                        |                                           |                |       
|                        |                                           | 2004           |        |         | 2003 |  
|                        |                                           |                |        |         |      |  
|                        |                                           | (In thousands) |       
|Accounts receivable:    |                                           |                |        |         |      |   |        |        
|                        | Trade accounts receivable                 |                | $      | 17,312  |      |   | $      | 20,457  |  
|                        | Interest receivable                       |                |        | 1,253   |      |   |        | 1,158   |  
|                        | Allowance for doubtful accounts           |                |        | (879    | )    |   |        | (1,078  | )
|                        |                                           |                |        |         |      |  
|                        |                                           | $              | 17,686 |         |      | $ | 20,537 |        
|                        |                                           |                |        |         |      |  
|Inventories:            |                                           |                |        |         |      |   |        |        
|                        | Purchased parts and raw materials         |                | $      | 8,636   |      |   | $      | 5,243   |  
|                        | Work-in-process                           |                |        | 27,358  |      |   |        | 29,243  |  
|                        | Finished goods                            |                |        | 5,224   |      |   |        | 4,178   |  
|                        |                                           |                |        |         |      |  
|                        |                                           | $              | 41,218 |         |      | $ | 38,664 |        
|                        |                                           |                |        |         |      |  
|Property and equipment: |                                           |                |        |         |      |   |        |        
|                        | Equipment                                 |                | $      | 72,754  |      |   | $      | 63,377  |  
|                        | Furniture and fixtures                    |                |        | 2,604   |      |   |        | 2,521   |  
|                        | Leasehold improvements                    |                |        | 3,079   |      |   |        | 2,346   |  
|                        |                                           |                |        |         |      |  
|                        |                                           |                | 78,437 |         |      |   | 68,244 |        
|                        | Accumulated depreciation and amortization |                |        | (55,633 | )    |   |        | (48,309 | )
|                        |                                           |                |        |         |      |  
|                        |                                           | $              | 22,804 |         |      | $ | 19,935 |        
|                        |                                           |                |        |         |      |  





67



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|              |                                                                                                               |                |        |         |        |   |        |         |        | 
|------------- | ------------------------------------------------------------------------------------------------------------- | -------------- | ------ | ------- | ------ | - | ------ | ------- | ------ | 
|              |                                                                                                               | December 31,   |       
|              |                                                                                                               |                |       
|              |                                                                                                               | 2004           |        |         | 2003   |  
|              |                                                                                                               |                |        |         |        |  
|              |                                                                                                               | (In thousands) |       
|Goodwill:     |                                                                                                               |                |        |         |        |   |        |        
|              | Goodwill                                                                                                      |                | $      | 48,575  |        |   | $      | 48,575  |       
|              | Less accumulated amortization                                                                                 |                |        | (16,433 | )      |   |        | (16,433 | )     
|              |                                                                                                               |                |        |         |        |  
|              |                                                                                                               | $              | 32,142 |         |        | $ | 32,142 |        
|              |                                                                                                               |                |        |         |        |  
|Other Assets: |                                                                                                               |                |        |         |        |   |        |        
|              | Prepaid long-term license fees                                                                                |                | $      | 907     |        |   | $      | 1,215   |       
|              | Deferred compensation plan assets                                                                             |                |        | 3,026   |        |   |        | 2,476   |       
|              | Identifiable intangible assets from acquisitions                                                              |                |        | 12,728  |        |   |        | 12,728  |       
|              | Acquired patents                                                                                              |                |        | 1,842   |        |   |        | 1,842   |       
|              | Non-current deferred tax asset (net of related deferred tax
    liability of $581 in 2004 and $1,603 in 2003) |                |        | 12,166  |        |   |        | 15,429  |       
|              | Other                                                                                                         |                |        | 1,655   |        |   |        | 1,025   |       
|              |                                                                                                               |                |        |         |        |  
|              |                                                                                                               | Subtotal       |        |         | 32,324 |   |        |         | 34,715 | 
|              | Accumulated amortization expenses                                                                             |                |        | (12,647 | )      |   |        | (9,996  | )     
|              |                                                                                                               |                |        |         |        |  
|              |                                                                                                               | $              | 19,677 |         |        | $ | 24,719 |        
|              |                                                                                                               |                |        |         |        |  





|                       |                                                  |                          |        |   |      |   |        |      |  |   |        |        |  
|---------------------- | ------------------------------------------------ | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | ------ | -
|                       |                                                  | Years Ended December 31, |       
|                       |                                                  |                          |       
|                       |                                                  | 2004                     |        |   | 2003 |   |        | 2002 | 
|                       |                                                  |                          |        |   |      |   |        |      | 
|                       |                                                  | (In thousands)           |       
|Balance at January 1   |                                                  | $                        | 32,142 |   |      | $ | 32,142 |      |  | $ | 37,180 |       
|                       |                                                  |                          |        |   |      |   |        |      | 
|                       | Additions                                        |                          |        |  |      |   |        |     |  |   |        |       |  
|                       | Amortization                                     |                          |        |  |      |   |        |     |  |   |        |       |  
|                       | Adjustment for recognition of deferred tax asset |                          |        |  |      |   |        |     |  |   |        | (5,038 | )
|                       |                                                  |                          |        |   |      |   |        |      | 
|Balance at December 31 |                                                  | $                        | 32,142 |   |      | $ | 32,142 |      |  | $ | 32,142 |       
|                       |                                                  |                          |        |   |      |   |        |      | 



68



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                         |                                    |                |        |             |              |   |        |         |   |   |       |       | 
|---------------------------------------- | ---------------------------------- | -------------- | ------ | ----------- | ------------ | - | ------ | ------- | - | - | ----- | ----- | 
|                                         |                                    |                |        | Accumulated |              |   |       
|                                         |                                    | Gross Assets   |        |             | Amortization |   |        | Net     |  
|                                         |                                    |                |        |             |              |   |        |         |  
|                                         |                                    | (In thousands) |       
|Acquisition-related developed technology |                                    | $              | 11,454 |             |              | $ | (9,833 | )       |   | $ | 1,621 |      
|Other acquisition-related intangibles    |                                    |                | 2,600  |             |              |   | (2,343 | )       |   |   | 257   |      
|Acquired patents                         |                                    |                | 516    |             |              |   | (471   | )       |   |   | 45    |      
|                                         |                                    |                |        |             |              |   |        |         |  
|                                         | Total identified intangible assets |                | $      | 14,570      |              |   | $      | (12,647 | ) |   | $     | 1,923 | 
|                                         |                                    |                |        |             |              |   |        |         |  



|                                         |                                    |                |        |             |              |   |        |        |   |   |       |       | 
|---------------------------------------- | ---------------------------------- | -------------- | ------ | ----------- | ------------ | - | ------ | ------ | - | - | ----- | ----- | 
|                                         |                                    |                |        | Accumulated |              |   |       
|                                         |                                    | Gross Assets   |        |             | Amortization |   |        | Net    |  
|                                         |                                    |                |        |             |              |   |        |        |  
|                                         |                                    | (In thousands) |       
|Acquisition-related developed technology |                                    | $              | 11,454 |             |              | $ | (7,543 | )      |   | $ | 3,911 |      
|Other acquisition-related intangibles    |                                    |                | 2,600  |             |              |   | (2,012 | )      |   |   | 588   |      
|Acquired patents                         |                                    |                | 516    |             |              |   | (441   | )      |   |   | 75    |      
|                                         |                                    |                |        |             |              |   |        |        |  
|                                         | Total identified intangible assets |                | $      | 14,570      |              |   | $      | (9,996 | ) |   | $     | 4,574 | 
|                                         |                                    |                |        |             |              |   |        |        |  



|                                         |                            |                |       |       |      |   |       |       |  |   |       |       | 
|---------------------------------------- | -------------------------- | -------------- | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                         |                            | 2004           |       |       | 2003 |   |       | 2002  | 
|                                         |                            |                |       |       |      |   |       |       | 
|                                         |                            | (In thousands) |      
|Acquisition-related developed technology |                            | $              | 2,290 |       |      | $ | 2,291 |       |  | $ | 2,291 |      
|Other acquisition-related intangibles    |                            |                | 331   |       |      |   | 331   |       |  |   | 330   |      
|Acquired patents                         |                            |                | 30    |       |      |   | 48    |       |  |   | 103   |      
|                                         |                            |                |       |       |      |   |       |       | 
|                                         | Total amortization expense |                | $     | 2,651 |      |   | $     | 2,670 |  |   | $     | 2,724 | 
|                                         |                            |                |       |       |      |   |       |       | 



69



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                              
|-- | -----------------------------
|3. | Available-for-Sale Securities



|                                    |  |                |         |            |       |   |            |        |  |                |        |   |  |   |         | 
|----------------------------------- |  | -------------- | ------- | ---------- | ----- | - | ---------- | ------ |  | -------------- | ------ | - |  | - | ------- | 
|                                    |  |                |         | Gross      |       |   | Gross      |        |  |               
|                                    |  |                |         | Unrealized |       |   | Unrealized |        |  | Estimated Fair |       
|                                    |  | Cost           |         |            | Gains |   |            | Losses |  |                | Values |  
|                                    |  |                |         |            |       |   |            |        |  |                |        |  
|                                    |  | (In thousands) |        
|December 31, 2004                   |  |                |         |            |       |   |            |        |  |                |        |   |  |   |         | 
|Auction Market Preferred            |  | $              | 1,000   |            |       | $ |           |        |  | $              |       |   |  | $ | 1,000   | 
|Corporate bonds                     |  |                | 51,667  |            |       |   | 80         |        |  |                | (268   | ) |  |   | 51,479  | 
|U.S. government securities          |  |                | 73,178  |            |       |   |           |        |  |                | (505   | ) |  |   | 72,673  | 
|Floating rate notes                 |  |                | 16,000  |            |       |   | 10         |        |  |                |       |   |  |   | 16,010  | 
|Municipal obligations               |  |                | 7,186   |            |       |   |           |        |  |                | (51    | ) |  |   | 7,135   | 
|                                    |  |                |         |            |       |   |            |        |  |                |        |  
|Total available-for-sale securities |  | $              | 149,031 |            |       | $ | 90         |        |  | $              | (824   | ) |  | $ | 148,297 | 
|                                    |  |                |         |            |       |   |            |        |  |                |        |  
|December 31, 2003                   |  |                |         |            |       |   |            |        |  |                |        |   |  |   |         | 
|Auction Market Preferred            |  | $              | 4,800   |            |       | $ |           |        |  | $              |       |   |  | $ | 4,800   | 
|Corporate bonds                     |  |                | 49,168  |            |       |   | 396        |        |  |                | (47    | ) |  |   | 49,517  | 
|U.S. government securities          |  |                | 63,529  |            |       |   | 76         |        |  |                | (53    | ) |  |   | 63,552  | 
|Floating rate notes                 |  |                | 17,750  |            |       |   | 13         |        |  |                |       |   |  |   | 17,763  | 
|Municipal obligations               |  |                | 9,085   |            |       |   | 48         |        |  |                |       |   |  |   | 9,133   | 
|                                    |  |                |         |            |       |   |            |        |  |                |        |  
|Total available-for-sale securities |  |                | 144,332 |            |       |   | 533        |        |  |                | (100   | ) |  |   | 144,765 | 
|                                    |  |                |         |            |       |   |            |        |  |                |        |  



|                                                        |  |            |      |   |             |   |         | 
|------------------------------------------------------- |  | ---------- | ---- | - | ----------- | - | ------- | 
|                                                        |  | Aggregate  |      |   | Aggregate   |  
|                                                        |  | Value of   |      |   | Fair Value  |  
|                                                        |  | Unrealized |      |   | of          |  
|                                                        |  | Loss       |      |   | Investments |  
|                                                        |  |            |      |   |             |  
|Unrealized loss position for less than twelve months    |  | $          | (682 | ) |             | $ | 102,708 | 
|Unrealized loss position for greater than twelve months |  | $          | (142 | ) |             | $ | 17,243  | 







70



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                    |                           |                |         |        | 
|----------------------------------- | ------------------------- | -------------- | ------- | ------ | 
|                                    |                           | (In thousands) |        
|                                    |                           |                |        
|Available-for-sale debt securities: |                           |                |         |       
|                                    | Due in less than one year |                | $       | 51,277 | 
|                                    | Due in one to five years  |                |         | 87,771 | 
|                                    | Due in five to ten years  |                |         |       | 
|                                    | Due after ten years       |                |         | 9,249  | 
|                                    |                           |                |        
|                                    |                           | $              | 148,297 |       
|                                    |                           |                |        





|   |                              
|-- | -----------------------------
|4. | Commitments and Contingencies



|  |            
|- | -----------
| | Commitments





|                             |  |                        |        |      |      |   |        |      |  |   |       |  |  |      |       |  |      |   |       |           |  |   |       |  |  |   |        | 
|---------------------------- |  | ---------------------- | ------ | ---- | ---- | - | ------ | ---- |  | - | ----- |  |  | ---- | ----- |  | ---- | - | ----- | --------- |  | - | ----- |  |  | - | ------ | 
|                             |  | Payments Due by Period |       
|                             |  |                        |       
|                             |  |                        |        | 2010 |     
|                             |  | Total                  |        |      | 2005 |   |        | 2006 |  |   | 2007  |  |  | 2008 |       |  | 2009 |   |       | and Later | 
|                             |  |                        |        |      |      |   |        |      |  |   |       |  |  |      |       |  |      |   |       |           | 
|                             |  | (In thousands)         |       
|Operating leases             |  | $                      | 25,693 |      |      | $ | 2,862  |      |  | $ | 2,837 |  |  | $    | 2,846 |  |      | $ | 2,695 |           |  | $ | 2,652 |  |  | $ | 11,801 | 
|Royalty/licensing agreements |  |                        | 26,028 |      |      |   | 9,281  |      |  |   | 6,456 |  |  |      | 4,206 |  |      |   | 2,380 |           |  |   | 2,005 |  |  |   | 1,700  | 
|                             |  |                        |        |      |      |   |        |      |  |   |       |  |  |      |       |  |      |   |       |           | 
|Total                        |  | $                      | 51,721 |      |      | $ | 12,143 |      |  | $ | 9,293 |  |  | $    | 7,052 |  |      | $ | 5,075 |           |  | $ | 4,657 |  |  | $ | 13,501 | 
|                             |  |                        |        |      |      |   |        |      |  |   |       |  |  |      |       |  |      |   |       |           | 

71



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|  |              
|- | -------------
| | Contingencies







|   |                
|-- | ---------------
|5. | Retirement Plan





72



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                     
|-- | --------------------
|6. | Shareholders Equity



|  |                 
|- | ----------------
| | Stock Repurchase





|  |                        
|- | -----------------------
| | Shareholder Rights Plan





|  |                   
|- | ------------------
| | Stock Option Plans







73



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                           |  |           |           |          |          |   |       |           |          |  |           |   |  |           |       |  |          |  |           |   |  |   |       | 
|-------------------------- |  | --------- | --------- | -------- | -------- | - | ----- | --------- | -------- |  | --------- | - |  | --------- | ----- |  | -------- |  | --------- | - |  | - | ----- | 
|                           |  | 2004      |           |          | 2003     |   |       | 2002      |         
|                           |  |           |           |          |          |   |       |           |         
|                           |  |           |           | Weighted |          |   |       |           | Weighted |  |           |   |  | Weighted  |      
|                           |  |           |           | Average  |          |   |       |           | Average  |  |           |   |  | Average   |      
|                           |  | Number    |           |          | Exercise |   |       | Number    |          |  | Exercise  |   |  | Number    |       |  | Exercise | 
|                           |  | of Shares |           |          | Price    |   |       | of Shares |          |  | Price     |   |  | of Shares |       |  | Price    | 
|                           |  |           |           |          |          |   |       |           |          |  |           |   |  |           |       |  |          | 
|Outstanding at January 1   |  |           | 8,344,940 |          |          | $ | 19.55 |           |          |  | 8,327,898 |   |  | $         | 19.26 |  |          |  | 7,508,292 |   |  | $ | 18.70 | 
|Granted                    |  |           | 1,413,042 |          |          |   | 21.87 |           |          |  | 1,215,180 |   |  |           | 18.26 |  |          |  | 1,492,076 |   |  |   | 19.15 | 
|Exercised                  |  |           | (289,722  | )        |          |   | 12.76 |           |          |  | (889,048  | ) |  |           | 14.28 |  |          |  | (514,727  | ) |  |   | 10.57 | 
|Cancelled                  |  |           | (488,851  | )        |          |   | 23.16 |           |          |  | (309,090  | ) |  |           | 21.79 |  |          |  | (157,743  | ) |  |   | 20.02 | 
|                           |  |           |           |          |          |   |       |           |          |  |           |   |  |           |       |  |          | 
|Outstanding at December 31 |  |           | 8,979,409 |          |          | $ | 19.94 |           |          |  | 8,344,940 |   |  | $         | 19.55 |  |          |  | 8,327,898 |   |  | $ | 19.26 | 
|                           |  |           |           |          |          |   |       |           |          |  |           |   |  |           |       |  |          | 



|                         |  |                     |           |           |                     |  |          |          |  |   |           |          |  |          |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | --------- | ------------------- |  | -------- | -------- |  | - | --------- | -------- |  | -------- | --------- |  |  | - | ----- | 
|                         |  | December 31, 2004   |          
|                         |  |                     |          
|                         |  | Options Outstanding |           |           | Options Exercisable | 
|                         |  |                     |           |           |                     | 
|                         |  |                     |           | Weighted  |                     |  |          |          | 
|                         |  |                     |           | Average   |                     |  |          |          | 
|                         |  |                     |           | Remaining |                     |  | Weighted |          |  |   |           | Weighted | 
|                         |  |                     |           | Contract  |                     |  | Average  |          |  |   |           | Average  | 
|                         |  | Number of           |           |           | Life                |  |          | Exercise |  |   | Number of |          |  | Exercise |          
|Range of Exercise Prices |  | Shares              |           |           | (In Years)          |  |          | Price    |  |   | Shares    |          |  | Price    |          
|                         |  |                     |           |           |                     |  |          |          |  |   |           |          |  |          |          
|$0.07 - 12.82            |  |                     | 963,186   |           |                     |  | 2.64     |          |  | $ | 11.20     |          |  |          | 906,481   |  |  | $ | 11.15 | 
|12.88 - 14.88            |  |                     | 899,179   |           |                     |  | 5.37     |          |  |   | 13.71     |          |  |          | 718,222   |  |  |   | 13.62 | 
|15.00 - 16.38            |  |                     | 915,959   |           |                     |  | 7.64     |          |  |   | 15.27     |          |  |          | 126,432   |  |  |   | 15.77 | 
|16.44 - 19.50            |  |                     | 571,579   |           |                     |  | 8.07     |          |  |   | 17.87     |          |  |          | 209,665   |  |  |   | 17.32 | 
|19.73 - 19.73            |  |                     | 925,607   |           |                     |  | 7.20     |          |  |   | 19.73     |          |  |          | 345,843   |  |  |   | 19.73 | 
|19.91 - 21.30            |  |                     | 936,548   |           |                     |  | 6.52     |          |  |   | 20.35     |          |  |          | 789,190   |  |  |   | 20.32 | 
|21.75 - 21.93            |  |                     | 940,385   |           |                     |  | 6.58     |          |  |   | 21.90     |          |  |          | 618,390   |  |  |   | 21.90 | 
|22.07 - 24.76            |  |                     | 1,407,624 |           |                     |  | 8.15     |          |  |   | 24.23     |          |  |          | 355,035   |  |  |   | 23.37 | 
|25.00 - 27.50            |  |                     | 1,069,743 |           |                     |  | 5.72     |          |  |   | 26.80     |          |  |          | 888,728   |  |  |   | 27.08 | 
|28.07 - 54.45            |  |                     | 349,599   |           |                     |  | 6.51     |          |  |   | 31.58     |          |  |          | 188,723   |  |  |   | 32.71 | 
|                         |  |                     |           |           |                     |  |          |          |  |   |           |          |  |          |          
|                         |  |                     | 8,979,409 |           |                     |  | 6.44     |          |  | $ | 19.94     |          |  |          | 5,146,709 |  |  | $ | 19.52 | 
|                         |  |                     |           |           |                     |  |          |          |  |   |           |          |  |          |          



     Employee Stock Purchase
Plan




74



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                            
|-- | ---------------------------
|7. | Comprehensive Income (Loss)



|                                                                                                                                              |  |                          |       |   |      |   |       |      |  |   |      |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ---- | -
|                                                                                                                                              |  | Years Ended December 31, |      
|                                                                                                                                              |  |                          |      
|                                                                                                                                              |  | 2004                     |       |   | 2003 |   |       | 2002 | 
|                                                                                                                                              |  |                          |       |   |      |   |       |      | 
|                                                                                                                                              |  | (In thousands)           |      
|Net income                                                                                                                                    |  | $                        | 2,394 |   |      | $ | 6,228 |      |  | $ | 75   |  
|Change in gain on available-for-sale securities, net of tax of
    ($468) in 2004, ($131) in 2003, and $60 in 2002                            |  |                          | (702  | ) |      |   | (198  | )    |  |   | 91   |  
|Less reclassification adjustment for gains or losses included in
    net income, net of tax $1 in 2004, ($196) in 2003, and ($98) in
    2002 |  |                          | 2     |   |      |   | (293  | )    |  |   | (147 | )
|                                                                                                                                              |  |                          |       |   |      |   |       |      | 
|Other comprehensive (loss), net of tax of ($467) in 2004, ($327)
    in 2003, and ($38) in 2002                                               |  |                          | (700  | ) |      |   | (491  | )    |  |   | (56  | )
|                                                                                                                                              |  |                          |       |   |      |   |       |      | 
|Total comprehensive income                                                                                                                    |  | $                        | 1,694 |   |      | $ | 5,737 |      |  | $ | 19   |  
|                                                                                                                                              |  |                          |       |   |      |   |       |      | 





|   |              
|-- | -------------
|8. | Tax Provision



|                   |  |                          |        |   |      |   |        |      |  |   |        |  
|------------------ |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                   |  | Years Ended December 31, |       
|                   |  |                          |       
|                   |  | 2004                     |        |   | 2003 |   |        | 2002 | 
|                   |  |                          |        |   |      |   |        |      | 
|                   |  | (In thousands)           |       
|Federal  current  |  | $                        | (512   | ) |      | $ | (8,454 | )    |  | $ | (177   | )
|Federal  deferred |  |                          | 958    |   |      |   | 9,396  |      |  |   | (1,052 | )
|State  current    |  |                          | 10     |   |      |   | 10     |      |  |   | 10     |  
|State  deferred   |  |                          | (1,475 | ) |      |   | (1,033 | )    |  |   | (914   | )
|Foreign  current  |  |                          | 365    |   |      |   | 408    |      |  |   | 208    |  
|                   |  |                          |        |   |      |   |        |      | 
|                   |  | $                        | (654   | ) |      | $ | 327    |      |  | $ | (1,925 | )
|                   |  |                          |        |   |      |   |        |      | 

75



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                              |  |                |      |   |      |   |       |      |  |   |        |  
|--------------------------------------------- |  | -------------- | ---- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                              |  | December 31,   |     
|                                              |  |                |     
|                                              |  | 2004           |      |   | 2003 |   |       | 2002 | 
|                                              |  |                |      |   |      |   |       |      | 
|                                              |  | (In thousands) |     
|Provision/(benefit) at federal statutory rate |  | $              | 609  |   |      | $ | 2,294 |      |  | $ | (648   | )
|Change in valuation allowance                 |  |                |     |   |      |   | (445  | )    |  |   | 625    |  
|Tax exempt interest income                    |  |                | (62  | ) |      |   | (122  | )    |  |   | (455   | )
|Federal research credits                      |  |                | (534 | ) |      |   | (843  | )    |  |   | (989   | )
|State taxes, net of federal benefit           |  |                | (774 | ) |      |   | (664  | )    |  |   | (588   | )
|Meals and Entertainment                       |  |                | 88   |   |      |   | 70    |      |  |   | 70     |  
|Other                                         |  |                | 19   |   |      |   | 37    |      |  |   | 60     |  
|                                              |  |                |      |   |      |   |       |      | 
|Tax (benefit) provision                       |  | $              | (654 | ) |      | $ | 327   |      |  | $ | (1,925 | )
|                                              |  |                |      |   |      |   |       |      | 



|                          |                                               |                         |        |         |        |  |        |         |        | 
|------------------------- | --------------------------------------------- | ----------------------- | ------ | ------- | ------ |  | ------ | ------- | ------ | 
|                          |                                               | December 31,            |       
|                          |                                               |                         |       
|                          |                                               | 2004                    |        |         | 2003   | 
|                          |                                               |                         |        |         |        | 
|                          |                                               | (In thousands)          |       
|Deferred tax assets:      |                                               |                         |        |         |        |  |        |        
|                          | Depreciation                                  |                         | $      | 448     |        |  | $      | 1,333   |       
|                          | Deferred income on shipments to distributors  |                         |        | 8,965   |        |  |        | 8,569   |       
|                          | Intangible assets                             |                         |        | 2,268   |        |  |        | 3,444   |       
|                          | Inventories                                   |                         |        | 6,373   |        |  |        | 5,534   |       
|                          | Net operating losses                          |                         |        | 33,030  |        |  |        | 30,750  |       
|                          | Capitalized research and development expenses |                         |        | 3,737   |        |  |        | 4,823   |       
|                          | Research and development tax credit           |                         |        | 6,605   |        |  |        | 5,584   |       
|                          | Other, net                                    |                         |        | 2,466   |        |  |        | 3,276   |       
|                          |                                               |                         |        |         |        | 
|                          |                                               |                         | 63,892 |         |        |  | 63,313 |        
|                          | Valuation allowance                           |                         |        | (28,915 | )      |  |        | (27,496 | )     
|                          |                                               |                         |        |         |        | 
|                          |                                               | Net deferred tax assets |        | $       | 34,977 |  |        | $       | 35,817 | 
|                          |                                               |                         |        |         |        | 
|Deferred tax liabilities: |                                               |                         |        |         |        |  |        |        
|                          | Intangible assets                             |                         | $      | 581     |        |  | $      | 1,603   |       
|                          |                                               |                         |        |         |        | 





76



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                    
|-- | -------------------
|9. | Segment Disclosures





|                    |  |                                    |         |  |      |  |     |      |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  
|------------------- |  | ---------------------------------- | ------- |  | ---- |  | --- | ---- |  | - | ------- |  |  |  | --- | - |  | - | ------- |  |  |  | --- | -
|                    |  | Years Ended December 31,           |        
|                    |  |                                    |        
|                    |  | 2002                               |         |  | 2003 |  |     | 2003 | 
|                    |  |                                    |         |  |      |  |     |      | 
|                    |  | (In thousands, except percentages) |        
|United States       |  | $                                  | 90,109  |  |      |  | 55  | %    |  | $ | 91,652  |  |  |  | 61  | % |  | $ | 83,276  |  |  |  | 62  | %
|Export:             |  |                                    |         |  |      |  |     |      |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  
|Europe              |  |                                    | 45,198  |  |      |  | 27  | %    |  |   | 37,521  |  |  |  | 25  | % |  |   | 30,716  |  |  |  | 23  | %
|Japan               |  |                                    | 9,787   |  |      |  | 6   | %    |  |   | 6,489   |  |  |  | 4   | % |  |   | 8,398   |  |  |  | 6   | %
|Other international |  |                                    | 20,442  |  |      |  | 12  | %    |  |   | 14,248  |  |  |  | 10  | % |  |   | 11,978  |  |  |  | 9   | %
|                    |  |                                    |         |  |      |  |     |      |  |   |         |  |  |  |     |   |  |  
|                    |  | $                                  | 165,536 |  |      |  | 100 | %    |  | $ | 149,910 |  |  |  | 100 | % |  | $ | 134,368 |  |  |  | 100 | %
|                    |  |                                    |         |  |      |  |     |      |  |   |         |  |  |  |     |   |  |  



|                |  |      |    |   |      |  |    |      |  |  |    |  
|--------------- |  | ---- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|                |  | 2004 |    |   | 2003 |  |    | 2002 | 
|                |  |      |    |   |      |  |    |      | 
|Pioneer         |  |      |   |   |      |  | 6  | %    |  |  | 26 | %
|Unique          |  |      | 33 | % |      |  | 41 | %    |  |  | 22 | %
|Lockheed Martin |  |      | 4  | % |      |  | 11 | %    |  |  | 3  | %

77



---



##### Table of Contents



ACTEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                    |  |                |        |  |      |   |        | 
|------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                    |  | December 31,   |       
|                    |  |                |       
|                    |  | 2004           |        |  | 2003 |  
|                    |  |                |        |  |      |  
|                    |  | (In thousands) |       
|United States       |  | $              | 20,323 |  |      | $ | 17,031 | 
|Europe              |  |                | 410    |  |      |   | 535    | 
|Japan               |  |                | 191    |  |      |   | 187    | 
|Other international |  |                | 1,880  |  |      |   | 2,182  | 
|                    |  |                |        |  |      |  
|                    |  | $              | 22,804 |  |      | $ | 19,935 | 
|                    |  |                |        |  |      |  



|    |                   
|--- | ------------------
|10. | Earnings Per Share



|         |                                                                                                                          |                                 |   |        |      |  |   |        |  |  |   |        | 
|-------- | ------------------------------------------------------------------------------------------------------------------------ | ------------------------------- | - | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|         |                                                                                                                          | Years Ended December 31,        |  
|         |                                                                                                                          |                                 |  
|         |                                                                                                                          | 2004                            |   |        | 2003 |  |   | 2002   | 
|         |                                                                                                                          |                                 |   |        |      |  |   |        | 
|         |                                                                                                                          | (In thousands, except per share |  
|         |                                                                                                                          | amounts)                        |  
|Basic:   |                                                                                                                          |                                 |   |        |      |  |   |        |  |  |   |       
|         | Weighted-average common shares outstanding                                                                               |                                 |   | 25,584 |      |  |   | 24,808 |  |  |   | 24,302 | 
|         |                                                                                                                          |                                 |   |        |      |  |   |        | 
|         | Net income                                                                                                               |                                 | $ | 2,394  |      |  | $ | 6,228  |  |  | $ | 75     | 
|         |                                                                                                                          |                                 |   |        |      |  |   |        | 
|         | Net income per share                                                                                                     |                                 | $ | 0.09   |      |  | $ | 0.25   |  |  | $ | 0.00   | 
|         |                                                                                                                          |                                 |   |        |      |  |   |        | 
|Diluted: |                                                                                                                          |                                 |   |        |      |  |   |        |  |  |   |       
|         | Weighted-average common shares outstanding                                                                               |                                 |   | 25,584 |      |  |   | 24,808 |  |  |   | 24,302 | 
|         | Net effect of dilutive stock options, warrants, and convertible
    preferred stock  based on the treasury stock method |                                 |   | 837    |      |  |   | 1,492  |  |  |   | 950    | 
|         |                                                                                                                          |                                 |   |        |      |  |   |        | 
|         | Shares used in computing net income per share                                                                            |                                 |   | 26,421 |      |  |   | 26,300 |  |  |   | 25,252 | 
|         |                                                                                                                          |                                 |   |        |      |  |   |        | 
|         | Net income                                                                                                               |                                 | $ | 2,394  |      |  | $ | 6,228  |  |  | $ | 75     | 
|         |                                                                                                                          |                                 |   |        |      |  |   |        | 
|         | Net income per share                                                                                                     |                                 | $ | 0.09   |      |  | $ | 0.24   |  |  | $ | 0.00   | 
|         |                                                                                                                          |                                 |   |        |      |  |   |        | 







78



---



##### Table of Contents



REPORTS OF ERNST & YOUNG LLP,


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




| |                                                               
| | --------------------------------------------------------------
| | The Board of Directors and Shareholders, Actel
    Corporation















| |                                                               
| | --------------------------------------------------------------
| | The Board of Directors and Shareholders, Actel
    Corporation





79



---



##### Table of Contents















80



---



##### Table of Contents








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








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Disclosure Controls and Procedures




Managements Report on Internal Control over Financial
Reporting











ITEM 9B.     OTHER INFORMATION







PART III









|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



81



---



##### Table of Contents



Code of Ethics









|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION








|         |                                                                   
|-------- | ------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT








|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES






PART IV







|         |                                        
|-------- | ---------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES





| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Financial Statements. The following
    consolidated financial statements of Actel Corporation are filed
    in Item 8 of this Annual Report on Form 10-K:



| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consolidated balance sheets at December 31, 2004 and 2003                                                                                                      
|
| | Consolidated statements of operations for each of the three
    years in the period ended December 31, 2004                                                    
|
| | Consolidated statements of shareholders equity and other
    comprehensive income/(loss) for each of the three years in the
    period ended December 31, 2004
|
| | Consolidated statements of cash flows for each of the three
    years in the period ended December 31, 2004                                                    
|
| | Notes to consolidated financial statements                                                                                                                     



| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) Financial Statement Schedule. The
    financial statement schedule listed under 15(c) hereof is filed
    with this Annual Report on Form 10-K.  
|
| | (3) Exhibits. The exhibits listed under
    Item 15(b) hereof are filed with, or incorporated by
    reference into, this Annual Report on Form 10-K.

82



---



##### Table of Contents



Exhibits.


|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1          |  | Restated Articles of Incorporation, as amended (filed as
    Exhibit 3.1 to the Registrants Annual Report on Form
    10-K (File No. 0-21970) for the fiscal year ended
    January 5, 2003).                                                                                                                                                                                                                                                                         
|        | 3  | .2          |  | Restated Bylaws (filed as Exhibit 3.1 to the
    Registrants Annual Report on Form 10-K (File
    No. 0-21970) for the fiscal year ended January 5,
    2003).                                                                                                                                                                                                                                                                                                        
|        | 3  | .3          |  | Certificate of Amendment to Certificate of Determination of
    Rights, Preferences and Privileges of Series A
    Participating Preferred Stock of Actel Corporation (filed as
    Exhibit 3.3 to the Registrants Registration Statement
    on Form 8-A (File No. 000-2197), filed on October 24, 2003).                                                                                                                                                            
|        | 4  | .1          |  | Preferred Stock Rights Agreement, dated as of October 17,
    2003, between the Registrant and Wells Fargo Bank, MN N.A.,
    including the Certificate of Amendment of Certificate to
    Determination, the form of Rights Certificate and the Summary of
    Rights attached thereto as Exhibits A, B, and C,
    respectively (filed as Exhibit 4.1 to the Registrants
    Registration Statement on Form 8-A (File No. 000-2197), filed on
    October 24, 2003).
|        | 10 | .1(1)       |  | 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(1)       |  | 1986 Incentive Stock Option Plan, as amended and restated (filed
    as Exhibit 10.1 to the Registrants Quarterly Report
    on Form 10-Q (File No. 0-21970) for the fiscal quarter ended
    July 7, 2002).                                                                                                                                                                                                                                                          
|        | 10 | .3(1)       |  | 2003 Director Stock Option Plan (filed as Exhibit 4.4
    to the Registrants Registration Statement on Form S-8
    (File No. 333-112215), declared effective on
    January 26, 2004).                                                                                                                                                                                                                                                                               
|        | 10 | .4(1)       |  | Amended and Restated 1993 Employee Stock Purchase Plan (filed as
    Exhibit 10.4 to the Registrants Annual Report on Form
    10-K (File No. 0-21970) for the fiscal year ended
    January 5, 2003).                                                                                                                                                                                                                                                                
|        | 10 | .5          |  | 1995 Employee and Consultant Stock Plan, as amended and restated
    (filed as Exhibit 10.2 to the Registrants Quarterly
    Report on Form 10-Q (File No. 0-21970) for the fiscal quarter
    ended July 7, 2002).                                                                                                                                                                                                                                                   
|        | 10 | .6(1)       |  | Employee Retention Plan, as amended and restated (filed as
    Exhibit 10.6 to the Registrants Annual Report on Form
    10-K (File No. 0-21970) for the fiscal year ended
    January 6, 2002).                                                                                                                                                                                                                                                                      
|        | 10 | .7(1)       |  | Deferred Compensation Plan, as amended and restated (filed as
    Exhibit 10.7 to the Registrants Annual Report on Form
    10-K (File No. 0-21970) for the fiscal year ended
    December 31, 2000).                                                                                                                                                                                                                                                                 
|        | 10 | .8          |  | 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 | .9          |  | 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 | .10         |  | 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 | .11         |  | 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 fiscal quarter ended July 2, 1995).                                                                                                                                                        
|        | 10 | .12         |  | 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 | .13         |  | Patent Cross License Agreement dated August 25, 1998,
    between the Registrant and QuickLogic Corporation. (filed as
    Exhibit 10.19 to the Registrants Annual Report on
    Form 10-K (File No. 0-21970) for the fiscal year ended
    January 3, 1999).                                                                                                                                                                                                         

83



---



##### Table of Contents



|        |    |     |             |                                                                                                                                                                                                                                                                    
|------- | -- | --- | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |            
|Number  |    |     | Description
|        |    |     |            
|        | 10 | .14 |             | Development Agreement by and between the Registrant and Infineon
    Technologies AG effective as of June 6, 2002 (filed as
    Exhibit 10.19 to the Registrants Annual Report on
    Form 10-K (File No. 0-21970) for the fiscal year ended
    January 5, 2003).
|        | 10 | .15 |             | Supply Agreement by and between the Registrant and Infineon
    Technologies AG effective as of June 6, 2002 (filed as
    Exhibit 10.20 to the Registrants Annual Report on
    Form 10-K (File No. 0-21970) for the fiscal year ended
    January 5, 2003).     
|        | 10 | .16 |             | Office Lease Agreement for the Registrants facilities in
    Mountain View, California, dated February 27, 2003 (filed
    as Exhibit 10.21 to the Registrants Annual Report on
    Form 10-K (File No. 0-21970) for the fiscal year ended
    January 5, 2003). 
|        | 14 |     |             | Code of Ethics for Principal Executive and Senior Financial
    Officers (filed as Exhibit 14 to the Registrants
    Annual Report on Form 10-K (File No. 0-21970) for the fiscal
    year ended January 4, 2004).                                                
|        | 21 |     |             | Subsidiaries of Registrant.                                                                                                                                                                                                                                        
|        | 23 |     |             | Consent of Ernst & Young LLP, Independent Auditors.                                                                                                                                                                                                                
|        | 24 |     |             | Power of Attorney.                                                                                                                                                                                                                                                 
|        | 31 | .1  |             | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer.                                                                                                                                                                                             
|        | 31 | .2  |             | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer.                                                                                                                                                                                             
|        | 32 |     |             | Section 1350 Certifications.                                                                                                                                                                                                                                       






|    |                                                                               
|--- | ------------------------------------------------------------------------------
|(1) | This Exhibit is a management contract or compensatory plan or
    arrangement.

Financial Statement Schedule.


|         |  |                                   |  |  |      |  |  | 
|-------- |  | --------------------------------- |  |  | ---- |  |  | 
|Schedule |  | Description                       |  |  | Page | 
|         |  |                                   |  |  |      | 
|II       |  | Valuation and qualifying accounts |  |  | 86   | 



84



---



##### Table of Contents






SIGNATURES






| |                  
| | -----------------
| | ACTEL CORPORATION



| |     |                 
| | --- | ----------------
| | By: | /s/ John C. East

| |                                      
| | -------------------------------------
| |                                      
| | John C. East                         
| | President and Chief Executive Officer





|                                               |  |                                                                                                        |  |               
|---------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | --------------
|Signature                                      |  | Title                                                                                                  |  | Date          
|                                               |  |                                                                                                        |  |               
|                                              
|/s/ John C. East(John
    C. East)             |  | President and Chief Executive Officer (Principal Executive
    Officer) and Director                   |  | March 11, 2005
|                                              
|/s/ Jon A. Anderson(Jon
    A. Anderson)       |  | Vice President of Finance and Chief Financial Officer (Principal
    Financial and Accounting Officer) |  | March 11, 2005
|                                              
|/s/ James R. Fiebiger(James
    R. Fiebiger)   |  | Director                                                                                               |  | March 11, 2005
|                                              
|/s/ Jacob S. Jacobsson(Jacob
    S. Jacobsson) |  | Director                                                                                               |  | March 11, 2005
|                                              
|/s/ J. Daniel McCranie(J.
    Daniel McCranie) |  | Director                                                                                               |  | March 11, 2005
|                                              
|/s/ Henry L. Perret(Henry
    L. Perret)       |  | Director                                                                                               |  | March 11, 2005
|                                              
|/s/ Robert G. Spencer(Robert
    G. Spencer)   |  | Director                                                                                               |  | March 11, 2005

85



---



##### Table of Contents



SCHEDULE II


ACTEL CORPORATION





Valuation and Qualifying Accounts


|                                 |                              |                |   |       |            |  |   |            |            |  |        |     |  |  |   |       | 
|-------------------------------- | ---------------------------- | -------------- | - | ----- | ---------- |  | - | ---------- | ---------- |  | ------ | --- |  |  | - | ----- | 
|                                 |                              | Balance at     |   |       |            |  |   |            | Balance at | 
|                                 |                              | Beginning      |   |       |            |  |   |            | End of     | 
|                                 |                              | of Period      |   |       | Provisions |  |   | Write-Offs |            |  | Period |    
|                                 |                              |                |   |       |            |  |   |            |            |  |        |    
|                                 |                              | (In thousands) |  
|Allowance for doubtful accounts: |                              |                |   |       |            |  |   |            |            |  |        |     |  |  |   |      
|                                 | Year ended December 31, 2002 |                | $ | 1,328 |            |  | $ | 86         |            |  | $      | 336 |  |  | $ | 1,078 | 
|                                 | Year ended December 31, 2003 |                |   | 1,078 |            |  |   | 355        |            |  |        | 355 |  |  |   | 1,078 | 
|                                 | Year ended December 31, 2004 |                |   | 1,078 |            |  |   | 28         |            |  |        | 227 |  |  |   | 879   | 

86



---



##### Table of Contents






EXHIBIT INDEX


|        |    |       |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ----- | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |            
|Number  |    |       | Description
|        |    |       |            
|        | 3  | .1    |             | Restated Articles of Incorporation, as amended (filed as
    Exhibit 3.1 to the Registrants Annual Report on Form
    10-K (File No. 0-21970) for the fiscal year ended
    January 5, 2003).                                                                                                                                                                                                                                                                         
|        | 3  | .2    |             | Restated Bylaws (filed as Exhibit 3.1 to the
    Registrants Annual Report on Form 10-K (File
    No. 0-21970) for the fiscal year ended January 5,
    2003).                                                                                                                                                                                                                                                                                                        
|        | 3  | .3    |             | Certificate of Amendment to Certificate of Determination of
    Rights, Preferences and Privileges of Series A
    Participating Preferred Stock of Actel Corporation (filed as
    Exhibit 3.3 to the Registrants Registration Statement
    on Form 8-A (File No. 000-2197), filed on October 24, 2003).                                                                                                                                                            
|        | 4  | .1    |             | Preferred Stock Rights Agreement, dated as of October 17,
    2003, between the Registrant and Wells Fargo Bank, MN N.A.,
    including the Certificate of Amendment of Certificate to
    Determination, the form of Rights Certificate and the Summary of
    Rights attached thereto as Exhibits A, B, and C,
    respectively (filed as Exhibit 4.1 to the Registrants
    Registration Statement on Form 8-A
    (File No. 000-2197), filed on October 24, 2003).
|        | 10 | .1(1) |             | 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(1) |             | 1986 Incentive Stock Option Plan, as amended and restated (filed
    as Exhibit 10.1 to the Registrants Quarterly Report
    on Form 10-Q (File No. 0-21970) for the fiscal quarter ended
    July 7, 2002).                                                                                                                                                                                                                                                          
|        | 10 | .3(1) |             | 2003 Director Stock Option Plan (filed as Exhibit 4.4
    to the Registrants Registration Statement on Form S-8
    (File No. 333-112215), declared effective on
    January 26, 2004).                                                                                                                                                                                                                                                                               
|        | 10 | .4(1) |             | Amended and Restated 1993 Employee Stock Purchase Plan (filed as
    Exhibit 10.4 to the Registrants Annual Report on Form
    10-K (File No. 0-21970) for the fiscal year ended
    January 5, 2003).                                                                                                                                                                                                                                                                
|        | 10 | .5    |             | 1995 Employee and Consultant Stock Plan, as amended and restated
    (filed as Exhibit 10.2 to the Registrants Quarterly
    Report on Form 10-Q (File No. 0-21970) for the fiscal quarter
    ended July 7, 2002).                                                                                                                                                                                                                                                   
|        | 10 | .6(1) |             | Employee Retention Plan, as amended and restated (filed as
    Exhibit 10.6 to the Registrants Annual Report on Form
    10-K (File No. 0-21970) for the fiscal year ended
    January 6, 2002).                                                                                                                                                                                                                                                                      
|        | 10 | .7(1) |             | Deferred Compensation Plan, as amended and restated (filed as
    Exhibit 10.7 to the Registrants Annual Report on Form
    10-K (File No. 0-21970) for the fiscal year ended
    December 31, 2000).                                                                                                                                                                                                                                                                 
|        | 10 | .8    |             | 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 | .9    |             | 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 | .10   |             | 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 | .11   |             | 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 fiscal quarter ended July 2, 1995).                                                                                                                                                        
|        | 10 | .12   |             | 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 | .13   |             | Patent Cross License Agreement dated August 25, 1998,
    between the Registrant and QuickLogic Corporation. (filed as
    Exhibit 10.19 to the Registrants Annual Report on
    Form 10-K (File No. 0-21970) for the fiscal year ended
    January 3, 1999).                                                                                                                                                                                                         
|        | 10 | .14   |             | Development Agreement by and between the Registrant and Infineon
    Technologies AG effective as of June 6, 2002 (filed as
    Exhibit 10.19 to the Registrants Annual Report on
    Form 10-K (File No. 0-21970) for the fiscal year ended
    January 5, 2003).                                                                                                                                                                                                    



---



##### Table of Contents



|        |    |     |             |                                                                                                                                                                                                                                                                   
|------- | -- | --- | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |            
|Number  |    |     | Description
|        |    |     |            
|        | 10 | .15 |             | Supply Agreement by and between the Registrant and Infineon
    Technologies AG effective as of June 6, 2002 (filed as
    Exhibit 10.20 to the Registrants Annual Report on
    Form 10-K (File No. 0-21970) for the fiscal year ended
    January 5, 2003).    
|        | 10 | .16 |             | Office Lease Agreement for the Registrants facilities in
    Mountain View, California, dated February 27, 2003 (filed
    as Exhibit 10.21 to the Registrants Annual Report on
    Form 10-K (File No. 0-21970) for the fiscal year ended
    January 5, 2003).
|        | 14 |     |             | Code of Ethics for Principal Executive and Senior Financial
    Officers (filed as Exhibit 14 to the Registrants
    Annual Report on Form 10-K (File No. 0-21970) for the fiscal
    year ended January 4, 2004).                                               
|        | 21 |     |             | Subsidiaries of Registrant.                                                                                                                                                                                                                                       
|        | 23 |     |             | Consent of Ernst & Young LLP, Independent Auditors.                                                                                                                                                                                                               
|        | 24 |     |             | Power of Attorney.                                                                                                                                                                                                                                                
|        | 31 | .1  |             | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer.                                                                                                                                                                                            
|        | 31 | .2  |             | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer.                                                                                                                                                                                            
|        | 32 |     |             | Section 1350 Certifications.                                                                                                                                                                                                                                      






|    |                                                                               
|--- | ------------------------------------------------------------------------------
|(1) | This Exhibit is a management contract or compensatory plan or
    arrangement.