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

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

                                    FORM 10-K

(Mark One)

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

For the fiscal year ended January 3, 1999

                                       OR

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

Commission file number 0-21970

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

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

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

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

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

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

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

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

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

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

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

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

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

                       DOCUMENTS INCORPORATED BY REFERENCE

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

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

                                      PART I

ITEM 1.  BUSINESS

Overview

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

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

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

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

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

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

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

Industry Background

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

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

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

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

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

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

Actel Strategy

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

Products and Services

         Actel's product line consists of ten families of antifuse-based  FPGAs;
Designer Series  Development  System,  DeskTOP,  and CoreHDL  software;  Silicon
Explorer  debugging and diagnostic tools;  Activator and Silicon Sculptor device
programmers;  and sockets.  In 1998, the first members of the SX family of FPGAs
were shipped for revenue and the Company  continued to implement its strategy of
offering a series of integrated, high-level design FPGA development tools suites
at aggressive  pricing,  including a free entry-level suite. In 1998, Actel also
acquired  its  Design  Services  Group,   which  offers   system-level   design,
prototyping, and consulting services.

         FPGAs

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

                  ACT 1

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

                  ACT 2

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

                  ACT 3

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

                  XL

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

                  DX

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

                  MX

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

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

                  SX

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

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

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

                  HiRel/Military

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

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

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

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

                  RT/RP

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

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

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

                  RH

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

         Software

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

                  Designer Series Development System

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

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

                  DeskTOP

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

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

                  CoreHDL Intellectual Property

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

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

         Silicon Explorer

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

         Programmers

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

                  Activator

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

                  Silicon Sculptor

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

         Sockets

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

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

         Design Services Group

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

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

Market and Applications

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

         Communications

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

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

         Computer Systems and Peripherals

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

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

         Industrial Control Equipment

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

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

         Military and Aerospace

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

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

Sales and Distribution

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

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

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

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

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

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

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

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

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

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

Backlog

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

Customer Service and Support

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

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

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

Manufacturing and Assembly

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

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

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

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

Strategic Relationships

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

         AGL

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

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

         Boulder Creek

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

         BP Microsystems

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

         GateField

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

                  Marketing Rights

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

                  License Rights

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

                  Design Services Business Assets

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

                  Preferred Stock

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

         Synplicity and VeriBest

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

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

Research and Development

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

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

         ProASIC and ASICmaster

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

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

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

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

         ES Architecture and RS Reprogrammable Products

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

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

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

Competition

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

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

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

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

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

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

Patents and Licenses

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

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

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

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

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

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

Employees

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

Risk Factors

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

         Acts of God

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

         "Blank Check" Preferred Stock; Change in Control Arrangements

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

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

         Competition

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

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

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

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

         Dependence on Customized Manufacturing Processes

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

         Dependence on Design Wins

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

         Dependence on Independent Assembly Subcontractors

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

         Dependence on Independent Software and Hardware Developers

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

         Dependence on Independent Wafer Manufacturers

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

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

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

         Dependence on International Operations

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

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

         Dependence on Key Personnel

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

         Dependence on Military and Aerospace Customers

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

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

         Dividend Policy

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

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

                  Booking and Shipment Uncertainties

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

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

                  Supply Problems

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

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

                  Price Erosion

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

         Forward-Looking Statements

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

         Future Capital Needs

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

         Gross Margin

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

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

         Management of Growth

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

         Manufacturing Yields

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

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

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

         One-Time Programmability

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

         Patent Infringement

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

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

         Potential Acquisitions

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

         Protection of Intellectual Property

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

         Reliance on Distributors

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

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

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

         Reliance on International Sales

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

         Semiconductor Industry Risks

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

         Software Development Challenges

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

         Technological Change and Dependence on New Product Development

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

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

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

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

         Volatility of Stock

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

         Year 2000 Compliance

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

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

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

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

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

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

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

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

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

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

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

Executive Officers of the Registrant

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

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 2. PROPERTIES

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

ITEM 3. LEGAL

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

        QuickLogic

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

        Lemelson

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

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

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

                                     PART II

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

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

ITEM 6. SELECTED FINANCIAL DATA

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

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

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

        None.

                                    PART III

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

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

                                     PART IV

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

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

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

                     Consolidated balance sheets at December 31, 1998 and 1997

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

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

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

                     Notes to consolidated financial statements

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

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

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

        (c)  Exhibits.   The  following  exhibits  are  filed  as  part  of,  or
incorporated by reference into, this Report on Form 10-K:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     21            Subsidiaries of Registrant

     23            Consent of Ernst & Young LLP,  Independent Auditors

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

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

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


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

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

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

                                   SIGNATURES

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

                                    ACTEL CORPORATION




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

<PAGE>
                                                                     SCHEDULE II

                                ACTEL CORPORATION

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

                        Valuation and Qualifying Accounts
                                 (in thousands)


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