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 4, 2004

OR

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

Commission file number 0-21970

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

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

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

       2061 Stierlin Court
    Mountain View, California                                    94043-4655
(Address of principal executive offices)                         (Zip Code)

                                 (650) 318-4200
              (Registrant's telephone number, including area code)

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

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

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

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

     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.   X

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).  Yes X   No

     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 July 5, 2002,  as reported by the National  Market System of the
National  Association of Securities  Dealers  Automated  Quotation  System,  was
approximately  $371,000,000.  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 purpose.

     Number  of  shares  of  Common  Stock  outstanding  as of March  12,  2004:
25,716,008.

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


================================================================================

     In this Annual Report on Form 10-K, Actel  Corporation and its consolidated
subsidiaries  are  referred to as "we," "us," "our," or "Actel." You should read
the  information  in this Annual Report with the Risk Factors at the end of Part
I. Unless otherwise indicated, the information in this Annual Report is given as
of  March  12,  2004,  and we  undertake  no  obligation  to  update  any of the
information,   including   forward-looking   statements.   All   forward-looking
statements are made under the safe harbor  provisions of the Private  Securities
Litigation   Reform   Act  of  1995.   Statements   containing   words  such  as
"anticipates,"  "believes,"  "estimates," "expects," intends," "plans," "seeks,"
and  variations of such words and similar  expressions  are intended to identify
the forward-looking  statements.  The Risk Factors could cause actual results to
differ materially from those projected in the forward-looking statements.


<PAGE>


                                     PART I

ITEM 1. BUSINESS

Overview

     We design,  develop,  and market field programmable gate arrays (FPGAs) and
supporting   products  and  services.   FPGAs  are  used  by   manufacturers  of
communications,  computer,  consumer,  industrial,  military and aerospace,  and
other electronic systems to differentiate  their products and get them to market
faster.  We are the  leading  supplier  of FPGAs  based on  flash  and  antifuse
technologies.  Our strategy is to offer innovative solutions to markets in which
our  technologies  have a  competitive  advantage,  including  the  value-based,
high-reliability, and high-speed FPGA markets. In support of our FPGAs, we offer
ASIC conversion products; intellectual property (IP) cores; development systems;
programming hardware;  debugging tool kits and demonstration boards; a Web-based
Resource Center; and design and programming services.

     We shipped our first FPGAs in 1988 and thousands of our  development  tools
are in the hands of customers,  including  Abbott  Laboratories  (Abbott  Labs);
Alcatel;  BAE Systems (BAE); The Boeing Company;  Cisco Systems,  Inc.  (Cisco);
Hewlett-Packard  Company (HP);  Honeywell  International  Inc.  (Honeywell);  LG
Electronics Inc. (LG);  Lockheed Martin Corporation  (Lockheed Martin);  Marconi
Corporation plc (Marconi); Nokia; Nortel Networks Corporation (Nortel); Raytheon
Company  (Raytheon);  Siemens AG (Siemens);  and Varian  Medical  Systems,  Inc.
(Varian).

     We have  foundry  relationships  with BAE in the United  States;  Chartered
Semiconductor   Manufacturing   Pte  Ltd  (Chartered)  in  Singapore;   Infineon
Technologies AG (Infineon) in Germany;  Matsushita  Electronics Company (MEC) in
Japan;  United  Microelectronics   Corporation  (UMC)  in  Taiwan;  and  Winbond
Electronics Corp.  (Winbond) in Taiwan.  Wafers purchased from our suppliers are
assembled,  tested, marked, and inspected by us and/or our subcontractors before
shipment to customers.

     We  market  our  products  through  a  worldwide,  multi-tiered  sales  and
distribution network. In 2003, sales made through distributors accounted for 69%
of our net  revenues.  One  distributor,  Unique  Technologies,  Inc.  (Unique),
accounted  for 41% of our net  revenues  in  2003.  Unique  has  been  our  sole
distributor  in North America  since March 1, 2003.  In addition to Unique,  our
North American sales network  includes about 19 sales offices and about 17 sales
representative  firms.  Our  European,  Pan-Asia,  and Rest of World (ROW) sales
networks  include about eight sales offices and about 20 distributors  and sales
representative  firms.  In  2003,  sales  to  customers  outside  North  America
accounted for 39% of net revenues.

     On August 18, 2003,  we relocated our  worldwide  headquarters  to a larger
facility to better accommodate our existing employees and position ourselves for
future growth. Our principal facilities and executive offices are now located at
2061 Stierlin Court,  Mountain View,  California  94043-4655,  and our telephone
number at that address is (650) 318-4200.

     We were  incorporated  in  California  in 1985.  Our  website is located at
http://www.actel.com.  We provide  free of charge  through a link on our website
access to our Annual Reports on Form 10-K,  Quarterly  Reports on Form 10-Q, and
Current Reports on Form 8-K, as well as amendments to those reports,  as soon as
reasonably  practicable  after the  reports  are  electronically  filed  with or
furnished to the Securities and Exchange  Commission  (SEC).  The Actel name and
logo and Libero are  registered  trademarks  of Actel.  This Annual  Report also
includes unregistered trademarks of Actel as well as registered and unregistered
trademarks of other companies.

Industry Background

     The three principal types of integrated circuits (ICs) 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 practically 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-capacity  standard
transistor-transistor  logic  circuits  (TTLs) and  custom-designed  application
specific ICs (ASICs).  TTLs are standard  logic  circuits  that can be purchased
"off the shelf" and  interconnected  on a printed circuit board (PCB),  but they
tend to limit system performance and increase system size and cost compared with
logic functions integrated at the circuit (rather than the PCB) level. ASICs are
customized  circuits that offer electronic system  manufacturers the benefits of
increased circuit integration: improved system performance, reduced system size,
and lower system cost.

     ASICs include  conventional  gate arrays,  standard cells, and programmable
logic devices  (PLDs).  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 by use of masks,
conventional  gate arrays and standard cell circuits are subject to the time and
expense  risks  associated  with any  development  cycle  involving  a  foundry.
Typically,  conventional  gate  arrays  and  standard  cell  circuits  are first
delivered in  production  volumes  months  after the  successful  production  of
acceptable  prototypes.  In addition,  hard-wired ASICs 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.
PLDs, 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. PLDs are being used by a growing number of
electronic  system   manufacturers  to  increase  product   differentiation  and
manufacturing flexibility and speed time to market.

     PLDs include simple PLDs, complex PLDs (CPLDs),  and FPGAs. CPLDs and FPGAs
have gained market share because they generally  offer greater  capacity,  lower
total cost per usable logic gate,  lower power  consumption than TTLs and simple
PLDs,  and faster  time to market and lower  development  costs than  hard-wired
ASICs. As mask costs continue to rise, CPLDs and particularly FPGAs are becoming
a cost-effective alternative to hard-wired ASICs at higher volumes. Even in high
volumes, the time-to-market and manufacturing-flexibility  benefits of CPLDs and
FPGAs often  outweigh  their price premium over  hard-wired  ASICs of comparable
capacity for many electronic system manufacturers.

     Before a CPLD or 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 circuit,  verifying the design,  and laying out the
circuit.  Traditionally,  logic functions were defined using  schematic  capture
software,  which permits the designer to essentially construct a circuit diagram
on the  computer.  As CPLDs and  FPGAs  have  increased  in  capacity,  the time
required to create  schematic  diagrams using schematic  capture tools has often
become  unacceptably  long. To address this problem,  designers are increasingly
turning to  hardware  description  languages  (HDLs),  also known as  high-level
description  (HLD).  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  description of the
desired  CPLD or FPGA  device  function  can  then be fed into  logic  synthesis
software that  automatically  converts the abstract  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 CPLD
or FPGA.  This is  achieved  by  placing  the  logic  gates  and  routing  their
interconnections,  a process  referred to as "place and route." After the layout
of the device has been  verified by timing  simulation,  the CPLD or FPGA can be
programmed.  Multiple  suppliers of  electronic  design  automation  (EDA) tools
provide software to effectively  accomplish these place and route and simulation
tasks for CPLDs and FPGAs.

     Electronic  system  manufacturers  program  a CPLD or FPGA to  perform  the
desired  logical  functions by using 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.  Programmers  are typically  available
from both the company  supplying the device and third parties,  and  programming
services are often available from both the company  supplying the device and its
distributors.  Most CPLDs are programmed  with erasable  programmable  read only
memories or other "floating gate"  technologies.  Many FPGAs are programmed with
static random access memory (SRAM) technology.  Our FPGAs use flash and antifuse
programming  elements.  After programming,  the functionality and performance of
the programmed CPLD or FPGA in the electronic system must be verified.

     To a large extent,  the  characteristics  of a CPLD or FPGA are dictated by
the technology  used to make the device  programmable.  CPLDs and FPGAs based on
programming elements controlled by floating gates or SRAMs must be configured by
a separate boot device,  such as the serial programmable read only memory (PROM)
commonly  used with SRAM FPGAs.  The need to boot these  devices makes them less
reliable (in the sense of being more prone to generate  system  errors) and less
secure and means  they are not  functional  immediately  on  power-up  and often
require a separate  boot  device.  In  addition,  SRAM FPGAs and CPLDs  based on
look-up  tables  (LUTs)  tend to consume  more  power.  FPGAs based on flash and
antifuse programming elements do not need to be booted-up, which makes them more
reliable,  more secure,  "live-at-power-up"  single-chip  solutions that tend to
operate at lower power. These are all characteristics shared by hard-wired ASICs
but not by SRAM FPGAs or CPLDs.

     The  technology  used to make a CPLD or  FPGA  programmable  also  dictates
whether the device is reprogrammable and whether it is volatile. CPLDs and FPGAs
based on  programming  elements  controlled  by  floating  gates  or  SRAMs  are
reprogrammable but lose their circuit configuration in the absence of electrical
power. FPGAs based on antifuse  programming  elements are one-time  programmable
and retain  their  circuit  configuration  permanently,  even in the  absence of
power.  FPGAs  based on  programming  elements  controlled  by flash  memory are
reprogrammable  and  nonvolatile,  retaining their circuit  configuration in the
absence of power.

     SRAM  memories  are  susceptible  to being  upset  by  neutrons  and  alpha
particles.  When SRAM memories are used for data storage,  these neutron-induced
errors  are  called  "soft  errors."  When SRAM  memories  are used to store the
configuration of an FPGA, these neutron-induced errors are called "firm errors."
A firm error affects the device's  configuration,  which may cause the device to
malfunction.  In addition,  firm errors are not transient but will persist until
detected and  corrected.  There is a significant  and growing risk of functional
failure  in  SRAM-based  FPGAs  due to the  corruption  of  configuration  data.
Historically a concern only for military, avionics, and space applications, firm
errors have become more of a problem  for  ground-based  applications  with each
manufacturing process generation.  Radiation testing data show that antifuse and
flash  FPGAs are not  subject to loss of  configuration  due to  neutron-induced
upsets.

Strategy

     Our flash and antifuse  technologies  are different  from, and have certain
advantages  over, the SRAM and other  technologies  used in competing  PLDs. Our
strategy is to offer  innovative  solutions to markets in which our technologies
have a competitive advantage, including the value-based,  high-reliability,  and
high-speed FPGA markets.

     A  general  competitive  advantage  that our  technologies  have is  design
security.  Our  nonvolatile,  single-chip  FPGAs offer  practically  unbreakable
design  security.  Decapping and stripping of our flash devices reveals only the
structure of the flash cell,  not the contents.  Similarly,  the antifuses  that
form the  interconnections  within our  antifuse  FPGAs do not leave a signature
that can be electrically  probed or visually  inspected.  Antifuse FPGAs also do
not require a start-up  bitstream,  eliminating the possibility of configuration
data  being  intercepted.   In  addition,  special  security  fuses  are  hidden
throughout  the fabric of our flash and antifuse  devices.  These  FlashLock and
FuseLock  security fuses cannot be accessed or bypassed  without  destroying the
rest of the device,  making both invasive and noninvasive  attacks  ineffective.
Our flash and antifuse FPGAs are also practically immune to neutron-induced firm
errors.

o    Value-Based Market

     Much of the logic  market is driven by cost.  We address  this  value-based
market with our flash FPGAs and our general-purpose  antifuse FPGAs. In addition
to low  cost,  our  FPGAs  add the  value of  hard-wired  ASICs to the  benefits
provided by other PLDs. Like other PLDs, our FPGAs reduce design risk, inventory
investment,  and time to market.  Unlike other PLDs, our FPGAs are  nonvolatile,
"live-at-power-up,"   low-power,   single-chip  solutions.  In  addition,  logic
designers can choose to use either  hard-wired  ASIC or FPGA software  tools and
design methodologies,  and the architectures of our FPGAs enable the utilization
of predefined IP cores,  which can be reused across multiple  designs or product
versions.  We  also  offer  our  customers  a wide  selection  of  packages  and
industrial-grade devices.

o    High-Reliability Market

     Much of the logic market for military and aerospace  applications is driven
by reliability, volatility, and resistance to radiation effects. We address this
market with our military,  avionics,  and  space-grade  FPGAs.  Our antifuse and
flash FPGAs are reliable,  nonvolatile,  and not  susceptible  to  configuration
corruption  caused by  radiation.  We believe  that we are the  world's  leading
supplier of high  reliability  PLDs.  During 2003,  we  introduced a new line of
FPGAs  targeted   specifically   for  the  automotive   market;   announced  the
availability of flash-based  ProASIC Plus and  antifuse-based  Axcelerator  FPGA
devices  qualified  to military  temperature  specifications;  and  unveiled our
next-generation,  radiation-tolerant RTAX-S FPGA offerings. With the addition of
ProASIC Plus to our automotive  FPGA product  portfolio in 2004, we believe that
we have the PLD industry's broadest automotive offering..

o    High-Speed Market

     Much of the  logic  market  for  communications  applications  is driven by
speed,  which  has been a  strength  of our  antifuse  FPGAs.  During  2003,  we
announced the production  qualification  of the first  high-density,  high-speed
Axcelerator FPGA devices and the availability of Axcelerator  devices  qualified
to industrial specifications.

Products and Services

         Our product line consists of FPGAs, including

                 reprogrammable FPGAs based on flash technology,

                 one-time programmable FPGAs based on antifuse technology, and

                 high-reliability (HiRel) FPGAs.

In 2003,  FPGAs  accounted for 96% of our net revenues,  almost all of which was
derived from the sale of antifuse  FPGAs. In support of our FPGAs, we offer ASIC
conversion  products,  IP  cores,  development  systems,  programming  hardware,
debugging tool kits and demonstration  boards, a Web-based  Resource Center, and
design and programming services.

o    FPGAs

     The  capacity of FPGAs is measured in "gates,"  which  traditionally  meant
four transistors.  As FPGAs grew larger and more complex,  counting gates became
more challenging and no standard counting technique  emerged.  The appearance of
FPGAs with memory  further  complicated  matters  because memory gates cannot be
counted  in the  same way as logic  gates.  When we use  "gate"  or  "gates"  to
describe the capacity of FPGAs, we mean "maximum system equivalent gates" unless
otherwise indicated.

     To meet the  diverse  requirements  of our  customers,  we offer all of our
FPGAs (except the two radiation-hardened  devices) in a variety of speed grades,
package types, and/or ambient (environmental) temperature tolerances. Commercial
devices  are  qualified  to operate at ambient  temperatures  ranging  from zero
degrees  Celsius  (0(degree)C) to +70(0)C.  Industrial  devices are qualified to
operate at ambient  temperatures  ranging  from  -40(degree)C  to  +85(degree)C.
Automotive devices are qualified to operate at ambient temperatures ranging from
-40(degree)C to +125(0)C with junction temperatures up to 150(degree)C. Military
devices  are  qualified  to  operate  at  ambient   temperatures   ranging  from
-55(degree)C to +125(0)C. "High reliability" or "HiRel" devices are qualified to
automotive or military temperature specifications.

     o    Flash FPGAs

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

          o    ProASIC Plus

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

          o    ProASIC

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

     o    Antifuse FPGAs

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

          o    Axcelerator

               The  Axcelerator  family of FPGAs,  which was first  shipped  for
          revenue in 2002, consists of five devices: the 125,000-gate AX125; the
          250,000-gate AX250; the 500,000-gate AX500; the 1,000,000-gate AX1000;
          and  the  2,000,000-gate   AX2000.   Manufactured  on  a  0.15-micron,
          seven-layer  metal  process  at UMC,  the  family  can be  ordered  in
          approximately 176 speed, package, and temperature variations.

               The Axcelerator family was targeted at high-speed  communications
          and bridging  applications  and  designed to deliver high  performance
          with low power  consumption,  high  logic  utilization,  and  superior
          design  security.  We market  the  Axcelerator  family as the  fastest
          general-purpose FPGAs.

          o    eX

               The eX family of FPGAs,  which was first  shipped  for revenue in
          2001,  consists of three devices:  the 3,000-gate eX64; the 6,000-gate
          eX128;  and  the  12,000-gate  eX256.  Manufactured  on a  0.25-micron
          antifuse process at UMC, the family can be ordered in approximately 66
          speed, package, and temperature variations.

               The  eX  family  was  designed  for  the  e-appliance  market  of
          internet-related  consumer  electronics  and  includes a sleep mode to
          conserve  battery power.  eX devices also provide a small form factor,
          high design security, and an undemanding design process. We market the
          eX family as single-chip  programmable  replacements  for low-capacity
          ASICs.

          o    SX-A and SX

               The SX-A family of FPGAs,  which was first shipped for revenue in
          1999,  consists  of  four  products:  the  12,000-gate  A54SX08A;  the
          24,000-gate A54SX16A;  the 48,000-gate A54SX32A;  and the 108,000-gate
          A54SX72A. Manufactured on a 0.22-micron antifuse process at UMC and on
          a  0.25-micron  antifuse  process at MEC, the family can be ordered in
          approximately 262 speed, package, and temperature variations.

               The SX family of FPGAs,  which was first  shipped  for revenue in
          1998,  consists  of  four  products:   the  12,000-gate  A54SX08;  the
          24,000-gate  A54SX16  and  A54SX16P;   and  the  48,000-gate  A54SX32.
          Manufactured  on a  0.35-micron  antifuse  process at  Chartered,  the
          family  can be  ordered  in  approximately  201  speed,  package,  and
          temperature variations.

               SX was the first family to be built on our fine-grained,  "sea of
          modules"  metal-to-metal  architecture.  We  market  the  SX-A  and SX
          families  as  programmable   devices  with  ASIC-like   speed,   power
          consumption,  and pricing in volume production.  In addition, the SX-A
          family  offers  I/O   capabilities   that  provide  full  support  for
          "hot-swapping."  Hot  swapping  allows  system  boards to be exchanged
          while systems are running,  a capability  important to many  portable,
          consumer, networking,  telecommunication, and fault-tolerant computing
          applications.

          o    MX

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

          o    Legacy Products

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

               o    DX and XL

                    The  3200DX  family of FPGAs,  which was first  shipped  for
               revenue  in 1995,  consists  of five  products:  the  12,000-gate
               A3265DX; the 20,000-gate A32100DX;  the 24,000-gate A32140DX; the
               36,000-gate A32200DX; and the 52,000-gate A32300DX.  Manufactured
               on a 0.6-micron antifuse process at Chartered,  the family can be
               ordered in  approximately  171 speed,  package,  and  temperature
               variations.

                    The  1200XL  family of FPGAs,  which was first  shipped  for
               revenue  in 1995,  consists  of three  products:  the  6,000-gate
               A1225XL;  the 9,000-gate  A1240XL;  and the 16,000-gate  A1280XL.
               Manufactured on a 0.6-micron  antifuse process at Chartered,  the
               family can be ordered in approximately  126 speed,  package,  and
               temperature variations.

                    The DX and XL families  were  designed to  integrate  system
               logic  previously  implemented  in  multiple  programmable  logic
               circuits. The DX family also offers fast dual-port SRAM, which is
               typically used for high-speed buffering.

               o    ACT 3

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

               o    ACT 2

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

               o    ACT 1

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

     o    HiRel FPGAs

          Our HiRel  FPGAs  include  automotive  products,  which are offered in
     plastic packages; military/avionics (Mil/Av) products, which are offered in
     plastic  or  ceramic  (hermetic)  packages;  and  radiation  tolerant  (Rad
     Tolerant) and radiation hardened (Rad Hard) products,  which are offered in
     hermetic  packages.  We believe  that we are the  leading  supplier of high
     reliability  FPGAs.  Since 1990, our FPGAs have been designed into numerous
     military and aerospace  applications,  including command and data handling,
     attitude  reference  and control,  communication  payload,  and  scientific
     instrument  interfaces.  Our space-qualified  FPGAs have been on board more
     than 100 launches and accepted for  flight-unit  applications  on more than
     300 satellites.

          o    Automotive

               During 2003, we announced the availability of a new line of FPGAs
          targeted  specifically for the automotive  market.  Characterized  for
          operation from -40(degree)C to 125(degree)C ambient temperature and up
          to 150(degree)C junction temperature, the automotive offering included
          our eX,  SX-A,  and MX antifuse  families.  On  February  9, 2004,  we
          announced the availability of our flash-based ProASIC Plus FPGAs, with
          densities up to 1,000,000  gates, in extended  automotive  temperature
          range  versions.  Our automotive  devices are  appropriate  for in-cab
          control  and   interconnect   functions  for  a  range  of  automotive
          applications,  such  as  power  train  control,  telematics,  occupant
          safety,  navigation,  speech  recognition,   control/comfort  systems,
          passenger monitors, and heads-up displays.

          o    Mil/Av

               Our Mil/Av  devices are offered in three  packaging and screening
          options:   military-temperature  plastic  (MTP),  military-temperature
          hermetic  (MTH),  and  MIL-STD  883 Class B  hermetic  (Class  B). MTP
          devices  are  offered in plastic  packages  and  screened  to military
          temperature  specifications   (-55(degree)C  to  +125(degree)C).   MTH
          devices  are  offered in hermetic  packages  and  screened to military
          temperature  specifications.  Class B devices  are offered in hermetic
          packages and screened to MIL-STD 883 Class B specifications.

               All members of our antifuse FPGAs families  (except for the AX125
          and the three eX devices) are offered in MTP packaging and  screening.
          We  have  received  complete  Qualified  Manufacturers  Listing  (QML)
          certification  for the full line of MTP antifuse  FPGAs,  which can be
          integrated  into  design  applications  that would  otherwise  require
          higher-cost  ceramic-packaged  devices. The QML plastic  certification
          also permits customers to integrate commercial and military production
          without compromising quality or reliability.

               We offer 22 devices in MTH or Class B  packaging  and  screening:
          the 2,000-gate  A1010B;  the 4,000-gate A1020B; the 6,000-gate A1425A;
          the 9,000-gate A1240A; the 11,000-gate  A1460A; the 16,000-gate A1280A
          and A1280XL;  the  20,000-gate  A14100A and A32100DX;  the 24,000-gate
          A54SX16;  the  36,000-gate  A32200DX;   the  48,000-gate  A54SX32  and
          A54SX32A;  the 54,000-gate  A42MX36;  the 108,000-gate  A54SX72A;  the
          250,000-gate  AX250; the 300,000-gate  APA300; the 500,000-gate AX500;
          the 600,000-gate  APA600; the  1,000,000-gate  APA1000 and AX1000; and
          the  2,000,000-gate  AX2000.   Hermetic-packaged  Mil/Av  devices  are
          appropriate for avionics,  munitions,  harsh industrial  environments,
          and  ground-based  equipment  when  radiation   survivability  is  not
          critical.

               During 2003, we announced  the  availability  of our  flash-based
          ProASIC Plus and antifuse-based  Axcelerator FPGAs tested and verified
          to   operate    over   the   full    military    temperature    range.
          Military-qualified  AX250, APA300, AX500, APA600, AX1000, APA1000, and
          AX2000  devices are  offered in MTP,  MTH,  and Class B packaging  and
          screening options.  The low power  consumption,  high design security,
          and  practical  immunity  to  firm  errors  of the  ProASIC  Plus  and
          Axcelerator  families make these Mil/Av solutions  suitable for a wide
          range of military,  aerospace,  and avionics  applications,  including
          ground-,  air- and sea-based  military systems and radar,  command and
          control, and navigation systems.

          o    Rad Tolerant

               During    2003,     we    introduced     our     next-generation,
          radiation-tolerant  RTAX-S FPGA family. With densities up to 2,000,000
          gates,  RTAX-S  devices  will offer key features  optimized  for space
          applications, such as hardened registers that offer practical immunity
          to single-event upsets (SEUs) and usable error-corrected  onboard RAM.
          These  features  position  the RTAX-S  family as a  radiation-tolerant
          alternative to hard-wired  ASICs that meets the density,  performance,
          and radiation-resistance  requirements of many satellite applications.
          RTAX-S  devices will allow us to  aggressively  target bus and payload
          applications in low-, mid-, and geosynchronous-earth orbit satellites.
          On  February  11,  2004,   we  announced  the   introduction   of  the
          250,000-gate RTAX250S FPGA, extending the family to three devices.

               On  December  2,  2003,  we  introduced  an  advanced   packaging
          technology   small  enough  to  enable  the  assembly  of  tested  and
          programmed   FPGAs   into   multi-chip   modules   (MCMs)   for  space
          applications.  Capable  of  delivering  products  with a  form  factor
          similar to bare die,  the new ceramic  chip  carrier  land grid (CCLG)
          package eliminates the handling,  testing, and programming  challenges
          associated with using die in MCMs. We also announced the  availability
          of the first product based on this technology,  the  RT54SX32S-CC256M,
          which is factory  tested at both extremes of the military  temperature
          range and at room temperature prior to shipment.

               In addition to the offerings  discussed  above,  our Rad Tolerant
          family of FPGAs consists of eight products: the 4,000-gate RT1020; the
          6,000-gate RT1425A;  the 11,000-gate RT1460A; the 16,000-gate RT1280A;
          the 20,000-gate RT14100A;  the 24,000-gate  RT54SX16;  the 48,000-gate
          RT54SX32S;  the 108,000-gate  RT54SX72S.  These Rad Tolerant FPGAs are
          offered  with Class B or Class E (extended  flow/space)  qualification
          and total dose radiation test reports are provided on each  segregated
          lot of devices.

               Rad Tolerant  FPGAs are  designed to meet the logic  requirements
          for  all  types  of   military,   commercial,   and   civilian   space
          applications,  including satellites,  launch vehicles,  and deep-space
          probes. They provide cost-effective alternatives to radiation-hardened
          devices when radiation  survivability  is important but not essential.
          In  addition,  Rad Tolerant  devices  have design- and  pin-compatible
          commercial versions for prototyping.

          o    Rad Hard

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

o    Supporting Products and Services

     In support  of our FPGAs,  we offer  ASIC  conversion  products,  IP cores,
development systems, programming hardware, debugging tool kits and demonstration
boards, a Web-based Resource Center, and design and programming services.

     o    ASIC Conversion Products

          We offer a conversion  path for  high-volume  designs  using our flash
     FPGAs by  remapping  the  functionality  of the FPGA into a  cost-effective
     standard cell ASIC.  These  pin-for-pin  replacements are designed from the
     existing FPGA database,  which reduces the risk typically  associated  with
     ASIC design conversions.

          We also offer a solution  that permits  customers to convert ASICs (or
     other obsolete  components)  to FPGA designs while  preserving the existing
     ASIC footprint on a production board.  Semiconductor device obsolescence is
     a growing problem in the electronics industry. Using one of our FPGAs and a
     thin adapter board, this pin-compatible  component replacement solution can
     significantly extend the useful life of customer designs.

     o    IP Cores

          IP  cores  are  an  integral  part  of  our  solution  offering.   Our
     CompanionCore  Alliance  Program  is a  cooperative  effort  between us and
     independent   third-party  IP  core   developers  to  produce  and  provide
     industry-standard  synthesizable  semiconductor IP cores that are optimized
     for use in our FPGAs. We offer IP cores generated,  verified, and supported
     by  us,  called   DirectCores,   and  by  our  alliance  partners,   called
     CompanionCores.  Our offering includes  approximately 34 bus interface,  61
     communications,  22 data security,  four memory control,  15 multimedia and
     error correction,  and 25 processor and peripheral IP cores. Our DirectCore
     and CompanionCore offerings are available in either RTL or netlist formats.
     Targeting the aerospace, automotive, communications,  consumer, industrial,
     and military  markets,  these IP cores complement the nonvolatile,  secure,
     and low-power characteristics of our flash and antifuse FPGAs.

          During  2003,  we  introduced  the  new  Platform8051,  an  integrated
     platform  solution   initially   consisting  of  six   pre-integrated   and
     pre-verified IP cores.  Optimized for use with our FPGAs,  the Platform8051
     solution  enables a flexible,  cost-effective,  highly-integrated  embedded
     system for the consumer,  communications, and automotive market segments as
     well as industrial,  military,  and aerospace  applications.  Designers may
     specify any configuration of the  industry-standard IP cores and within one
     day receive the platform design files via a Web-based delivery system.

          o    DirectCores

               During 2003, we announced the  availability  of UTOPIA  CoreU1LL,
          CoreU1PHY, and CoreU2PHY DirectCores targeted at asynchronous transfer
          mode (ATM) communication  system developers;  a PCI-X IP core suitable
          for high-performance applications such as servers and workstations, as
          well as network and test  equipment;  a  MIL-STD-1553B  bus controller
          core  for  space,   avionics,   and  military  applications  in  which
          high-reliability and system redundancy are essential; and our Core8051
          8-bit  high-performance   embedded   microcontroller  (MCU)  IP  core.
          Approximately  21 DirectCore IP cores are available for  evaluation or
          licensing   from   us   or   through   our   distributors   or   sales
          representatives.  We offer evaluation,  single-use,  and unlimited-use
          licenses for all of our IP cores.

          o    CompanionCores

               On May 5, 2003, we announced  that a new  CompanionCore  Alliance
          Program partner, Eureka Technology, Inc. (Eureka), had optimized three
          PowerPC interface IP cores for use with our ProASIC Plus, Axcelerator,
          SX-A,  and RTSX-S FPGAs.  On July 28, 2003, we announced  that another
          new CompanionCore Alliance Program partner, 4i2i Communications,  Ltd.
          (4i2i), had optimized its Viterbi and Reed-Solomon encoder and decoder
          IP cores for use with our ProASIC Plus, Axcelerator,  SX-A, and RTSX-S
          FPGAs.  In  addition,  4i2i  optimized  its JPEG  (Joint  Photographic
          Experts  Group)   encoders  and  decoders  for  our   high-performance
          Axcelerator  device  family.   During  2003,  we  also  announced  the
          availability  of the industry's  first Gigabit  FibreChannel  IP cores
          designed   for  FPGA  devices   operating   to  military   temperature
          specifications.

               Approximately   96   CompanionCores   are   available   from  our
          CompanionCore Alliance Program partners, including eight from 4i2i; 11
          from  Amphion  Semiconductor,  Inc.;  six from CAST,  Inc.;  five from
          Eureka;  nine from  Helion  Technology  Ltd.;  25 from  Inicore,  Inc.
          (Inicore);  23 from Memec  Design;  and nine from  MorethanIP  GmbH. A
          number of licensing  models are available from our Alliance  partners,
          including evaluation licenses in most cases.

               On  February  9,  2004,  we  announced  that a new  CompanionCore
          Alliance Program partner, Intelliga Integrated Design (Intelliga), had
          optimized its local  interconnect  network (LIN) and  controller  area
          network    (CAN)    cores   to    support    our    automotive-    and
          industrial-temperature  grade  devices.  We now offer  more than 30 IP
          cores   specifically   designed   and   optimized   for   in-cab   and
          under-the-hood automotive applications.

     o    Development Systems

          Our strategy is to provide design  software  integrated  with existing
     EDA software and design flows.  We work closely with EDA vendors to provide
     early  technical  information  on our new releases so that our partners can
     offer timely support.  Our EDA partners include Aldec, Inc.; Cadence Design
     Systems, Inc. (Cadence);  Celoxica Limited;  Magma Design Automation,  Inc.
     (Magma);  Mentor Graphics;  SynaptiCAD,  Inc.  (SynaptiCAD);  Synopsys; and
     Synplicity.

          o    Libero

               Our Libero tool suite is a comprehensive  design environment that
          integrates  leading  design  tools and  streamlines  the design  flow;
          manages all design and report files;  and passes necessary design data
          between tools. The Silver Edition of our Libero IDE (integrated design
          environment)  includes Mentor  Graphics'  ViewDraw  schematic  capture
          tool;  SynaptiCAD's  WaveFormer  Lite test  bench  generation  system;
          Synplicity's   Synplify  synthesis  software;   our  Silicon  Explorer
          verification and logic analyzer tool; and our Designer place-and-route
          software.  In  addition,  the Gold  Edition of our Libero IDE includes
          Mentor Graphics' ModelSim simulation and design verification software,
          the  Platinum  Edition  includes  Synplicity's  Synplify AE  synthesis
          software, and the Platinum PS Edition includes Magma's PALACE physical
          synthesis tool.

               During 2003,  we announced  the release of three  versions of our
          Libero  IDE.  Enhancements  included  improvements  to the  Synplicity
          synthesis  and  our  Designer   place-and-route  tools,  which  enable
          designers to improve the performance of our ProASIC Plus devices while
          reducing  design-cycle time; the addition of FlashLock support for the
          Permanent Lock feature in ProASIC Plus FPGAs,  which allows  designers
          to secure the device by disabling  the ability to reprogram or reverse
          engineer the device;  and expanded  interfaces to external tools, such
          as the  Precision  and  LeonardoSpectrum  synthesis  tools from Mentor
          Graphics, the Synplify Pro synthesis software from Synplicity, and our
          programming  and  debugging  tools.  On February 2, 2004, we announced
          that our Libero IDE had again been enhanced to provide  customers with
          faster  timing  closure  and  performance  when using our  flash-based
          ProASIC Plus FPGAs.

          o    Designer

               Our Designer  software is also  available from us as a standalone
          interactive design implementation tool. The physical design tool suite
          allows designers to import a netlist  generated from a third party CAE
          tool,  place and route  (layout)  the  design to  achieve  the  timing
          required,  and generate a programming  file to program our FPGAs.  Our
          Designer  place-and-route software supports all of the established EDA
          standards and popular synthesis,  schematic, and simulation tools from
          the leading EDA vendors, including Cadence, Mentor Graphics, Synopsys,
          and  Synplicity.  Several  ease-of-use  enhancements  were made to our
          Designer physical design tool suite during 2003, including user-driven
          device  floorplanning  and  a  multi-view  graphical  interface.   New
          features  added in 2004 include  software that enables  programming or
          testing  of  ProASIC  Plus FPGAs  when  included  in a daisy  chain of
          devices and support for the Linux platform.

     o    Programming Hardware

          Programmers execute  instructions  included in files obtained from our
     Designer  software to program our FPGAs. All of our FPGAs can be programmed
     by the Silicon  Sculptor II programmer.  The Silicon Sculptor II programmer
     is a compact,  single-device  programmer with stand-alone  software for the
     personal  computer  (PC).   Silicon  Sculptor  II  was  designed  to  allow
     concurrent  programming  of multiple  units from the same PC. We also offer
     programming  adapters,  which  must be used with the  Silicon  Sculptor  II
     programmer;  surface-mount  sockets,  which  make it  easier  to  prototype
     designs  using  our  antifuse  FPGAs;   prototyping   adapter  boards;  and
     accessories. In addition, we support programmers offered by BP Microsystems
     Inc.

          Our flash FPGAs can also be  programmed  by the FlashPro  programmers,
     which provide ISP for our ProASIC Plus and ProASIC FPGA families. Designers
     can configure  our  flash-based  devices  using only the portable  FlashPro
     programmer  and a cable  connected  to either the parallel or USB port of a
     PC. The ISP feature permits devices to be programmed after they are mounted
     on a PCB.  During  2003,  we  announced  the  availability  of a  portable,
     low-cost  FlashPro Lite  programmer for use with our ProASIC Plus family of
     FPGAs.  This  next-generation  programmer  is a very  compact  product that
     allows  customers  to  program  devices  using  a  laptop  computer  at any
     location.

     o    Debugging Tool Kits and Demonstration Boards

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

          o    Design Diagnostics and Debugging Tool Kits

               Our antifuse  FPGAs  contain  internal  circuitry  that  provides
          built-in  access  to  every  node  in  a  design,  enabling  real-time
          observation and analysis of a device's  internal logic nodes.  Silicon
          Explorer II, an easy-to-use integrated verification and logic analysis
          tool kit for the PC, accesses the probe circuitry. The tool kit allows
          designers to complete the design verification process at their desks.

               The FS2 CLAM (Configurable Logic Analyzer Module) System provides
          logic analyzer capabilities for our flash-based FPGAs. Embedded in our
          flash  devices,  the CLAM  System  provides an  intuitive  way to view
          internal  signals and debug the logic  design.  The FS2 CLAM  hardware
          probe is offered by First Silicon Solutions,  Inc. (FS2). In addition,
          Synplicity  offers the  Identify  RTL  Debugger  with  support for our
          ProASIC Plus device  family.  This utility  allows  customers to debug
          their hardware directly from their RTL code.

          o    Development Kits and Demonstration Boards

               On March 17, 2003,  we announced the  availability  of a low-cost
          starter kit for our ProASIC Plus devices.  The starter kit consists of
          an  evaluation  board with an APA075  ProASIC Plus device,  our Libero
          Gold IDE, a FlashPro Lite  programmer  and  programming  cable,  power
          supply,  tutorials,  and support  documentation.  With the new starter
          kit, Actel  customers can  efficiently  evaluate the  performance  and
          functionality  of their  designs for  cost-sensitive  ASIC-alternative
          applications  in  the  industrial,  communications,   networking,  and
          avionics markets.

               During 2003, we also announced the availability of Core 1553B and
          CorePCIX  evaluation  boards and the Platform8051  development kit. In
          addition,  we offer  Axcelerator,  CorePCI,  ProASIC Plus, and ProASIC
          Plus ISP evaluation boards.

               On February 9, 2004, we announced the  availability  of the Actel
          Automotive  Development Kit, which enables  engineers to use our FPGAs
          to create  designs for  automotive  applications.  Developed  by Memec
          Design and distributed  globally by Unique Memec,  the Kit combines an
          Actel FPGA-based development board with Memec Design's controller area
          network (CAN) IP core.

     o    Resource Center

          On June 9, 2003, we announced the expansion of our Resource  Center to
     include comprehensive information on power consumption,  "green" packaging,
     and  neutron-induced  firm errors.  The Web-based  Resource Center provides
     customers,  design engineers,  and managers with information on issues that
     directly  affect users of FPGAs and hard-wired  ASICs.  Launched in 2002 to
     provide information on design security issues and increase the awareness of
     design theft, the Web site includes technology tutorials,  frequently-asked
     questions  (FAQs),  market  overviews,  application  notes,  white  papers,
     extensive  glossaries  of  industry  terms,  and  links to  other  relevant
     articles and third-party  resources.  Additional  topics and issues will be
     added as appropriate.

     o    Services

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

          We program  significant volumes of FPGAs for our customers each month.
     We offer  high-volume  programming  for all device and package types in our
     programming  center,  which is located at our  factory  in  Mountain  View,
     California.  We are ISO, QML, STACK,  and PURE certified,  permitting us to
     meet customer requirements for high-quality  programmed devices. As part of
     the programming process, we offer ink marking for customer-specific marking
     needs.  Volume  programming  charges  are based on the type of  device  and
     quantity per order.

          On November 17, 2003, we unveiled our new Solution  Partners  Program,
     which is a  cooperative  effort with  third-party  providers of FPGA design
     services,  embedded  software,  and  hardware  products  to help  designers
     accelerate  their  time to market  for  Actel-based  designs.  The  Program
     provides customers with access to additional design resources,  application
     expertise,  and products from strategic  partners worldwide that complement
     our products and services. We also introduced an updated IP Web interface.

Markets and Applications

     FPGAs  can be used in a broad  range  of  applications  across  nearly  all
electronic  system market  segments.  Most  customers use FPGAs in low to medium
volumes  in the  final  production  form of  their  products.  Some  high-volume
electronic system  manufacturers use FPGAs as a prototyping  vehicle and convert
production  to lower-cost  hard-wired  ASICs,  while others with  time-to-market
constraints  use FPGAs in the initial  production and then convert to lower-cost
ASICs.  As product life cycles  shorten,  mask sets and foundry  capacity become
more expensive,  FPGAs become less expensive,  and new chip interface  standards
emerge  (putting  a premium on I/O  flexibility),  more  high-volume  electronic
system manufacturers are electing to retain FPGAs in volume production.

o    Military and Aerospace

     In 2003, military and aerospace applications accounted for an estimated 36%
of our net  revenues.  Rigorous  quality and  reliability  standards,  stringent
volume requirements, and the need for design security are characteristics of the
military and aerospace  market.  Our FPGAs have high quality and reliability and
are almost impossible to copy or reverse  engineer,  making them appropriate for
many military and aerospace applications.  We believe we are the world's leading
supplier of military  and  aerospace  PLDs.  Our  customers  in the military and
aerospace market include: BAE, Raytheon, Honeywell, and Lockheed Martin.

     Our antifuse FPGAs are especially well suited for space  applications,  due
to the high  radiation  tolerance  of the  antifuse  and our FPGA  architecture.
Thousands of our FPGAs have performed  flight-critical  functions  aboard manned
space vehicles,  earth observation  satellites,  and deep-space  probes, and our
FPGAs often perform mission-critical  functions on important scientific missions
in space. We participate in programs  administered by the Goddard,  Johnson, and
Marshall Space Flight Centers of the National  Aeronautics Space  Administration
(NASA),  including the Space Shuttle,  International  Space Station,  and Hubble
Space  Telescope.  We also  participate  in programs at California  Institute of
Technology's  Jet Propulsion  Laboratory,  including the Mars Pathfinder and the
Mars Spirit and  Opportunity  Rovers.  Our FPGAs can also be found in spacecraft
launched by practically every civilian space agency around the world,  including
the European  Space Agency (ESA) and the  Japanese  National  Space  Development
Agency.

     For   example,   on  July  14,   2003,   we   announced   that  our  RTSX-S
radiation-tolerant FPGAs had been selected for extensive use on the Herschel and
Planck space  probes,  which are  scheduled  for launch by the ESA in 2007.  The
Herschel  probe will study  infrared  radiation  and the Planck probe will study
cosmic background radiation.  Our RT54SX32S and RT54SX72S parts will be used for
many flight-critical functions on the space explorations,  including interfacing
and  control,  co-processing  and  data  handling,  as well as  mission-critical
functions within various scientific instruments.

o    Industrial

     In 2003, industrial control and instrumentation  applications accounted for
an estimated 26% of our net  revenues.  Industrial  control and  instrumentation
applications  often require complex  electronic  functions  tailored to specific
needs. FPGAs offer  programmability and high density,  making them attractive to
this segment of the electronic equipment market. Our customers in the industrial
market include: Abbott Labs, GE Medical Systems, Siemens, and Varian.

     For example,  on July 21, 2003, we announced that C-Map, a leading supplier
of  marine  cartography,  had  adopted  our  SX-A  FPGAs  for use in its  marine
navigation  system  offerings.  Our A54SX32A solution will be used as a graphics
controller and display driver,  allowing different  resolutions,  black/white or
color displays,  and a variety of other features,  such as animated  forecasting
against vessel positioning. The SX-A FPGA was chosen for its secure and reliable
operation in the rugged and harsh  environments  of alternate  cold and heat and
intense humidity in which the marine navigation equipment operates.

o    Communications

     In 2003, communications  applications accounted for an estimated 26% of our
net revenues.  Increasingly complex equipment must frequently be designed to fit
in the  space  occupied  by  previous  product  generations.  In  addition,  the
communications  environment  rewards  short  development  times and early market
entry.  The high density,  high  performance,  and low power  consumption of our
antifuse  FPGAs  make  them  suitable  for  use  in  high-speed   communications
equipment.   The  high   capacity,   low  cost,  low  power   consumption,   and
reprogrammability  of our flash  FPGAs  make them  appropriate  for use in other
communications applications. Our customers in the communications market include:
Cisco, Marconi, Nokia, and Nortel.

o    Consumer and Computer

     In 2003, consumer and computer applications  accounted for an estimated 12%
of our net revenues.  Like the  communications  market, the markets for consumer
and computer products place a premium on early market entry for new products and
are characterized by short product life cycles.

     o    Consumer

          The high performance,  low power consumption, and low cost of antifuse
     FPGAs make them appropriate for use in products enabling the portability of
     the internet,  or "e-appliances," and other high-volume  electronic systems
     targeted   for   consumers.    E-appliance    applications    include   MP3
     "music-off-the-internet"  players,  digital  cable set-top  boxes,  DSL and
     cable modems,  digital  cameras,  digital film,  multimedia  products,  and
     smart-card readers. Our customers in the consumer market include:  Channel,
     Datel, Inc., IC Boss, LG, and Shinyoung Precision Co., Ltd.

          For example, on November 24, 2003, we announced that X-traFun Inc. had
     selected  our eX FPGA device to perform  control,  interface,  and security
     functions in the X-traFun  Bluetooth  Wireless PDA Cartridge for Nintendo's
     Game Boy Advance hand held game console.  Leveraging our FuseLock  antifuse
     technology,  the eX FPGA  secures  X-traFun's  proprietary  IP from reverse
     engineering.  In  addition,  the eX  FPGA's  small  form  factor  and  high
     utilization enabled  significant  reductions in the size, weight, and total
     system cost of the production version of the X-traFun cartridge, which will
     allow users to enjoy  next-generation  interactive gaming and wireless Web,
     email, and chat applications on any Game Boy Advance handheld game console.

     o    Computer

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

          For  example,  on January  28,  2003,  we  announced  that Dr.  Kaiser
     Systemhaus had selected our SX-A FPGAs for use in the  construction  of its
     PRODASAFE,  a BIOS extension  produced as a PCI-compatible PC plug-in card.
     The PRODASAFE card protects the operating system, application programs, and
     configurations  of  the  PC  from  illegal  manipulation,  alteration,  and
     viruses.  Our  secure,  nonvolatile  54SX08A  FPGA  serves as an  interface
     between the boot-PROM and the PCI bus to provide the protection functions.

o    Automotive

     Today's  automobiles contain miles of wiring,  hundreds of circuits,  and a
wide variety of other electronic content.  Increasing  sophistication  under the
hood has required a wide range of systems in the cab to help  operators  monitor
performance  and control a variety of  diagnostic  and telematic  functions.  In
addition,  manufacturers  are striving to  differentiate  their  products with a
variety of complex digital systems for entertainment  and networked  information
appliances.  As a result,  in-car  electronics  content is increasing at a rapid
rate.  During 2003, we announced a new line of FPGAs targeted  specifically  for
the automotive market.  Our automotive  products enable designers to realize the
time-to market advantages of programmable  logic while providing a solution that
can  meet  the  rapidly  evolving   diagnostic,   telematic,   and  infotainment
requirements of the automotive industry.

     For  example,  on November 10, 2003,  we  announced  that Life Racing,  the
electronics  design arm of Advanced Engine Research Ltd., had successfully  used
our ProASIC Plus FPGAs in an automotive  engine control unit.  Competitive  race
car engine control units require complex tuning  algorithms,  optimized for each
individual  controller  device,  to manage  engine  timing.  With  standard Time
Processor Unit (TPU) controllers, this critical software can require significant
rework as  application  requirements  change.  Life  Racing  was able to replace
off-the-shelf  TPU  controllers  with our  in-system  programmable  (ISP) APA450
ProASIC Plus devices.  Implementing a flexible  hardware  solution  enabled Life
Racing to shorten software  development  time,  reduce debug  requirements,  and
speed overall time to market.

Sales and Distribution

     We maintain a worldwide,  multi-tiered selling organization that includes a
direct  sales  force,   independent  sales   representatives,   and  electronics
distributors.  Our North  American  sales  force  consists of about 47 sales and
administrative  personnel and field application  engineers (FAEs) operating from
about  19 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,  our sales  managers  also oversee the  activities  of about 17 sales
representative   firms  operating  from  about  office   locations.   The  sales
representatives  concentrate on selling to major  industrial  companies in North
America. To service smaller, geographically dispersed accounts in North America,
we have a distributor agreement with Unique, which has about 35 offices in North
America.

     We generate a significant portion of our revenues from international sales.
Sales to European  customers  accounted  for 25% of net  revenues  in 2003.  Our
European sales organization  consists of about 24 employees  operating from four
sales offices and about 11 distributors and sales  representatives  having about
26 offices (including Unique, which has nine offices in Europe).  Sales to Japan
and other international customers accounted for 14% of net revenues in 2003. Our
Pan-Asia  and  Rest of  World  (ROW)  sales  organization  consists  of about 12
employees  operating  from four sales  offices and about nine  distributors  and
sales representatives having about 20 offices (including Unique, which has about
nine offices in Pan-Asia and ROW).

     Sales made through  distributors  accounted  for 69% of our net revenues in
2003.   Our  North   American   distributors   during   2003  were   Unique  and
Pioneer-Standard  Electronics, Inc. (Pioneer). On March 1, 2003, we consolidated
our  distribution  channel by terminating  our agreement  with Pioneer,  leaving
Unique  as  our  sole  distributor  in  North  America.  As  is  common  in  the
semiconductor  industry,  we generally grant 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 approved price reductions on specific transactions to
meet competition.  We also generally grant distributors limited rights to return
products.  To date, product returns under this policy have not been material. We
maintain  reserves against which these credits and returns are charged.  Because
of our price  protection  and return  policies,  we do not recognize  revenue on
products sold to distributors until the products are resold to end customers.

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

Backlog

     Our  backlog  was $32.3  million at January  4, 2004,  compared  with $17.3
million at January 5, 2003.  We include in our backlog all OEM orders  scheduled
for delivery over the next nine months and all distributor  orders scheduled for
delivery over the next six months. We sell standard products that may be shipped
from inventory within a short time after receipt of an order. Our business,  and
to a great 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,  our backlog generally may be cancelled or
rescheduled by the customer on short notice without  significant  penalty.  As a
result,  our backlog may not be indicative of actual sales and therefore  should
not be used as a measure of future revenues.

Customer Service and Support

     We believe  that  premiere  customer  service  and  technical  support  are
essential  for success in the FPGA  market.  We  facilitate  service and support
through  service team  meetings that address  particular  aspects of the overall
service strategy and support.  Many of our customers  regularly measure the most
significant  areas of  customer  service and  technical  support.  Our  customer
service  organization  emphasizes  dependable,  prompt,  accurate  responses  to
questions about product delivery and order status.

     Our FAEs located in Canada, France, Germany, Hong Kong, Italy, Japan, South
Korea,  Taiwan,  the United  Kingdom,  and the United States  provide  technical
support to  customers  worldwide.  This  network of experts is augmented by FAEs
working for our sales  representatives  and  distributors  throughout the world.
Customers in any stage of design may also obtain  assistance  from our technical
support hotline or online  interactive  automated  technical  support system. In
addition, we offer technical seminars on our products and comprehensive training
classes on our software.

     We  generally  warrant that our FPGAs will be free from defects in material
and  workmanship  for one year,  and that our software will conform to published
specifications  for 90  days.  To  date,  we have  not  experienced  significant
warranty returns.

Manufacturing and Assembly

     Our  strategy  is  to  utilize  third-party  manufacturers  for  our  wafer
requirements,  which  permits us to allocate our  resources  to product  design,
development, and marketing. Our FPGAs in production are manufactured by:

             Chartered in Singapore using 0.45- and 0.35-micron design rules;

             Infineon in Germany using 0.25-micron design rules;

             MEC in Japan using 1.0-, 0.9-, 0.8-, and 0.25-micron design rules;

             UMC in Taiwan using 0.22- and 0.15-micron design rules; and

             Winbond in Taiwan using 0.8- and 0.45-micron design rules.

     Wafers  purchased from our suppliers are  assembled,  tested,  marked,  and
inspected  by us and/or our  subcontractors  before  shipment to  customers.  We
assemble most of our plastic commercial  products in Hong Kong, South Korea, and
Singapore.  Hermetic  package  assembly,  which is often  required  for military
applications,   is  performed  at  one  or  more   subcontractor   manufacturing
facilities, some of which are in the United States.

     We are committed to continuous improvement in our products,  processes, and
systems and to making our quality and  reliability  systems conform to standards
and requirements  recognized  worldwide.  During 2003, we received ISO 9001:2000
certification  after an extensive  audit  verifying  our  commitment  to quality
management  principles,  including customer  satisfaction and control of product
development and operational  activities.  ISO certification  provides a globally
recognized benchmark for the integrity of processes and procedures. In addition,
our antifuse-based FPGAs received QML-38535  certification,  which confirms that
we have control of our processes and procedures in accordance with the standards
set forth in the MIL-PRF-38535. A QML-approved quality system provides assurance
to our customers  regarding the  suitability of our products for use in military
and space applications that have stringent quality and reliability requirements.
Many suppliers of microelectronic  components have also implemented QML as their
primary worldwide  business  standard.  ISO and QML certification are granted by
Defense Supply Center Columbus (DSCC).

     We are also STACK and PURE certified. STACK International consists of major
electronic equipment  manufacturers  serving the worldwide  high-reliability and
communications markets. Certification as a STACK International supplier confirms
that our  standard  qualification  procedure  and  product  monitor  program and
manufacturing  process meet or exceed the required  specification.  PURE,  which
stands for PEDs (plastic encapsulated  devices) Used in Rugged Environments,  is
an  association  of  European   equipment   makers   dedicated  to  quality  and
reliability.  Our PURE  certification  is for  plastic  quad  flat  pack  (PQFP)
packages.

Strategic Relationships

     We  enjoy  ongoing  strategic  relationships  with  many of our  customers,
distributors,  sales  representatives,  foundries,  assembly  houses,  and other
suppliers of goods and services, including the following:

o    Magma

     On October 14, 2003, Magma, a provider of chip design solutions,  announced
that Magma's PALACE (Physical And Logical Automatic Compilation Engine) physical
synthesis  software supports Actel's  reprogrammable,  flash-based  ProASIC Plus
FPGA device  families.  According to Magma,  PALACE provides FPGA designers with
significantly  higher  quality of results (QoR) and much faster timing  closure.
Other  benefits of the software  include lower design costs,  and reduced design
cycles.

     On December 8, 2003, we announced  that our Libero IDE had been enhanced to
include Magma's PALACE physical  synthesis tool. The PALACE software can provide
higher  performance  for ProASIC Plus FPGAs.  Through a new OEM  agreement  with
Magma,  the PALACE software is available from us as a standalone tool or bundled
with our Libero IDE.

o    Memec (Unique)

     On April 7, 2003, the Memec Design and Unique Memec  divisions of The Memec
Group,  a global  semiconductor  distributor,  introduced  the Actel  Automotive
Development  Kit. The Kit was created and  customized by Unique Memec, a leading
global semiconductor  distributor,  and Memec Design,  Memec's global design and
engineering division, for use with Actel's SX-A automotive devices. Memec Design
and  Unique  Memec  engineers  collaborated  to  meet  Actel's  requirements  by
enhancing an Actel FPGA-based  development  board with a controller area network
(CAN) transceiver and a CAN core.

o    Synplicity

     On August 4, 2003, Synplicity,  a leading supplier of FPGA software for the
design and  verification of  semiconductors,  announced that it had enhanced its
FPGA synthesis  software,  Synplify,  to provide  optimized  support for Actel's
FPGAs.  The Synplify 7.3 software with added support for the ProASIC Plus family
was  included  within  Actel's  Libero  IDE  v5.0,  aiding  in  the  design  and
development of Actel's FPGA families.  According to Synplicity,  customers using
the  enhanced   Synplify  software  could  increase  the  performance  of  their
flash-based  ProASIC Plus devices while  efficiently  optimizing  the device for
increased  area  utilization.   For  customers   requiring   additional  circuit
performance,  the Libero IDE also featured an expanded interface to Synplicity's
Synplify  Pro  software,  which  contained  additional  support for ProASIC Plus
devices.

Research and Development

     In 2003,  we  spent  $39.6  million  on  research  and  development,  which
represented 26.4% of net revenues.  Our efforts to develop of new products based
on  existing  or  emerging   technologies   include  circuit  design,   software
development,  and process technology activities.  In the areas of circuit design
and process  technology,  our research and  development  activities also involve
continuing  efforts to reduce the cost and  improve the  performance  of current
products,  including "shrinks" of the design rules under which such products are
manufactured. Our software research and development activities include enhancing
the  functionality,  usability,  and availability of high-level CAE tools and IP
cores in a complete and automated  desktop design  environment on popular PC and
workstation platforms.

Competition

     The FPGA  market is highly  competitive,  and we expect that to increase as
the market  grows.  Our  competitors  include  suppliers  of  standard  TTLs and
custom-designed  ASICs,  including  conventional gate arrays and standard cells,
simple PLDs,  CPLDs, and FPGAs. Of these, we compete  principally with suppliers
of hard-wired ASICs, CPLDs, and FPGAs.

     The primary advantages of hard-wired ASICs are high capacity, high density,
high speed, and low cost in production  volumes.  These advantages are offset by
long design cycles and high designs costs,  including mask set and  nonrecurring
engineering (NRE) charges. We compete with hard-wired ASIC suppliers by offering
lower  design costs  (including  low or no NREs),  shorter  design  cycles,  and
reduced  inventory risks.  Some customers elect to design and prototype with our
products and then convert to hard-wired  ASICs to achieve lower costs for volume
production.  For this  reason,  we also face  competition  from  companies  that
specialize  in  converting  CPLDs  and  FPGAs,  including  our  products,   into
hard-wired ASICs.

     We also compete with suppliers of CPLDs. Suppliers of these devices include
Altera  Corporation  (Altera),   which  purchased  the  PLD  business  of  Intel
Corporation  in  1994;  Lattice  Semiconductor   Corporation  (Lattice),   which
purchased the CPLD  businesses of Vantis  Corporation in 1999; and Xilinx,  Inc.
(Xilinx).  The  circuit  architecture  of  CPLDs  may  give  them a  performance
advantage in certain lower capacity applications, although we believe that FPGAs
compete  favorably  with CPLDs.  However,  Lattice and  particularly  Altera are
larger than us, offer broader  product lines to more extensive  customer  bases,
and have significantly greater financial, technical, sales, and other resources.
In addition,  many newer CPLDs are  reprogrammable,  which permits  customers to
reuse a circuit multiple times during the design process.  While our flash FPGAs
are  reprogrammable,  antifuse  FPGAs  are  one-time  programmable,  permanently
retaining their programmed configuration.

     We compete most directly with established  FPGA suppliers,  such as Xilinx,
Altera, and Lattice, which purchased the FPGA business of Agere Systems, Inc. in
2002. We announced our intention to develop SRAM-based FPGA products in 1996 and
abandoned  the   development  in  1999.   While  we  believe  our  products  and
technologies  are superior to those of Xilinx (as well as Altera and Lattice) in
many applications  requiring greater internal speed, lower cost,  nonvolatility,
lower power,  and/or greater security,  Xilinx is significantly  larger than us,
offers  a  broader  product  line to a more  extensive  customer  base,  and has
substantially  greater  financial,  technical,  sales, and other  resources.  In
addition, the FPGAs of Xilinx, Altera, and Lattice are reprogrammable. While our
flash FPGAs are reprogrammable, antifuse FPGAs are one-time programmable.

     Several companies have marketed  antifuse-based FPGAs, including QuickLogic
Corporation (QuickLogic). In 1995, we acquired the antifuse FPGA business of TI,
which was the only second-source  supplier of our products.  Xilinx,  which is a
licensee of certain of our patents,  introduced antifuse-based FPGAs in 1995 and
abandoned 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 1997.  We believe  that we compete  favorably  with
QuickLogic, which is also a licensee of certain of our patents.

     To date, we are the only supplier of flash-based FPGAs. In 1998, we entered
into a strategic  alliance with GateField  under which we acquired the exclusive
right to market and sell  standard  ProASIC  products in process  geometries  of
0.35-micron and less. In 1999, we introduced the  flash-based  ProASIC family of
FGPAs. In 2000, we acquired GateField in a merger.

     We  believe  that  important  competitive  factors in our market are price;
performance;  capacity (total number of usable gates); density (concentration of
usable gates);  ease of use and  functionality of development  tools;  installed
base of development tools; reprogrammability; strength of sales organization and
channels; power consumption;  reliability; security; adaptability of products to
specific applications and IP; ease, speed, cost, and consistency of programming;
length of research and development  cycle (including  migration to finer process
geometries);  number  of  I/Os;  reliability;  wafer  fabrication  and  assembly
capacity;  availability of packages,  adapters,  sockets,  programmers,  and IP;
technical  service and support;  and utilization of intellectual  property laws.
Our  failure  to  compete  successfully  in  any of  these  areas  could  have a
materially adverse effect on our business,  financial  condition,  or results of
operations.

Patents and Licenses

     As of February 9, 2004, we had 233 United States  patents and  applications
pending  for an  additional  77 United  States  patents.  We also had 65 foreign
patents and applications  pending for 41 patents outside the United States.  Our
patents cover,  among other things,  circuit  architectures,  antifuse and flash
structures,  and  programming  methods.  We expect  to  continue  filing  patent
applications as appropriate to protect our proprietary technologies.  We believe
that patents,  along with such factors as innovation,  technological  expertise,
and experienced personnel, will become increasingly important.

     In connection with the settlement of patent  litigation in 1993, we entered
into a Patent Cross License  Agreement  with Xilinx  (Xilinx  Agreement),  under
which  Xilinx was granted a license  under  certain of our patents  that permits
Xilinx to make and sell antifuse-based PLDs, and we were granted a license under
certain  Xilinx  patents to make and sell  SRAM-based  PLDs.  Xilinx  introduced
antifuse-based  FPGAs in 1995 and  abandoned its antifuse FPGA business in 1996.
We announced  our  intention  to develop  SRAM-based  FPGA  products in 1996 and
abandoned the development in 1999.

     In 1995, we entered into a License  Agreement with BTR, Inc. (BTR) pursuant
to which BTR licensed its  proprietary  technology to us for development and use
in FPGAs and certain multichip modules.  As partial  consideration for the grant
of the license, we pay to BTR non-refundable advance royalties.

     In connection with the settlement of patent  litigation in 1998, we entered
into a Patent Cross License Agreement with QuickLogic that protects the products
of both  companies  that were first  offered for sale on or before  September 4,
2000, or are future generations of such products.

     As is typical in the semiconductor  industry, we have been and expect to be
notified from time to time of claims that we may be infringing  patents owned by
others. During 2003, we held discussions regarding potential patent infringement
issues with several third parties.  When probable and reasonably  estimable,  we
have made  provision  for the estimated  settlement  costs of claims for alleged
infringement.  As we sometimes  have in the past, we may obtain  licenses  under
patents  that we are  alleged  to  infringe.  While we believe  that  reasonable
resolution  will  occur,  there can be no  assurance  that these  claims will be
resolved  or that the  resolution  of these  claims  will not have a  materially
adverse effect on our business,  financial condition,  or results of operations.
In addition, our evaluation of the impact of these pending disputes could change
based upon new  information  learned by us. Subject to the foregoing,  we do not
believe that the  resolution of any pending  patent  dispute is likely to have a
materially adverse effect on our business,  financial  condition,  or results of
operations.

Employees

     At the  end of  2003,  we had 543  full-time  employees,  including  149 in
marketing, sales, and customer support; 200 in R&D; 156 in operations; and 38 in
administration  and finance.  This compares with 538 full-time  employees at the
end of 2002,  an increase of 1%. Net revenues  were  approximately  $276,000 per
employee for 2003 compared with approximately $250,000 for 2002. This represents
an increase of 10%. We have no employees  represented by a labor union, have not
experienced  any work  stoppages,  and believe that our employee  relations  are
satisfactory.

Risk Factors

     Our shareholders and prospective investors should carefully consider, along
with the other information in this Annual Report on Form 10-K, the following:

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

     Our quarterly  revenues and operating  results are subject to  fluctuations
resulting from general economic conditions and a variety of risks specific to us
or characteristic of the semiconductor industry,  including booking and shipment
uncertainties,  supply problems, and price erosion. These and other factors make
it difficult  for us to  accurately  project  quarterly  revenues and  operating
results,  which  may  fail  to  meet  our  expectations.  Any  failure  to  meet
expectations could cause our stock price to decline significantly.

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

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

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

               Our backlog  (which  generally  may be  cancelled  or deferred by
          customers  on  short  notice  without  significant   penalty)  at  the
          beginning  of a  quarter  typically  accounts  for  about  half of our
          revenues during the quarter. This means that we generate about half of
          our  quarterly  revenues from orders  received  during the quarter and
          "turned" for shipment  within the quarter,  and that any  shortfall in
          "turns"  orders will have an immediate and adverse impact on quarterly
          revenues.  There are many  factors that can cause a shortfall in turns
          orders,  including  declines  in general  economic  conditions  or the
          businesses  of our  customers,  excess  inventory in the  channel,  or
          conversion  of our  products to  hard-wired  ASICs or other  competing
          products for price or other reasons.

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

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

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

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

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

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

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

          In a  typical  semiconductor  manufacturing  process,  silicon  wafers
     produced by a foundry  are sorted and cut into  individual  die,  which are
     then  assembled  into  individual  packages  and tested.  The  manufacture,
     assembly,  and  testing of  semiconductor  products  is highly  complex and
     subject to a wide variety of risks, including defects in masks,  impurities
     in the materials  used,  contaminants in the  environment,  and performance
     failures by personnel and equipment.  Semiconductor  products  intended for
     military and aerospace  applications and new products,  such as our ProASIC
     Plus and  Axcelerator  FPGA  families,  are often more complex  and/or more
     difficult to produce, increasing the risk of manufacturing-related defects.
     In addition,  we may not  discover  defects or other errors in new products
     until  after we have  commenced  volume  production.  Our failure to effect
     scheduled  shipments  by the  end of a  quarter  due to  unexpected  supply
     constraints  would  have an  immediate  and  adverse  impact  on  quarterly
     revenues.

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

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

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

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

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

     In  preparing  our  financial  statements  in  conformity  with  accounting
principles  generally  accepted in the United States, we must make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues, and
expenses and the related  disclosure of contingent  assets and liabilities.  The
most  difficult  estimates  and  subjective   judgments  that  we  make  concern
inventories, impairment of investments in other companies, intangible assets and
goodwill,  income taxes, and legal matters.  We base our estimates on historical
experience  and on various  other  assumptions  that we believe to be reasonable
under  the  circumstances,  the  results  of which  form the  basis  for  making
judgments  about the  carrying  values of assets  and  liabilities  that are not
readily apparent from other sources.  Actual results may differ  materially from
these estimates.  In addition,  if these estimates or their related  assumptions
change in the future,  our operating  results for the periods in which we revise
our estimates or assumptions could be adversely and perhaps materially affected.

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

     The price we can charge for our products is constrained  principally by our
competition. While it has always been intense, we believe that price competition
for new designs is increasing.  This may be due in part to the transition toward
high-level  design  methodologies.  Designers  can now wait  until  later in the
design  process  before  selecting a PLD or hard-wired  ASIC and it is easier to
convert  between  competing  PLDs or  between  PLDs and  hard-wired  ASICs.  The
increased  price  competition  may  also  be  due  in  part  to  the  increasing
penetration  of  PLDs  into  price-sensitive  markets  previously  dominated  by
hard-wired  ASICs.  We have  strategically  targeted many of our products at the
value-based  marked,  which  is  defined  by  low  prices.  If our  strategy  is
successful,  low-price products will constitute increasingly greater percentages
of our net  revenues,  which may make it more  difficult  to maintain  our gross
margin at our historic levels.  Any long-term  decline in our gross margin would
have an adverse effect on our operating results.

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

     In  order  for  us to  sell  an  FPGA  to a  customer,  the  customer  must
incorporate our FPGA into the customer's  product in the design phase. We devote
substantial  resources,  which we may not  recover  through  product  sales,  to
persuade  potential  customers  to  incorporate  our FPGAs  into new or  updated
products and to support  their design  efforts  (including,  among other things,
providing  development  systems).  These efforts  usually precede by many months
(and often a year or more) the  generation  of FPGA sales,  if any. The value of
any design win, moreover, depends in large part upon the ultimate success of our
customer's product in its market. Our failure to win sufficient  designs, or the
failure of the  designs we win to  generate  sufficient  revenues,  could have a
materially adverse effect on our business,  financial  condition,  or results of
operations.

o    Ongoing   investigations   regarding   the   reliability   of  our   RTSX-S
     space-qualified FPGAs could have a material adverse effect on our financial
     results and business in both the short and long term.

     Our RTSX-S family was designed  specifically  to address heavy  ion-induced
single-event  upsets in space.  First shipped in 2001, the family  accounted for
approximately  15% of our net revenues for 2003 and 2002.  Some of the potential
risks  associated with ongoing  investigations  regarding the reliability of our
RTSX-S space-qualified FPGAs are discussed below.

     o    Background

          During 2003,  several  U.S.  government  contractors  reported a small
     percentage of functional  failures in our RTSX-S and SX-A antifuse  devices
     manufactured on a 0.25 micron  antifuse  process at one of the foundries we
     use.

          o    Actel Failure Analyses

               Four of the  U.S.  government  contractors  reporting  functional
          failures  submitted  their  devices to us for  failure  analysis.  Our
          failure analyses concluded that each of the submitted devices had been
          damaged by electrical overstress.

          o    Other Actel Experiments and Conclusions to Date

               In addition to the failure analyses,  we have conducted  numerous
          experiments to (among other things) characterize the susceptibility of
          programmed   0.25-micron   antifuses  to  electrical   overstress  and
          determine if we can detect and screen-out 0.25-micron antifuse devices
          that  are  particularly  susceptible  to  electrical  overstress.  The
          experiments are ongoing, but to date we have:

                    observed  electrical  overstress  damage only in 0.25-micron
                    antifuse   RTSX-S  and  SX-A  FPGAs  that  we  believe  were
                    subjected  to voltages  outside of our  published  datasheet
                    specifications; and

                    concluded  that  a  small   percentage  of  our  0.25-micron
                    antifuse RTSX-S and SX-A FPGAs are particularly  susceptible
                    to  electrical  overstress  damage when  exposed to voltages
                    outside of our published datasheet specifications.

          o    Industry Group and Tiger Team

               An  ad-hoc  industry  group  lead  by The  Aerospace  Corporation
          (Aerospace)  was  established  to examine  the  electrical  overstress
          problem.  The  industry  group  formed a "Tiger  Team" to develop  and
          analyze experimental data, characterize antifuse electrical overstress
          damage, and identify the root cause of electrical overstress damage.

          o    Aerospace Closure Plan

               On February 13, 2004, Aerospace presented to the industry group a
          Closure  Plan  consisting  of 12 projects  to resolve  the  electrical
          overstress  issue  (Closure  Plan).  Of the 12 proposed  Closure  Plan
          projects, six would be performed by Aerospace,  four by us, and two by
          other Tiger Team  members.  One key project is an  experiment by us to
          determine the rate (if any) at which 0.25-micron antifuse devices fail
          when  they  are not  exposed  to  voltages  outside  of our  published
          datasheet  limits.  Our failure rate  measurement  experiment  will be
          performed  on at  least  800  RTSX-S  FPGAs  and  is  scheduled  to be
          completed in August 2004.  Data from the Closure Plan projects will be
          shared with the industry group as soon as it is available.

     o    A recall  of our  0.25-micron antifuse  FPGAs could  have a materially
	  adverse effect on our revenues and operating results.

               We think there is only a slight chance that we will determine, as
          a result of conducting the  experiments  proposed by Aerospace as part
          of its  Closure  Plan,  that our RTSX-S  devices  experience  antifuse
          damage when operated within the maximum  voltage  limitation set forth
          in our published datasheet  specifications,  and that the failure rate
          exceeds the range specified in the Aerospace Closure Plan. However, if
          we were to make those determinations,  we may recall our RTSX-S FPGAs,
          and possibly some of our  0.25-micron  SX-A FPGAs.  In any recall,  we
          would try to replace the recalled  parts. If we were unable to replace
          the recalled parts with  acceptable  parts,  we would offer refunds to
          our customers for the recalled parts and, in addition, would be unable
          to fill new orders  for these  parts.  This  would  have a  materially
          adverse effect on our revenues and operating results.

     o    While the Actel  and  Aerospace  investigations  are  continuing,  our
          customers may defer placing new orders, defer the shipment of existing
          orders, or cancel existing orders.

          The electrical  overstress  problem has caused more anxiety among some
     members  of the  industry  group  than  others.  While  most  members  have
     continued to order parts from us, some are  behaving  more  cautiously.  To
     whatever  extent our customers  take a  "wait-and-see"  attitude  while the
     Actel  and  Aerospace  investigations  are  continuing,  our  revenues  and
     operating  results  could be adversely  affected.  Some  customers may also
     explore  alternatives,  which  might  cause us to lose  existing  or future
     orders  irrespective  of any  conclusions  reached  by Actel  or  Aerospace
     regarding the root cause of the electrical overstress problem.

     o    The  electrical  overstress  problem  may harm our  reputation  in the
          industry,  which could have a long-term  materially  adverse affect on
          our business.

          The questions raised by the electrical  overstress  problem concerning
     the  reliability  of our  space-grade  RTSX-S  devices  may  undermine  our
     reputation  in an  industry  to which  we have  been a major  supplier.  To
     whatever  extent our  customers  have doubts about the  reliability  of our
     parts, they may seek to use other suppliers,  which could be harmful to our
     business over time.

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

     The market for our products is characterized by rapid technological change,
product obsolescence,  and price erosion,  making the timely introduction of new
or improved  products critical to our success.  Our failure to design,  develop,
and  sell  new  or  improved  products  that  satisfy  customer  needs,  compete
effectively,  and generate acceptable margins may adversely affect our business,
financial  condition,  and  results of  operations.  While  most of our  product
development  programs  have  achieved  a level of  success,  some have not.  For
example:

          We announced our intention to develop SRAM-based FPGA products in 1996
          and abandoned the development in 1999 principally  because the product
          would no longer have been competitive.

          We introduced our VariCore embeddable reprogrammable gate array (EPGA)
          logic core based on SRAM  technology  in 2001.  Revenues from VariCore
          EPGAs  did not  materialize  and the  development  of a more  advanced
          VariCore  EPGA has been  cancelled.  In this  case,  a market  that we
          believed would develop did not emerge.

          In 2001, we also launched our BridgeFPGA initiative to address the I/O
          problems  created within the high-speed  communications  market by the
          proliferation of interface standards.  The adoption of these interface
          standards  has created the need for  designers to  implement  bridging
          functions to connect incompatible  interface standards.  We introduced
          Axcelerator,  a high-speed antifuse FPGA with dedicated high-speed I/O
          circuits  that can  support  multiple  interface  standards,  in 2002.
          However, the development of subsequent BridgeFPGA products, which were
          expected   to   include   embedded   high-speed   interface   protocol
          controllers,  was postponed in 2002.  This was due  principally to the
          prolonged  downturn  in  the  high-speed  communications  market.  The
          development was cancelled in 2003  principally  because the subsequent
          BridgeFPGA products would no longer have been competitive.

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

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

               anticipate future customer demand and the technology that will be
               available to meet the demand;

               define  the  product   and  its   architecture,   including   the
               technology,  silicon,  programmer,  IP,  software,  and packaging
               specifications;

               obtain access to advanced manufacturing process technologies;

               design and verify the silicon;

               develop and release evaluation software;

               lay out the architecture and implement programming;

               tape out the product;

               generate a mask of the product and evaluate the software;

               manufacture the product at the foundry;

               verify the product; and

               qualify  the  process,  characterize  the  product,  and  release
               production software.

     Each of these  steps is  difficult  and  subject to  failure  or delay.  In
     addition,  the  failure or delay of any step can cause the failure or delay
     of the entire  development and introduction.  We can offer you no assurance
     that our  development  and  introduction  schedules for new products or the
     supporting  software or hardware  will be met,  that new products will gain
     market acceptance, or that we will respond effectively to new technological
     changes or new product announcements by others. Any failure to successfully
     define,  develop,   market,   manufacture,   assemble,   test,  or  program
     competitive  new  products  could have a materially  adverse  effect on our
     business, financial condition, and results of operations.

     o    New products are subject to greater operational risks.

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

     o    New products are subject to greater technology risks.

          As is common in the semiconductor  industry,  we have experienced from
     time  to  time  in the  past,  and  expect  to  experience  in the  future,
     difficulties and delays in achieving  satisfactory,  sustainable  yields on
     new  products.  The  fabrication  of antifuse and flash wafers is a complex
     process that  requires a high degree of technical  skill,  state-of-the-art
     equipment,  and effective cooperation between us and the foundry to produce
     acceptable yields. Minute impurities, errors in any step of the fabrication
     process,  defects in the masks used to print circuits on a wafer, and other
     factors  can cause a  substantial  percentage  of wafers to be  rejected or
     numerous die on each wafer to be  non-functional.  Yield problems  increase
     the  cost of as well as time it  takes  us to  bring  our new  products  to
     market,  which can create inventory  shortages and dissatisfied  customers.
     Any  prolonged  inability to obtain  adequate  yields or  deliveries of new
     products could have a materially adverse effect on our business,  financial
     condition, or results of operations.

     o    New products generally have lower gross margins.

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

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

     The  semiconductor  industry  is  intensely  competitive.  Our  competitors
include suppliers of hard-wired ASICs,  CPLDs, and FPGAs. Our direct competitors
are Xilinx,  a supplier of  SRAM-based  FPGAs;  Altera,  a supplier of CPLDs and
SRAM-based  FPGAs;  Lattice,  a  supplier  of CPLDs and  SRAM-based  FPGAs;  and
QuickLogic,  a supplier of  antifuse-based  FPGAs. We also face competition from
companies that specialize in converting our products into  hard-wired  ASICs. In
addition,  we may face competition from suppliers of logic products based on new
or emerging technologies.  While we seek to monitor developments in existing and
emerging technologies, our technologies may not remain competitive.

     o    Most of our current and potential competitors are larger and have more
          resources.

          Many of our current  competitors  have  broader  product  lines,  more
     extensive customer bases, and significantly  greater financial,  technical,
     manufacturing,  and marketing resources than us. Additional  competition is
     possible from major domestic and international semiconductor suppliers. All
     such companies are larger and have broader  product  lines,  more extensive
     customer bases,  and  substantially  greater  financial and other resources
     than us, including the capability to manufacture  their own wafers.  We may
     not be able to overcome these competitive disadvantages.

     o    Our antifuse technology is not reprogrammable,  which is a competitive
          disadvantage in most cases.

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

     o    Our flash and antifuse  technologies  are not manufactured on standard
          processes, which is a competitive disadvantage.

          Our antifuse-based  FPGAs and (to a lesser extent) flash-based ProASIC
     FPGAs are  manufactured  using customized steps that are added to otherwise
     standard manufacturing  processes of independent wafer suppliers.  There is
     considerably less operating  history for the customized  process steps than
     for the  foundries'  standard  manufacturing  processes.  Our dependence on
     customized  processing steps means that, in contrast with competitors using
     standard  manufacturing   processes,  we  generally  have  more  difficulty
     establishing  relationships  with  independent  wafer  manufacturers;  take
     longer  to  qualify  a new  wafer  manufacturer;  take  longer  to  achieve
     satisfactory,  sustainable wafer yields on new processes;  may experience a
     higher  incidence of production  yield problems;  must pay more for wafers;
     and will not obtain early  access to the most  advanced  processes.  Any of
     these factors could be a material  disadvantage  against  competitors using
     standard  manufacturing  processes.  As a  result  of  these  factors,  our
     products  typically  have  been  fabricated  using  processes  one  or  two
     generations  behind  the  processes  used  by  competing  products.   As  a
     consequence,  we  generally  have not fully  realized  the  benefits of our
     technologies.  Although we are  attempting to accelerate  the rate at which
     our products are reduced to finer  process  geometries  and obtain  earlier
     access  to  advanced  processes,  we may  not be  able  to  overcome  these
     competitive disadvantages.

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

     Our performance is subject to events or conditions beyond our control,  and
the   performance   of  each  of  our  foundries,   suppliers,   subcontractors,
distributors,  agents,  and customers is subject to events or conditions  beyond
their control. These events or conditions include labor disputes, acts of public
enemies   or   terrorists,   war  or  other   military   conflicts,   blockades,
insurrections, riots, epidemics, quarantine restrictions, landslides, lightning,
earthquakes,  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,  and inability to
obtain  transport or supplies.  This type of disruption could impair our ability
to ship products in a timely manner,  which may have a materially adverse effect
on our business, financial condition, and results of operations.

     Our corporate offices are located in California, which was subject to power
outages and shortages  during 2001 and 2002.  More extensive  power shortages in
the  state  could  disrupt  our   operations  and  interrupt  our  research  and
development  activities.  Our  foundry  partners  in Japan  and  Taiwan  and our
operations in California are located in areas that have been seismically  active
in the recent past.  In addition,  many of the  countries  outside of the United
States in which our foundry partners and assembly and other  subcontractors  are
located  have  unpredictable  and  potentially  volatile  economic,  social,  or
political  conditions,  including the risks of conflict  between  Taiwan and the
People's  Republic of China or between North Korea and South Korea. In addition,
an outbreak of Severe Acute  Respiratory  Syndrome (SARS) occurred in Hong Kong,
Singapore,  and China in 2003.  The  occurrence  of these or  similar  events or
circumstances  could disrupt our  operations  and may have a materially  adverse
effect on our business, financial condition, and results of operations.

o    Our business depends on numerous  independent third parties whose interests
     may diverge from our interests.

     We rely heavily on, but generally have little control over, our independent
foundries, suppliers, subcontractors, and distributors.

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

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

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

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

          o    Identifying and qualifying new independent wafer manufacturers is
               difficult and might be unsuccessful.

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

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

          We rely  primarily  on foreign  subcontractors  for the  assembly  and
     packaging  of our  products  and,  to a lesser  extent,  for testing of our
     finished  products.  Our reliance on  independent  subcontractors  involves
     certain  risks,  including  lack of control over  capacity  allocation  and
     delivery  schedules.  We  generally  rely on one or two  subcontractors  to
     provide  particular  services  and  have  from  time  to  time  experienced
     difficulties with the timeliness and quality of product deliveries. We have
     no  long-term  contracts  with  our  subcontractors  and  certain  of those
     subcontractors  sometimes operate at or near full capacity. Any significant
     disruption in supplies from, or degradation in the quality of components or
     services supplied by, our  subcontractors  could have a materially  adverse
     effect on our business, financial condition, and results of operations.

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

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

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

          In 2003, sales made through distributors  accounted for 69% of our net
     revenues.  Our distributors offer products of several different  companies,
     so they may  reduce  their  efforts  to sell our  products  or give  higher
     priority to other  products.  A reduction in sales effort,  termination  of
     relationship,   failure   to  pay  for   products   ordered   from  us,  or
     discontinuance of operations because of financial difficulties or for other
     reasons by one or more of our current  distributors could have a materially
     adverse  effect  on our  business,  financial  condition,  and  results  of
     operations.

          o    Distributor  contracts  generally  can  be  terminated  on  short
               notice.

               Although we have contracts with our distributors,  the agreements
          are  terminable by either party on short notice.  On March 1, 2003, we
          consolidated  our  distribution  channel by terminating  our agreement
          with Pioneer,  which accounted for 26% of our net revenues in 2002. We
          also consolidated our distribution  channel in 2001 by terminating our
          agreement with Arrow,  which  accounted for 13% of our net revenues in
          2001. Unique, which accounted for 41% of our net revenues in 2003, has
          been our sole  distributor  in North America since March 1, 2003.  The
          loss of Unique as a distributor could have a materially adverse effect
          on our business, financial condition, or results of operations.

          o    Fluctuations in inventory  levels at our  distributors can affect
               our operating results.

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

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

     o    We depend on international operations for almost all of our products.

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

     o    We depend on  international  sales for a  substantial  portion  of our
          revenues.

          Sales to customers  outside  North  America  accounted  for 39% of net
     revenues in 2003, and we expect that  international  sales will continue to
     represent a significant portion of our total revenues.  International sales
     are  subject  to the  risks  described  above as well as  generally  longer
     payment cycles,  greater difficulty  collecting  accounts  receivable,  and
     currency  restrictions.  We also maintain  foreign sales offices to support
     our international customers, distributors, and sales representatives, which
     are subject to local regulation.

          In  addition,  international  sales are subject to the export laws and
     regulations  of the United States and other  countries.  The Strom Thurmond
     National Defense  Authorization Act for 1999 required,  among other things,
     that communications  satellites and related items (including components) be
     controlled  on the  U.S.  Munitions  List.  The  effect  of the  Act was to
     transfer  jurisdiction over commercial  communications  satellites from the
     Department  of Commerce to the  Department of State and to expand the scope
     of export licensing applicable to commercial satellites. The need to obtain
     additional export licenses has caused significant delays in the shipment of
     some of our FPGAs. Any future restrictions or charges imposed by the United
     States  or any  other  country  on our  international  sales  could  have a
     materially adverse effect on our business,  financial condition, or results
     of operations.

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

     We have experienced substantial  period-to-period  fluctuations in revenues
and results of  operations  due to  conditions  in the overall  economy,  in the
general semiconductor industry, in our major markets, or at our major customers.
We may again  experience these  fluctuations,  which could be adverse and may be
severe.

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

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

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

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

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

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

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

          In 1994, Secretary of Defense William Perry directed the Department of
     Defense to avoid  government-unique  requirements when making purchases and
     rely more on the commercial marketplace.  Under the "Perry initiative," the
     Department  of  Defense  must  strive  to  increase  access  to  commercial
     state-of-the-art technology and facilitate the adoption by its suppliers of
     business processes characteristic of world-class suppliers.  Integration of
     commercial  and military  development  and  manufacturing  facilitates  the
     development  of  "dual-use"  processes and products and  contributes  to an
     expanded  industrial base that is capable of meeting defense needs at lower
     costs. To that end, many of the cost-driving  specifications  that had been
     part of military procurements for many years were cancelled in the interest
     of buying  best-available  commercial products.  We believe that this trend
     toward the use of commercial  off-the-shelf  products has on balance helped
     our business.  However,  if this trend continued to the point where defense
     contractors  customarily  purchased   commercial-grade  parts  rather  than
     military-grade  parts,  the revenues and gross  margins that we derive from
     sales to customers in the military and  aerospace  industries  would erode,
     which could have a materially  adverse  effect on our  business,  financial
     condition,  and results of  operations.  On the other hand,  there are some
     signs that this trend toward the use of commercial  off-the-shelf  products
     is reversing.  If defense  contractors  were to begin using more customized
     ASICs and fewer commercial  off-the-shelf  products, the revenues and gross
     margins  that we  derive  from  sales  to  customers  in the  military  and
     aerospace  industries  may erode,  which  could have a  materially  adverse
     effect on our business, financial condition, and results of operations.

     o    Our revenues and operating results may be adversely affected by future
          downturns at any our major customers.

          A  relatively   small  number  of  customers  are  responsible  for  a
     significant portion our net revenues.  Lockheed Martin accounted for 11% of
     our net revenues  during 2003,  compared  with 3% during 2002 and 2001.  We
     have experienced  periods in which sales to our major customers declined as
     a percentage  of our net revenues  due to  push-outs  or  cancellations  of
     orders, or delays or failures to place expected orders. For example, Nortel
     accounted for 11% of our net revenues in 2000, compared with 2% in 2001. We
     believe  that  sales to a limited  number of  customers  will  continue  to
     account for a substantial  portion of net revenues in future  periods.  The
     loss of a major  customer,  or  decreases  or delays in  shipments to major
     customers,  could  have  a  materially  adverse  effect  on  our  business,
     financial condition, and results of operations.

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

     We have a mixed history of success in our acquisitions. For example:

          In 1999, we acquired  AutoGate  Logic,  Inc.  (AGL) for  consideration
          valued at $7.2  million.  We acquired AGL for  technology  used in the
          unsuccessful development of an SRAM-based FPGA.

          In  2000,   we  acquired   Prosys   Technology,   Inc.   (Prosys)  for
          consideration   valued  at  $26.2  million.  We  acquired  Prosys  for
          technology used in our VariCore EPGA logic core,  which was introduced
          in 2001 but for which no market emerged.

          Also  in  2000,  we  completed  our   acquisition   of  GateField  for
          consideration  valued at $45.7 million.  We acquired GateField for its
          flash   technology   and  ProASIC  FPGA  family.   We  introduced  the
          next-generation  ProASIC Plus product family in 2002 and are currently
          the only company offering nonvolatile, reprogrammable FPGAs.

     In  pursuing  our  business  strategy,   we  may  acquire  other  products,
technologies,  or businesses  from third parties.  Identifying  and  negotiating
these  acquisitions  may  divert  substantial  management  time  away  from  our
operations.  An acquisition could absorb substantial cash resources,  require us
to incur or assume debt  obligations,  and/or involve the issuance of additional
our equity securities.  The issuance of additional equity securities may dilute,
and could  represent  an  interest  senior to the rights of, the  holders of our
Common Stock. An acquisition could involve significant  write-offs  (possibility
resulting in a loss for the fiscal year(s) in which taken) and would require the
amortization of any identifiable intangibles over a number of years, which would
adversely  affect  earnings  in  those  years.  Any  acquisition  would  require
attention  from  our  management  to  integrate  the  acquired  entity  into our
operations,  may require us to develop expertise outside our existing  business,
and could  result in  departures  of  management  from either us or the acquired
entity.  An acquired entity may have unknown  liabilities,  and our business may
not  achieve  the  results  anticipated  at the time it is  acquired  by us. The
occurrence of any of these  circumstances  could disrupt our  operations and may
have a  materially  adverse  effect on our  business,  financial  condition,  or
results of operations.

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

     As is typical in the semiconductor  industry,  we are notified from time to
time of claims that we may be infringing  patents owned by others.  During 2003,
we held discussions  regarding potential patent infringement issues with several
third  parties.  As we sometimes  have in the past and did during  2003,  we may
obtain  licenses under patents that we are alleged to infringe.  Although patent
holders commonly offer licenses to alleged infringers, no assurance can be given
that  licenses  will be  offered  or that we will find the terms of any  offered
licenses acceptable. We cannot assure you that any claim of infringement will be
resolved or that the resolution of any claims will not have a materially adverse
effect on our business, financial condition, or results of operations.

     Our failure to obtain a license for  technology  allegedly used by us could
result in litigation.  In addition,  we have agreed to defend our customers from
and indemnify them against claims that our products infringe the patent or other
intellectual rights of third parties. All litigation,  whether or not determined
in favor of us, can result in significant  expense and divert the efforts of our
technical and  management  personnel.  In the event of an adverse  ruling in any
litigation  involving  intellectual  property,  we could suffer significant (and
possibly treble) monetary damages,  which could have a materially adverse effect
on our business,  financial condition, or results of operations.  We may also be
required to discontinue the use of infringing processes;  cease the manufacture,
use, and sale or licensing of infringing products;  expend significant resources
to develop non-infringing  technology;  or obtain licenses under patents that we
are  infringing.  In the event of a successful  claim against us, our failure to
develop or license a substitute  technology  on  commercially  reasonable  terms
could  also  have  a  materially  adverse  effect  on  our  business,  financial
condition, and results of operations.

     We have  devoted  significant  resources to research  and  development  and
believe  that  the   intellectual   property  derived  from  such  research  and
development  is a valuable  asset  important to the success of our business.  We
rely  primarily  on  patent,   trademark,   and  copyright  laws  combined  with
nondisclosure  agreements  and  other  contractual  provisions  to  protect  our
proprietary  rights.  We cannot  assure you that the steps we have taken will be
adequate to protect our  proprietary  rights.  In addition,  the laws of certain
territories  in  which  our  products  are  developed,  manufactured,  or  sold,
including  Asia and  Europe,  may not  protect  our  products  and  intellectual
property rights to the same extent as the laws of the United States. Our failure
to enforce  our  patents,  trademarks,  or  copyrights  or to protect  our trade
secrets  could  have a  materially  adverse  effect on our  business,  financial
condition, or results of operations.

o    We  may  be  unable  to  retain  or  attract  the  personnel  necessary  to
     successfully operate, manage, or grow our business.

     Our success is dependent in large part on the continued  service of our key
managerial,  engineering,  marketing, sales, and support employees. Particularly
important are highly  skilled  design,  process,  software,  and test  engineers
involved in the  manufacture  of existing  products and the  development  of new
products and  processes.  The loss of our key employees  could have a materially
adverse effect on our business,  financial condition,  or results of operations.
In the past we have  experienced  growth in the number of our  employees and the
scope of our operations,  resulting in increased responsibilities for management
personnel.  To manage future growth effectively,  we will need to attract, hire,
train, motivate, manage, and retain a growing number of employees. During strong
business  cycles,  we expect to  experience  difficulty in filling our needs for
qualified  engineers  and other  personnel.  Any  failure to attract  and retain
qualified  employees,  or to manage our growth effectively,  could delay product
development and  introductions or otherwise have a materially  adverse effect on
our business, financial condition, or results of operations.

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

     We have adopted an Employee  Retention  Plan that provides for payment of a
benefit  to our  employees  who hold  unvested  stock  options in the event of a
change of control.  Payment is contingent upon the employee  remaining  employed
for six months after the change of control  (unless the  employee is  terminated
without cause during the six months).  Each of our  executive  officers has also
entered  into  a  Management  Continuity  Agreement,   which  provides  for  the
acceleration of stock options unvested at the time of a change of control in the
event  the  executive   officer's   employment  is  actually  or  constructively
terminated  other than for cause  following  the change of control.  While these
arrangements are intended to make executive officers and other employees neutral
towards a  potential  change of  control,  they could have the effect of biasing
some or all executive officers or employees in favor of a change of control.

     Our  Articles of  Incorporation  authorize  the issuance of up to 5,000,000
shares  of  "blank  check"  Preferred  Stock  with  designations,   rights,  and
preferences  determined  by our Board of  Directors.  Accordingly,  our Board is
empowered,  without  approval by holders of our 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 our Common  Stock.  Issuance  of  Preferred  Stock  could be used to
discourage,  delay,  or prevent a change in control.  In  addition,  issuance of
Preferred Stock could adversely affect the market price of our Common Stock.

     On October 17,  2003,  we announced  that our Board of Directors  adopted a
Shareholder  Rights Plan.  Under the Plan, we issued a dividend of one right for
each  share of Common  Stock held by  shareholders  of record as of the close of
business on November 10, 2003.  The provisions of the Plan can be triggered only
in certain limited circumstances following the tenth day after a person or group
announces  acquisitions  of, or tender  offers  for,  15% or more of our  Common
Stock.  The Shareholder  Rights Plan is designed to guard against partial tender
offers and other  coercive  tactics to gain control of Actel without  offering a
fair and adequate price and terms to all  shareholders.  Nevertheless,  the Plan
could  make it more  difficult  for a third  party to  acquire  us,  even if our
shareholders support the acquisition.

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

     The stock markets broadly,  technology companies generally,  and our Common
Stock in particular  have  experienced  extreme  price and volume  volatility in
recent years.  Our Common Stock may continue to fluctuate  substantially  on the
basis of many factors, including:

          quarterly  fluctuations  in our  financial  results  or the  financial
          results of our competitors or other semiconductor companies;

          changes  in the  expectations  of  analysts  regarding  our  financial
          results  or  the  financial   results  of  our  competitors  or  other
          semiconductor companies;

          announcements of new products or technical innovations by us or by our
          competitors; and

          general conditions in the semiconductor  industry,  financial markets,
          or economy.

ITEM 2. PROPERTIES

     In 2003, we relocated our worldwide  headquarters  to a larger  facility to
better  accommodate  our existing  employees  and position  ourselves for future
growth.  Our principal  facilities and executive offices are located in Mountain
View,  California,  in two buildings that comprise  approximately 158,000 square
feet. These buildings are leased through June 2013. We have a renewal option for
an additional ten-year term.

     We also lease sales  offices in the vicinity of Atlanta,  Boston,  Chicago,
Dallas,  Denver, Hong Kong, London, Los Angeles,  Milan,  Minneapolis/St.  Paul,
Munich,  New York,  Orlando,  Paris,  Ottawa (Ontario),  Philadelphia,  Raleigh,
Seattle, Seoul, Taipei, Tokyo, and Washington D.C., as well as the facilities of
the  Design  Services  Group  in Mt.  Arlington,  New  Jersey.  We  believe  our
facilities will be adequate for our needs in 2004.

ITEM 3. LEGAL PROCEEDINGS

     There are no pending legal proceedings of a material nature to which we are
a party or of which  any of our  property  is the  subject.  We know of no legal
proceeding contemplated by any governmental authority.

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.


<PAGE>


                                     PART II

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

     Our Common  Stock has been traded on the Nasdaq  National  Market under the
symbol "ACTL" since our initial  public  offering on August 2, 1993. On February
16, 2004, there were 150 shareholders of record.  Since many  shareholders  have
their shares held of record in the names of their  brokerage  firms, we estimate
the actual number of  shareholders  to be about 9,000.  The following table sets
forth, for the fiscal years and quarters indicated, the high and low sale prices
per share of our Common Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>

                                                                            2003                        2002
                                                                 --------------------------  --------------------------
                                                                     High          Low           High          Low
                                                                 ------------  ------------  ------------  ------------
<S>                                                            <C>
First Quarter.............................................       $      19.84  $      14.26  $      22.40  $      17.32
Second Quarter............................................              23.00         16.80         28.61         17.45
Third Quarter.............................................              29.35         22.23         21.75          9.85
Fourth Quarter............................................              28.60         22.40         21.43          9.87
</TABLE>

On March 12,  2004,  the  reported  last sale of our Common  Stock on the Nasdaq
National Market was $22.00.

     We have never  declared or paid a cash  dividend on our Common Stock and do
not anticipate paying any cash dividends in the foreseeable  future.  Any future
declaration  of dividends is within the discretion of our Board of Directors and
will be dependent on our earnings, financial condition, and capital requirements
as well as any other factors deemed relevant by our Board of Directors.


<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

                                ACTEL CORPORATION

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

<TABLE>
<CAPTION>

                                                                       Years Ended December 31,
                                                 --------------------------------------------------------------------
                                                     2003          2002          2001          2000          1999
                                                 ------------  ------------  ------------  ------------  ------------
<S>                                              <C>           <C>           <C>           <C>           <C>
Consolidated Statements of Operations Data:
Net revenues................................     $    149,910  $    134,368  $    145,559  $    226,419  $    171,661
Costs and expenses:
   Cost of revenues.........................           59,734        52,935        62,210        84,680        66,387
   Research and development.................           39,602        39,349        38,172        36,599        32,338
   Selling, general, and administrative.....           44,650        43,033        41,464        47,960        45,903

   Amortization of goodwill and other
     acquisition-related intangibles (1)....            2,670         2,724        14,757         8,056         2,226
   Restructuring charge (2).................                -            -              -             -         1,963
   Purchased in-process research and
     development (3)........................                -             -             -        10,646           600
                                                 ------------  ------------  ------------  ------------  ------------
         Total costs and expenses...........          146,656       138,041       156,603       187,941       149,417
                                                 ------------  ------------  ------------  ------------  ------------
Income (loss) from operations...............            3,254        (3,673)      (11,044)       38,478        22,244
Interest income and other, net of expense...            3,210         5,530         7,280         8,310         3,642
Gain (loss) on sales and write-downs of
   equity investments (4) (5)...............               91        (3,707)            -        28,329             -
                                                 ------------  ------------  ------------  ------------  ------------
Income (loss) before tax (benefit) provision
   and equity interest in net (loss) of
   equity method investee...................            6,555        (1,850)       (3,764)       75,117        25,886
Equity interest in net (loss) of equity method
   investee (6).............................                -             -             -        (2,445)         (193)
Tax (benefit) provision.....................              327        (1,925)          937        31,227         8,055
                                                 ------------  ------------  ------------  ------------  ------------
Net income (loss)...........................     $      6,228  $         75  $     (4,701) $     41,445  $     17,638
                                                 ============  ============  ============  ============  ============
Net income (loss) per share:
   Basic....................................     $       0.25  $       0.00  $     (0.20)  $       1.77  $       0.81
                                                 ============  ============  ============  ============  ============
   Diluted..................................     $       0.24  $       0.00  $     (0.20)  $       1.58  $       0.76
                                                 ============  ============  ============  ============  ============
Shares used in computing net income (loss) per share:
   Basic....................................           24,808        24,302        23,743        23,447        21,664
                                                 ============  ============  ============  ============  ============
   Diluted..................................           26,300        25,252        23,743        26,233        23,058
                                                 ============  ============  ============  ============  ============
</TABLE>

<PAGE>


                                ACTEL CORPORATION


                SELECTED CONSOLIDATED FINANCIAL DATA (Continued)
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                          As of December 31,
                                                 --------------------------------------------------------------------
                                                     2003          2002          2001          2000          1999
                                                 ------------  ------------  ------------  ------------  ------------
<S>                                              <C>           <C>           <C>           <C>           <C>
 Consolidated Balance Sheet Data:
 Working capital............................     $    191,078  $    169,939  $    161,246  $    146,952  $    108,818
 Total assets...............................          316,757       293,321       290,082       312,434       259,211
 Total shareholders' equity.................          264,433       242,314       237,680       230,101       178,630
</TABLE>

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

     (1)  Beginning in 2002, we ceased to amortize  goodwill in accordance  with
          Statement of Financial  Accounting Standards (SFAS) No. 142, "Goodwill
          and Other Intangible  Assets." Instead,  goodwill is subject to annual
          impairment  tests and written down only when  identified  as impaired.
          Non-goodwill  intangible  assets with  definite  lives  continue to be
          amortized  under SFAS No.  141 and 142.  See Notes 1 and 2 of Notes to
          Consolidated Financial Statements for further information.

     (2)  During the second quarter of 1999, we completed a  restructuring  plan
          that  resulted in a reduction in force along with the  elimination  of
          certain projects and non-critical activities.

     (3)  The 2000  expenses  represent  charges  for  in-process  research  and
          development  arising from our acquisitions of Prosys Technology,  Inc.
          ($5.6 million) and GateField  Corporation  (GateField) ($5.0 million).
          The 1999  expense  represents  a charge for  in-process  research  and
          development  incurred in the fourth quarter of 1999 in connection with
          our acquisition of AutoGate Logic, Inc.

     (4)  During  2002,  we  realized  losses on sales  and  write  downs of our
          strategic  equity  investments.  See Note 3 of  Notes to  Consolidated
          Financial Statements for further information.

     (5)  During  the  second  quarter  of 2000,  we sold all of our  shares  of
          Chartered  Semiconductor  Manufacturing Ltd. common stock for proceeds
          of $39.0 million, resulting in a one-time gain of $28.3 million.

     (6)  Represents  our equity share of net losses of GateField in  accordance
          with the  equity  method of  accounting  prior to our  acquisition  of
          GateField, which was completed on November 15, 2000.


<PAGE>


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


Overview

     The purpose of this overview is to provide  context for the  discussion and
analysis of our financial  statements  that follows by briefly  summarizing  the
most important  known trends and  uncertainties,  as well as the key performance
indicators, on which our executives are primarily focused for both the short and
long term.

     We design,  develop,  and market field programmable gate arrays (FPGAs) and
supporting products and services. FPGAs are integrated circuits (ICs) that adapt
the  processing  and memory  capabilities  of  electronic  systems  to  specific
applications. FPGAs are used by designers of communications, computer, consumer,
industrial,   military  and   aerospace,   and  other   electronic   systems  to
differentiate  their products and get them to market faster.  We are the leading
supplier of FPGAs based on flash and antifuse technologies.

o    Semiconductors

     According to the Semiconductor  Industry Association (SIA), worldwide sales
of  semiconductors  rose to $166  billion in 2003,  up 18% from $141  billion in
2002.  However,  the  industry  reached its peak of $204  billion in 2000 before
falling 32% to $139 billion in 2001. Thus, the semiconductor industry (which has
always  been  cyclical)  appears  to have  resumed a pattern  of growth  after a
setback of historic proportions.  It is possible,  though, that the industry has
matured to the point  where it will no longer be able to achieve  the  long-term
growth rates it has experienced in the past.

o    Logic

     According to SIA,  worldwide sales of digital logic ICs were $24 billion in
2002, of which application specific ICs (ASICs) accounted for $9 billion.  ASICs
include conventional gate arrays, standard cells, and programmable logic devices
(PLDs).  As they have gotten faster and cheaper over the last decade,  PLDs have
gained a sizeable share of the ASIC market. We believe that this long-term trend
will  continue  because  customers  are  willing to forego some of the price and
performance  advantages  of  "hard-wired"  ASICs in order to obtain the "time to
market" as well as the design and manufacturing flexibility benefits of PLDs.

o    PLDs

     PLDs include  simple  PLDs,  complex PLDs  (CPLDs),  and FPGAs.  FPGAs have
gained share in the PLD market  because they generally  offer greater  capacity,
lower total cost per usable logic gate, and lower power  consumption than simple
PLDs and CPLDs.  We believe that this long-term  trend will continue.  Our three
larger competitors,  Xilinx Corporation  (Xilinx),  Altera Corporation (Altera),
and Lattice Semiconductor Corporation (Lattice), offer CPLDs as well as FPGAs.

o    Strategy

     As the fourth biggest  vendor in our market,  we do not believe that we can
compete across the board,  but must choose  technologies and markets in which to
differentiate   ourselves.  Our  strategy  involves  considerable  risk.  Unique
technologies and products can take years to develop, if at all, and markets that
we target may fail to emerge. We have in fact sometimes faltered in these areas.
Still, we believe that our strategic positioning is the best it has ever been in
our history.

o    Technologies

     Our flash and antifuse technologies are non-volatile,  so they retain their
circuit  configuration even in the absence of power. In contrast to the SRAM and
other memory technologies used by our larger competitors, our FPGAs don't need a
separate boot device,  are "live at power up," generally require less power, and
offer practically unbreakable design security.

     o    Antifuse

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

     o    Flash

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

o    Markets

     The inherent  advantages  of our  non-volatile  technologies  give us a big
advantage  with  some  groups  of  customers,  but are of  little or no value to
others.

     o    Value-Based

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

     o    High-Reliability

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

     o    High-Speed

          Speed has historically been a strength of our antifuse technology, but
     the high-speed FPGA market is dominated by telecommunications  and the SRAM
     technology  offered by our larger  competitors  is a better fit for many of
     these  applications.  Yet our  technologies  are a better  fit than SRAM in
     certain  subsets of this very large market,  so we continue to believe that
     we  can  develop  and  maintain  a  business  in  this  area  based  on our
     differentiation.

o    Key Indicators

     Although  we measure  the  condition  and  performance  of our  business in
numerous ways, the key  quantitative  indicators that we generally use to manage
the business are bookings,  design wins,  margins,  yields, and backlog. We also
carefully monitor the progress of our product development  efforts. Of these, we
think  that  bookings  and  backlog  are  the  best   indicators  of  short-term
performance and that designs wins and product development  progress are the best
indicators  of long-term  performance.  Our bookings  (measured as  end-customer
orders  placed on us and our  distributors)  were higher during 2003 than during
2002, and our backlog was higher at the end of 2003 than at the end of 2002. Our
design wins were higher in 2003 than in 2002,  with most of the growth coming in
flash. Our product development progress was mixed.

Results of Operations

     The following table sets forth certain financial data from the Consolidated
Statements of Operations expressed as a percentage of net revenues:
<TABLE>
<CAPTION>

                                                                                     Years Ended December 31,
                                                                                ------------------------------------
                                                                                  2003          2002          2001
                                                                                --------      --------      --------
<S>                                                                              <C>           <C>           <C>
Net revenues............................................................         100.0%        100.0%        100.0%
Cost of revenues........................................................          39.8          39.4          42.7
                                                                                --------      --------      --------
Gross margin............................................................          60.2          60.6          57.3
Research and development................................................          26.4          29.3          26.2
Selling, general, and administrative....................................          29.8          32.0          28.6
Amortization of goodwill and other acquisition-related intangibles......           1.8           2.0          10.1
                                                                                --------      --------      --------
Income (loss) from operations...........................................           2.2          (2.7)         (7.6)
Interest income and other, net of expense...............................           2.1           4.1           5.0
Gain (loss) on sales and write-downs of equity investments..............           0.1          (2.8)            -
                                                                                --------      --------      --------
Income (loss) before tax (benefit) provision............................           4.4          (1.4)         (2.6)
Tax (benefit) provision.................................................           0.2          (1.5)          0.6
                                                                                --------      --------      --------
Net income (loss).......................................................           4.2%          0.1%         (3.2)%
                                                                                ========      ========      ========
</TABLE>

     Our fiscal year ends on the first  Sunday after  December  30.  Fiscal 2003
ended on January 4, 2004;  fiscal 2002 ended on January 5, 2003; and fiscal 2001
ended on January 6, 2002.  Fiscal 2001 was a 53 week fiscal year,  rather than a
normal 52 week  fiscal  year.  For ease of  presentation,  December  31 has been
indicated as the year end for all fiscal years.


o    Net Revenues

     We derive our revenues  primarily from the sale of FPGAs,  which  accounted
for 96% of net revenues in 2003, 2002, and 2001.  Non-FPGA  revenues are derived
from our Protocol Design Services organization,  royalties, and the licensing of
software and sale of hardware  used to design and program our FPGAs.  We believe
that we derived more than 60% of our revenues in 2003, 2002, and 2001 from sales
of FPGAs to customers serving the military and aerospace and the  communications
markets.  We  have  experienced,   and  may  again  in  the  future  experience,
substantial period-to-period fluctuations in operating results due to conditions
in each of these markets as well as in the general economy.

     Net revenues in 2003 were $149.9  million,  a 12% increase over 2002.  This
increase  was due  primarily  to a 15%  increase  in the  number  of FPGA  units
shipped,  which was  partially  offset by a 3% decrease  in the overall  average
selling price (ASP) of FPGAs.  The increase in unit  shipments was  broad-based,
with  increases in both our new and mature groups of product  families.  The new
product group  includes our ProASIC Plus,  ProASIC,  RTSX-S,  SX-A, eX, and ASIC
conversion  product families.  The overall ASP declined  principally  because we
derived a lower  percentage of our revenues from FPGA  shipments to our military
and aerospace customers,  which we estimate accounted for 36% of our revenues in
2003  compared  with  41% in 2002.  FPGAs  shipped  to  military  and  aerospace
customers  tend to be higher cost to produce,  on average,  and have higher ASPs
than FPGAs shipped to our other customers.

     Net  revenues  in 2002  were 8% less  than in 2001.  This  decline  was due
primarily  to an 8%  decrease  in the  overall  ASP of FPGAs.  The  overall  ASP
declined principally because we derived a higher percentage of our revenues from
FPGA  shipments  to customers  serving the  consumer/e-appliance  and  computing
markets,  which we estimate  accounted  for 17% of net revenues in 2002 compared
with 6% in 2001. FPGAs shipped to customers serving the consumer/e-appliance and
computing markets tend to have lower ASPs.

     We shipped  approximately  69% of our net revenues through the distribution
sales  channel  in 2003,  compared  with 65% in 2002 and 68% in 2001.  Our North
American  distributors during 2003 were Unique  Technologies,  Inc. (Unique) and
Pioneer-Standard  Electronics, Inc. (Pioneer). On March 1, 2003, we consolidated
our  distribution  channel by terminating  our agreement  with Pioneer,  leaving
Unique  as our sole  distributor  in North  America.  We also  consolidated  our
distribution  channel  during 2001,  when we terminated our agreement with Arrow
Electronics,  Inc.  (Arrow).  The following  table sets forth the  percentage of
revenues  derived from each customer  that  accounted for 10% or more of our net
revenues in any of the last three years:
<TABLE>
<CAPTION>

                                                                                 2003          2002          2001
                                                                                ------        ------        ------
<S>                                                                               <C>           <C>           <C>
Pioneer.................................................................           6%           26%           20%
Unique..................................................................          41            22            19
Arrow...................................................................           -             -            13
Lockheed Martin.........................................................          11             3             3
</TABLE>

     We do not recognize  revenue on product shipped to a distributor  until the
distributor resells the product to its customer.


     Sales to  customers  outside  the United  States  accounted  for 39% of net
revenues in 2003, 38% in 2002,  and 38% in 2001.  The largest  portion of export
sales was to European  customers,  which  accounted  for 25% of net  revenues in
2003, 23% in 2002, and 28% in 2001.

o    Gross Margin

     Gross margin was 60% of revenues in 2003  compared with 61% in 2002 and 57%
in 2001. Gross margin was favorably impacted in 2003 by the sell through of $4.1
million of inventory that was reserved in previous periods, a benefit of 2.7% to
gross margin,  and in 2002 by the sell through of $3.2 million of  inventory,  a
benefit of 2.4% to gross margin. Gross margin was lower in 2001 than in 2003 and
2002 primarily because of higher than normal inventory  write-offs that resulted
from higher inventory levels coupled with lower forecasted customer demand.

     We seek to  reduce  costs by  improving  wafer  yields,  negotiating  price
reductions  with  suppliers,  increasing the level and efficiency of our testing
and  packaging  operations,  achieving  economies  of scale  by means of  higher
production  levels,  and  increasing  the  number  of die  produced  per  wafer,
principally by shrinking the die size of our products. No assurance can be given
that these efforts will be successful.  Our capability to shrink the die size of
our  FPGAs is  dependent  on the  availability  of more  advanced  manufacturing
processes.  Due to the custom steps involved in manufacturing antifuse and (to a
lesser  extent) flash FPGAs,  we typically  obtain  access to new  manufacturing
processes later than our competitors using standard manufacturing processes.

o    Research and Development (R&D)

     R&D  expenditures  were  $39.6  million,  or 26% of net  revenues,  in 2003
compared with $39.3 million, or 29% of net revenues,  in 2002 and $38.2 million,
or 26% of net revenues, in 2001. R&D expenditures have experienced slight annual
increases  over  each of the past  three  years as a result  of our  efforts  to
concurrently   research   and   develop   future   generations   of  flash-  and
antifuse-based  product families as well as radiation  tolerant versions of both
flash and antifuse product families. As a percent of revenues,  R&D expenditures
were a lower percentage of revenues in 2003 than in 2002 due to the 12% increase
in  revenues  in 2003  combined  with our  efforts to hold  spending  as flat as
possible while still achieving our R&D goals.

     Our R&D  consists  of circuit  design,  software  development,  and process
technology  activities.  We believe that continued substantial investment in R&D
is critical to  maintaining  a strong  technological  position in the  industry.
Since our antifuse and flash FPGAs are manufactured using customized  processes,
our R&D  expenditures  will  probably  always be higher as a  percentage  of net
revenues  than  that  of our  major  competitors  using  standard  manufacturing
processes.

o    Selling, General, and Administrative (SG&A)

     SG&A expenses in 2003 were $44.7 million, or 30% of net revenues,  compared
with $43.0 million,  or 32% of net revenues in 2002 and $41.5 million, or 28% of
net revenues,  in 2001. SG&A expenses in 2003 increased by $1.7 million compared
with  2002  primarily  as a result  of  higher  sales  bonuses  associated  with
increased net revenues.  SG&A was favorably impacted by a $0.6 million reduction
in accruals for estimated  legal  liabilities in the third quarter of 2003. SG&A
expenses in 2002 increased by 4% compared with 2001 primarily due to an increase
in SG&A headcount during 2002 and the full effect of additional  headcount added
over the course of the year in 2001. The introduction and rollout of our ProASIC
Plus and  Axcelerator  product  families  in 2002 also  increased  our sales and
marketing costs.  These increases in 2002 were partially offset by lower selling
expenses (primarily sales bonuses and outside sales commissions) associated with
the 8% decrease in net revenues for 2002 compared with 2001.

o    Amortization of Goodwill and Other Acquisition-Related Intangibles

     Amortization of goodwill and other acquisition-related intangibles was $2.7
million  in both  2003 and  2002,  compared  with  $14.8  million  in 2001.  The
reduction  of  amortization   from  2001  to  2002  and  2003  was  due  to  the
implementation  of Statement of Financial  Accounting  Standards (SFAS) No. 142,
"Goodwill and Other  Intangible  Assets," at the beginning of fiscal 2002, which
eliminated  the  amortization  of  goodwill.  See  Notes  1  and 2 of  Notes  to
Consolidated  Financial Statements for further information  regarding the impact
of SFAS No. 142. In 2001, the portion of the  amortization  expense that related
to goodwill was $11.7 million.

o    Interest Income and Other, Net of Expense

     Interest income and other,  net of expense,  was $3.2 million in 2003, $5.5
million in 2002,  and $7.3  million in 2001.  The decrease in interest and other
income  experienced  in both 2003 and 2002  compared  with  preceding  years was
primarily a result of lower  interest  rates  available  in the market and lower
gains realized on our  short-term  investments,  which were partially  offset by
higher cash  balances.  For 2003,  our average  investment  portfolio  return on
investment  was 2.5%  compared  with 4.7% in 2002 and 5.3% in 2001.  Our average
investment  portfolio  balance was $135.0  million in 2003  compared with $121.5
million  in 2002 and $126.3  million  in 2001.  We invest  excess  liquidity  in
investment  portfolios  consisting  primarily of corporate bonds,  floating rate
notes, and federal and municipal  obligations.  In periods where market interest
rates are  falling,  and for some  time  after  rates  stabilize,  we  typically
experience  declines in interest income and other as our older debt  investments
at higher interest rates mature and are replaced by new investments at the lower
rates available in the market.

o    Losses on Sales and Write-Downs of Equity Investments

     We occasionally make equity  investments in public or private companies for
the  promotion of business and  strategic  objectives.  During 2002, we realized
losses and recorded impairment  write-downs  totaling $3.7 million in connection
with our strategic equity  investments,  which consisted of $1.6 million related
to an equity investment in a publicly traded company and $2.1 million related to
an equity investment in a private company. The $1.6 million of losses related to
the  investment  in a publicly  traded  company was comprised of $0.7 million of
realized  losses on shares sold during the first and second quarters of 2002 and
$0.9  million  of  impairment  write-downs  recorded  in the  second  and fourth
quarters of 2002.  These  impairment  write-downs  were  recorded as a result of
declines in the market  value of shares  still held by us. The $2.1 million loss
related to the equity investment in a private company  consisted  entirely of an
impairment  write-down  that was recorded when the  estimated  fair value of the
private  company was determined to be below its carrying value after the private
company  received  new  financing  in the fourth  quarter of 2002 at a per share
price  significantly  less  than  our  initial  investment.  We sold  all of our
remaining  strategic  equity  investment in a publicly  traded  company in 2003,
realizing a gain of $0.1 million from the sale.  As of December 31, 2003, we had
$0.1 million of strategic equity investments remaining on the balance sheet.

o    Tax (Benefit)/Provision

     Significant components affecting the effective tax rate include pre-tax net
income or loss, federal R&D tax credits, income from tax-exempt securities,  the
state composite tax rate, and recognition of certain deferred tax assets subject
to valuation  allowances.  Our tax provision  for 2003 was $0.3  million,  which
represents  an  effective  tax rate of 5% for the  year.  Our $1.9  million  tax
benefit for 2002 was based on the combined effects of a pre-tax loss and R&D tax
credits.  Excluding  the effect of  non-deductible  goodwill  amortization,  our
effective tax rate was 8.9% for 2001. The exclusion of  non-deductible  goodwill
amortization from tax calculations resulted in a net income for tax purposes and
a net tax expense for 2001.

Financial Condition, Liquidity, and Capital Resources

     Our total  assets  were  $316.8  million at the end of 2003  compared  with
$293.3 million at the end of 2002. The increase in total assets was attributable
principally to increases in cash, cash equivalents,  and short-term investments.
The following  table sets forth  certain  financial  data from the  consolidated
balance  sheets  expressed as a  percentage  change from  December 31, 2002,  to
December 31, 2003:
<TABLE>
<CAPTION>

<S>                                                                                                          <C>
Cash, cash equivalents, and short-term investments...................................................        18.4%
Accounts receivable, net.............................................................................        16.6
Inventories..........................................................................................        11.8
Current deferred income taxes........................................................................       (33.0)
Prepaid expenses and other current assets............................................................       (28.3)
Property and equipment, net..........................................................................        23.0
Other assets, net (primarily deferred income taxes and purchased intangible assets other than
   goodwill) ........................................................................................        (4.6)
Total assets.........................................................................................         8.0
Total current liabilities............................................................................        (0.5)
Total liabilities....................................................................................         2.6
Shareholders' equity.................................................................................         9.1
</TABLE>

o    Cash, Cash Equivalents, and Short-Term Investments

     Our cash, cash equivalents,  and short-term investments were $158.4 million
at the end of 2003  compared  with  $133.8  million  at the  end of  2002.  This
increase  of  $24.6  million  from the end of 2002  was due  primarily  to $19.9
million of net cash provided by operating  activities and $16.2 million from the
issuance of Common  Stock under  employee  stock  plans.  These  increases  were
partially offset by $11.2 million of property and equipment purchases.

     The significant  components within operating  activities that provided cash
during 2003 included $12.4 million of net tax refunds  received  during the year
and $16.5 million from the net results for the year adjusted for non-cash  items
($10.2  million  of  which  relates  to  depreciation  and  amortization).   The
significant  components within operating activities that resulted in a reduction
of cash from  operations  in 2003 included $4.1 million in cash used to increase
inventories  and a $3.9  million  decrease in deferred  income on  shipments  to
distributors.

     Spending  on property  and  equipment  amounted  to $11.2  million in 2003,
compared  with $8.8  million in 2002 and $9.5  million in 2001.  The increase in
spending on property  and  equipment  in 2003  related  primarily  to  leasehold
improvements on our new worldwide  headquarters which we moved into in August of
2003. Our capital budget for 2004 is $21.4 million.

     Cash from the issuance of Common Stock under  employee stock plans amounted
to $16.2 million in 2003,  $9.4 million in 2002,  and $7.7 million in 2001.  The
increase in employee stock plan activity that occurred in 2003 was mostly driven
by the  increase in the market price of our Common  Stock,  which had an average
closing price per share of $21.95 in 2003,  $18.25 in 2002,  and $21.63 in 2001.
Employee stock activity was especially heavy during the last six months of 2003,
when the average closing price was $25.50 per share.

     We meet all of our funding  needs for ongoing  operations  with  internally
generated  cash flows from  operations  and with  existing  cash and  short-term
investment  balances.  We believe that  existing  cash,  cash  equivalents,  and
short-term  investments,  together with cash generated from operations,  will be
sufficient to meet our cash  requirements  for 2004. A portion of available cash
may be used  for  investment  in or  acquisition  of  complementary  businesses,
products, or technologies.  Wafer manufacturers have at times demanded financial
support from customers in the form of equity  investments  and advance  purchase
price  deposits,  which in some cases have been  substantial.  Should we require
additional  capacity,  we may be required to incur  significant  expenditures to
secure such capacity.

     The following represents contractual commitments not accrued on the balance
sheet associated with operating  leases and royalty and licensing  agreements as
of December 31, 2003:
<TABLE>
<CAPTION>

                                                          Payments Due by Period
                          ----------------------------------------------------------------------------------------------
                                                                                                                2009
                            Total          2004          2005          2006          2007          2008       and later
                          ----------    ----------    ----------    ----------    ----------    ----------    ----------
                                                              (in thousands)
<S>                       <C>           <C>           <C>           <C>           <C>           <C>           <C>
Operating leases...       $   28,160    $    2,884    $    2,695    $    2,761    $    2,795    $    2,644    $   14,381
Royalty/
   licensing
   agreements......           14,428         6,296         7,019         1,113             -             -             -
                          ----------    ----------    ----------    ----------    ----------    ----------    ----------
Total..............       $   42,588    $    9,180    $    9,714    $    3,874    $    2,795    $    2,644    $   14,381
                          ==========    ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>

Purchase  orders or contracts  for the purchase of raw materials and other goods
and services  are not included in the table above.  We are not able to determine
the  aggregate  amount  of  such  purchase  orders  that  represent  contractual
obligations as purchase orders may represent  authorizations  to purchase rather
than binding agreements. For the purposes of this table, contractual obligations
for purchase of goods or services are defined as agreements that are enforceable
and legally  binding on us and that specify all  significant  terms,  including:
fixed or minimum  quantities to be purchased;  fixed,  minimum or variable price
provisions;  and the approximate timing of the transaction.  Our purchase orders
are based on our current manufacturing needs and fulfilled by our vendors within
short time horizons.  We do not have significant  agreements for the purchase of
raw materials or other goods  specifying  minimum  quantities or set prices that
exceed our expected  requirements for three months. We also enter into contracts
for outsourced services; however, the obligations under these contracts were not
significant  and  the  contracts   generally   contain   clauses   allowing  for
cancellation without significant penalty.


     We believe  that the  availability  of adequate  financial  resources  is a
substantial  competitive  factor.  To take  advantage of  opportunities  as they
arise,  or to withstand  adverse  business  conditions  when they occur,  it may
become prudent or necessary for us to raise additional capital. No assurance can
be given that additional  capital would become  available on acceptable terms if
needed.

o    Accounts Receivable

     Our net accounts  receivable  was $20.5 million at the end of 2003 compared
with $17.6  million at the end of 2002.  This  increase was due primarily to the
19% increase in revenues in the fourth quarter of 2003, compared with the fourth
quarter  of 2002.  Revenue  was $40.6  million  in the  fourth  quarter  of 2003
compared  with  $34.1  million  in the  fourth  quarter  of 2002.  Net  accounts
receivable  represented 44 days of sales  outstanding  (DSOs) at the end of both
2003 and 2002.

o    Inventories

     Our net  inventories  were $38.7  million at the end of 2003  compared with
$34.6  million at the end of 2002.  The growth in inventory  was  primarily  the
result of last time inventory purchases from two wafer manufacturers for some of
our mature product families. Last time buys occur when a wafer supplier is about
to  shut  down  the  manufacturing  line  used  to make a  product  and  current
inventories  are  insufficient  to meet  foreseeable  future  demand.  Inventory
purchased in last time buy  transactions  will be evaluated on an ongoing  basis
for indications of excess or obsolescence based on rates of actual sell through,
expected future demand for those  products,  and any other  qualitative  factors
that may indicate the  existence of excess or obsolete  inventory.  Inventory at
December 31, 2003,  included $5.4 million of inventory purchased under last time
buy type purchases.  Inventory days of supply decreased from 234 days at the end
of  2002  to 230  days  at the end of  2003  due to the  higher  cost  of  sales
associated with increased revenues.  Excluding the impact of inventory purchased
under last time buy type  purchases,  inventory  days of supply were 198 days at
the end of 2003.  Our FPGAs are  manufactured  using  customized  steps that are
added  to  the  standard  manufacturing   processes  of  our  independent  wafer
suppliers,  so our manufacturing cycle is generally longer and more difficult to
adjust in response to changing demands or delivery schedules.  Accordingly,  our
inventory  model  will  probably  always  be  higher  than  that  of  our  major
competitors using standard processes.

o    Property and Equipment

     Our net  property  and  equipment  was  $19.9  million  at the end of 2003,
compared  with $16.2  million at the end of 2002.  We invested  $11.2 million in
property and equipment in 2003 compared with $8.8 million in 2002.  The increase
in capital  expenditures  was related  primarily  to $2.3  million of  leasehold
improvements at our new principal  facilities and executive  offices in Mountain
View,  California,   which  we  relocated  to  in  August  2003.  Other  capital
expenditures  during the past two years  have been  primarily  for  engineering,
manufacturing, and office equipment.  Depreciation of property and equipment was
$7.5 million in 2003 compared with $7.3 million in 2002.  Our capital budget for
2004 is $21.4 million.

o    Goodwill

     Our net  goodwill  was  $32.1  million  at the end of both  2003 and  2002.
Goodwill is recorded when consideration paid in an acquisition  exceeds the fair
value of the net tangible and intangible  assets  acquired.  At the beginning of
2002, we adopted SFAS No. 142,  "Goodwill and Other  Intangible  Assets,"  which
addresses the  financial  accounting  and  reporting  standards for goodwill and
other intangible assets subsequent to their acquisition.  Following our adoption
of SFAS No. 142, we no longer amortize goodwill, but instead test for impairment
annually  or more  frequently  if certain  events or  changes  in  circumstances
indicate that the carrying value may not be recoverable. We completed our annual
goodwill  impairments  tests  during  the fourth  quarter of 2003,  and noted no
indicators of impairment.

o    Other Assets

     Our other assets were $24.7  million at the end of 2003 compared with $25.9
million at the end of 2002.  The  decrease  was due  primarily  to $2.7  million
amortization of identified  intangible  assets,  which was partially offset by a
$1.2 million increase in our non-current  deferred tax asset that was the result
of a reclassification between current and non-current deferred tax assets.

o    Current Liabilities

     Our  total  current  liabilities  were  $48.9  million  at the  end of 2003
compared with $49.1 million at the end of 2002.  The decrease was due in part to
a reduction  of $3.9 million in deferred  income on  shipments to  distributors.
During 2003, we consolidated  our  distribution  channel,  leaving Unique as our
sole  distributor in North America,  which had the effect of reducing the amount
of product being held in the  distribution  channel as a single  distributor  is
more  efficient  in  inventory  management  and  does  not  need to hold as much
inventory  to meet  customer  demand  as two or  more  distributors  would.  The
decrease in deferred income on shipments to distributors was partially offset by
an increase  in income  taxes  payable of $2.7  million in 2003 as there were no
income taxes payable in 2002.

o    Shareholders' Equity

     Shareholders'  equity was $264.4  million at the end of 2003  compared with
$242.3 million at the end of 2002. The increase  included retained earnings from
2003 net income of $6.2 million and an increase to additional paid-in capital of
$16.2 million from the sale of Common Stock under employee stock plans.

Impact of Recently Issued Accounting Standards

     In May, 2003, the Financial  Accounting  Standards Board (FASB) issued SFAS
No. 150,  "Accounting for Certain Financial  Instruments with Characteristics of
both  Liabilities  and  Equity."  SFAS  No.  150  requires   certain   financial
instruments to be accounted for as liabilities  that  previously  were accounted
for as equity. The financial  instruments  affected include mandatory redeemable
stock;  certain financial  instruments that require or may require the issuer to
buy back some of its shares in exchange  for cash or other  assets;  and certain
obligations that can be settled with shares of stock.  SFAS No. 150 is effective
for all financial  instruments  entered into or modified after May 31, 2003, and
otherwise is effective at the  beginning of the first interim  period  beginning
after June 15, 2003. We do not currently have any financial instruments that are
subject to the  provisions  of SFAS No. 150, so the adoption of SFAS No. 150 had
no impact on our consolidated financial position or results of operations.

     In January  2003,  the FASB issued  Financial  Standards  Accounting  Board
Interpretation  (FIN) No.  46 (FIN  46),  "Consolidation  of  Variable  Interest
Entities," an  interpretation  of  Accounting  Research  Bulletin  (ARB) No. 51,
"Consolidated Financial Statements." FIN 46, which amended the interpretation in
December 2003,  establishes  accounting guidance for consolidation of a variable
interest  entity  (VIE).  FIN 46  requires  an  investor  with a majority of the
variable interests (primary  beneficiary) in a variable interest entity (VIE) to
consolidate  the entity and also  requires  majority  and  significant  variable
interest investors to provide certain  disclosures.  A VIE is an entity in which
the equity investors do not have a controlling interest or the equity investment
at risk is insufficient  to finance the entity's  activities  without  receiving
additional    subordinated   financial   support   from   the   other   parties.
Development-stage  entities that have sufficient  equity invested to finance the
activities  they are currently  engaged in and entities  that are  businesses as
defined in the  Interpretation are not considered VIEs. The provisions of FIN 46
were  effective  immediately  for all  arrangements  entered  into with new VIEs
created  after  January  31,  2003.  We do not  currently  have any  contractual
relationship or other business  relationship  with a VIE, so the adoption of FIN
46  had  no  impact  on  our  consolidated  financial  position  or  results  of
operations.

Critical Accounting Policies and Estimates

     Our  discussion  and  analysis of our  financial  condition  and results of
operations is based upon our consolidated financial statements,  which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States (GAAP). The preparation of these financial  statements requires us
to make  estimates  and  judgments  that affect the reported  amounts of assets,
liabilities,  revenues,  and expenses and the related  disclosure  of contingent
assets and liabilities.  The U.S. Securities and Exchange Commission has defined
the most critical  accounting  policies as those that are most  important to the
portrayal of our financial condition and results and also require us to make the
most difficult and subjective  judgments,  often as a result of the need to make
estimates of matters that are inherently uncertain.  Based upon this definition,
our most critical policies include inventories,  intangible assets and goodwill,
income taxes,  and legal matters.  These policies,  as well as the estimates and
judgments  involved,  are  discussed  below.  We also have other key  accounting
policies that either do not generally require us to make estimates and judgments
that  are as  difficult  or as  subjective  or they are  less  likely  to have a
material  impact on our reported  results of operations  for a given period.  We
base our estimates on  historical  experience  and on various other  assumptions
that we believe to be reasonable under the  circumstances,  the results of which
form the basis for  making  judgments  about the  carrying  values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ materially from these estimates. In addition, if these estimates or their
related  assumptions  change in the future, it could result in material expenses
being recognized on the income statement.

o    Inventories

     We believe that a certain level of inventory must be carried to maintain an
adequate  supply of product for customers.  This inventory  level may vary based
upon orders  received from  customers or internal  forecasts of demand for these
products. Other considerations in determining inventory levels include the stage
of products in the product life cycle,  design win activity,  manufacturing lead
times, customer demands, strategic relationships with foundries, and competitive
situations in the  marketplace.  Should any of these factors  develop other than
anticipated, inventory levels may be materially and adversely affected.

     We write down our  inventory  for estimated  obsolescence  or  unmarketable
inventory  equal  to the  difference  between  the  cost  of  inventory  and the
estimated realizable value based upon assumptions about future demand and market
conditions. To address this difficult, subjective, and complex area of judgment,
we apply a methodology that includes  assumptions and estimates to arrive at the
net realizable value.  First, we identify any inventory that has been previously
written down in prior periods.  This inventory  remains written down until sold,
destroyed, or otherwise  dispositioned.  Second, our quality assurance personnel
examine  inventory  line  items that may have some form of  obsolescence  due to
non-conformance with electrical and mechanical  standards.  Third, we assess the
inventory not otherwise  identified to be written down against  product  history
and forecasted demand (typically for the next six months).  Finally,  we analyze
the result of this  methodology  in light of the product life cycle,  design win
activity,  and competitive situation in the marketplace to derive an outlook for
consumption of the inventory and the  appropriateness of the resulting inventory
levels.  If actual future demand or market  conditions  are less  favorable than
those we have  projected,  additional  inventory  write-downs  may be  required.
During 2001, we had significant write-downs of inventory due to a sharp decrease
in forecasted demand related to the general economic slowdown.

     During  2003,  we modified  our  inventory  valuation  policies to properly
account  for "last time buy"  inventory  purchases.  Last time buys occur when a
wafer  supplier  is about to shut  down the  manufacturing  line  used to make a
product and current  inventories  are  insufficient to meet  foreseeable  future
demand.  We made last time buys of certain  products from our wafer suppliers in
2003.  Since this inventory was not acquired to meet current demand,  we did not
believe  the  application  of our  existing  inventory  write  down  policy  was
appropriate,  so a discrete  write down  policy was  established  for  inventory
purchased in last time buy transactions.  As a consequence,  these  transactions
and the related inventory are excluded from the standard excess and obsolescence
write down policy.  Inventory  purchased in last time buy  transactions  will be
evaluated on an ongoing basis for indications of excess or obsolescence based on
rates of actual sell through;  expected  future demand for those products over a
longer time  horizon;  and any other  qualitative  factors that may indicate the
existence of excess or obsolete inventory. In the event that actual sell through
does not meet  expectations  and estimations of expected future demand decrease,
last time buy inventory could be written down in the future. Evaluations of last
time buy inventory in 2003 did not result in any write downs.

o    Intangible Assets and Goodwill

     In past years we made business  acquisitions that resulted in the recording
of a significant amount of goodwill and identified intangible assets.

     Historically  and  through the end of 2001,  goodwill  was  amortized  on a
straight-line  basis over its useful life.  At the beginning of 2002, we adopted
SFAS No. 142,  "Goodwill  and Other  Intangible  Assets,"  which  addresses  the
financial  accounting and reporting  standards for goodwill and other intangible
assets  subsequent to their  acquisition.  In  accordance  with SFAS No. 142, we
ceased to amortize  goodwill  and instead test for  impairment  annually or more
frequently  if  certain  events or changes in  circumstances  indicate  that the
carrying  value  may  not be  recoverable.  We  completed  our  annual  goodwill
impairment tests during the fourth quarter of 2003 and noted no impairment.  The
initial test of goodwill  impairment  requires us to compare our fair value with
our book value, including goodwill. We are a single reporting unit as defined by
SFAS 142 and use the entity wide  approach to compare  fair value to book value.
Based on our total market  capitalization,  which we believe represents the best
indicator of our fair value,  we determined that our fair value was in excess of
our book value.  Since we found no indication of impairment,  we did not proceed
with step 2 of the annual impairment analysis.

     At December 31, 2003,  we had  identified  intangible  assets  arising from
prior business  acquisitions  which are being amortized on a straight line basis
over their estimated lives. In accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," we recognize  impairment losses on
identified  intangible  assets when indicators of impairment are present and the
undiscounted  cash flows estimated to be generated by those assets are less than
the net book value of those assets. The impairment loss is measured by comparing
the  fair  value of the  asset to its  carrying  value.  Fair  value is based on
discounted cash flows using present value techniques identified in SFAS No. 144.
We assessed our identified  intangible  assets for impairment in accordance with
SFAS  No.  144 as of  December  31,  2003,  and  noted no  impairment.  If these
estimates or their related  assumptions change in the future, it could result in
lower  estimated  future cash flows that may not  support  the current  carrying
value of these assets,  which would require us to record impairment  charges for
these assets.

o    Income Taxes

     We account for income taxes in  accordance  with SFAS No. 109,  "Accounting
for Income  Taxes," which  requires that deferred tax assets and  liabilities be
recognized  using  enacted  tax rates for the  effect of  temporary  differences
between the book and tax bases of recorded assets and liabilities.  SFAS No. 109
also requires that deferred tax assets be reduced by a valuation allowance if it
is more likely than not that some or all of the  deferred tax assets will not be
realized.  We evaluate  annually the realizability of our deferred tax assets by
assessing our  valuation  allowance  and, if necessary,  we adjust the amount of
such allowance. The factors used to assess the likelihood of realization include
our forecast of future taxable income and available tax planning strategies that
could be implemented to realize the net deferred tax assets.

o    Legal Matters

     As is typical in the semiconductor  industry, we have been and expect to be
notified from time to time of claims, including claims that we may be infringing
patents  owned by others.  During  2003,  we held  settlement  discussions  with
several third parties. When probable and reasonably estimable, we make provision
for  estimated  liabilities.  As we  sometimes  have in the past,  we may settle
disputes  and/or obtain  licenses under patents that we are alleged to infringe.
During 2003,  we settled a  threatened  patent  infringement  claim and obtained
licenses under the patents that we were alleged to infringe.  As a result of the
settlement,  we reduced our accruals for  estimated  legal  liabilities  by $0.6
million,  which had a favorable  impact on SG&A spending in the third quarter of
2003,.  We can offer no assurance  that any pending or threatened  claim will be
resolved or that the  resolution  of any such claims will not have a  materially
adverse effect on our business,  financial condition,  or results of operations.
In addition, our evaluation of the impact of these pending and threatened claims
could change based upon new information learned by us. Subject to the foregoing,
we do not believe that the  resolution of any pending or threatened  legal claim
is  likely  to have a  materially  adverse  effect  on our  business,  financial
condition, or results of operations.

Risks

     Our  operating  results are subject to general  economic  conditions  and a
variety of risks characteristic of the semiconductor industry or specific to us,
including booking and shipment  uncertainties,  wafer supply  fluctuations,  and
price  erosion,  any of which  could  cause  our  operating  results  to  differ
materially from past results.  See the Risk Factors set forth at the end of Part
I of this Annual Report on Form 10-K.

Quarterly Information

     The table on the next page presents certain unaudited quarterly results for
each of the eight  quarters  in the  period  ended  December  31,  2003.  In our
opinion,  this  information  has been presented on the same basis as the audited
consolidated  financial  statements appearing elsewhere in this Annual Report on
Form 10-K and all necessary  adjustments  (consisting  only of normal  recurring
accruals)  have been included in the amounts  stated below to present fairly the
unaudited   quarterly   results  when  read  in  conjunction  with  our  audited
consolidated  financial statements and notes thereto.  However,  these quarterly
operating results are not indicative of the results for any future period.



<PAGE>
<TABLE>
<CAPTION>


                                                                      Quarterly Operating Results
                                                                          Three Months Ended
                                      ---------------------------------------------------------------------------------------------
                                        Dec. 31,   Sep. 30,   Jun. 30,     Mar. 31,   Dec. 31,     Sep. 30,    Jun. 30,    Mar. 31,
                                          2003       2003       2003         2003     2002 (2)       2002      2002 (2)    2002 (2)
                                      ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
                                                            (unaudited, in thousands except per share amounts)
<S>                                   <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Statements of Operations Data:
Net revenues.......................   $  40,555   $  38,405   $  36,609   $  34,341   $  34,103   $  32,912   $  34,293   $  33,060
Gross profit.......................      25,220      23,319      22,025      19,612      20,591      19,229      21,337      20,276
Income (loss) from operations......       2,462       1,965         441      (1,614)       (951)     (1,587)       (282)       (853)
Net income (loss)..................       2,328       2,283       1,386         231      (1,831)      1,107         404         395
Net income (loss) per share:
   Basic...........................   $    0.09   $    0.09   $    0.06   $    0.01   $   (0.08)  $    0.05   $    0.02   $    0.02
                                      =========   =========   =========   =========   =========   =========   =========   =========
   Diluted (1).....................   $    0.09   $    0.08   $    0.05   $    0.01   $   (0.08)  $    0.04   $    0.02   $    0.02
                                      =========   =========   =========   =========   =========   =========   =========   =========
Shares used in computing net income
   (loss) per share:
   Basic...........................      25,339      25,005      24,550      24,338      24,126      24,531      24,382      24,170
                                      =========   =========   =========   =========   =========   =========   =========   =========
   Diluted (1).....................      27,235      27,101      25,776      25,087      24,126      24,959      26,036      25,388
                                      =========   =========   =========   =========   =========   =========   =========   =========
</TABLE>

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

(1)  For the fourth  quarter of 2002,  we incurred a quarterly  net loss and the
     inclusion  of  stock  options  in the  shares  used for  computing  diluted
     earnings per share would have been  anti-dilutive  and reduced the loss per
     share.  Accordingly,  all Common Stock  equivalents (such as stock options)
     have been excluded from the shares used to calculate  diluted  earnings per
     share for that period.

(2)  During the first,  second,  and fourth quarters of 2002, we realized losses
     on sales and write downs of our strategic equity  investments  amounting to
     $0.1 million in the first quarter,  $1.0 million in the second quarter, and
     $2.6  million in the fourth  quarter.  See Note 3 of Notes to  Consolidated
     Financial Statements for further information.

<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                      ---------------------------------------------------------------------------------------------
                                        Dec. 31,   Sep. 30,   Jun. 30,     Mar. 31,   Dec. 31,     Sep. 30,    Jun. 30,    Mar. 31,
                                          2003       2003       2003         2003       2002         2002        2002        2002
                                      ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
<S>                                      <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
As a Percentage of Net Revenues:
Net revenues.......................      100.0%      100.0%      100.0%      100.0%      100.0%      100.0%      100.0%      100.0%
Gross profit.......................       62.2        60.7        60.2        57.1        60.4        58.4        62.2        61.3
Income (loss) from operations......        6.1         5.1         1.2        (4.7)       (2.8)       (4.8)       (0.8)       (2.6)
Net income (loss)..................        5.7         5.9         3.8         0.7        (5.4)        3.4         1.2         1.2
</TABLE>


<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


     As of December 31, 2003, our investment  portfolio  consisted  primarily of
corporate bonds, floating rate notes, and federal and municipal obligations. The
principal  objectives of our investment  activities  are to preserve  principal,
meet liquidity needs, and maximize yields. To meet these  objectives,  we invest
excess  liquidity  only in high credit  quality  debt  securities  with  average
maturities  of less  than two  years.  We also  limit  the  percentage  of total
investments that may be invested in any one issuer.  Corporate  investments as a
group are also limited to a maximum percentage of our investment portfolio.

     Our debt security investments, which totaled $144.8 million at December 31,
2003,  are subject to interest  rate risk.  An increase in interest  rates could
subject us to a decline in the market value of our investments.  These risks are
mitigated by our ability to hold these  investments to maturity.  A hypothetical
100 basis point  increase in interest  rates  compared  with  interest  rates at
December  31,  2003,  and  December  31,  2002,  would  result in a reduction of
approximately  $1.4  million  in the fair value of our  available-for-sale  debt
securities  held at December 31, 2003, and $1.1 million in the fair value of our
available-for-sale debt securities held at December 31, 2002

     The  potential  changes  noted  above are based upon  sensitivity  analyses
performed on our financial  position and expected  operating  levels at December
31, 2003. Actual results may differ materially.



<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                ACTEL CORPORATION

                           CONSOLIDATED BALANCE SHEETS
               (in thousands, except share and per share amounts)
<TABLE>
<CAPTION>

                                                                                                  December 31,
                                                                                           --------------------------
                                                                                               2003          2002
                                                                                           ------------  ------------
                                                       ASSETS
<S>                                                                                        <C>           <C>
Current assets:
   Cash and cash equivalents...........................................................    $     13,648  $     18,207
   Short-term investments..............................................................         144,765       115,622
   Accounts receivable, net............................................................          20,537        17,615
   Inventories, net....................................................................          38,664        34,591
   Deferred income taxes...............................................................          18,786        28,054
   Prepaid expenses and other current assets...........................................           3,561         4,968
                                                                                           ------------  ------------
         Total current assets..........................................................         239,961       219,057
Property and equipment, net............................................................          19,935        16,204
Goodwill, net..........................................................................          32,142        32,142
Other assets, net......................................................................          24,719        25,918
                                                                                           ------------  ------------
                                                                                           $    316,757  $    293,321
                                                                                           ============  ============

                                        LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable....................................................................    $     13,140  $     11,500
   Accrued salaries and employee benefits..............................................           7,081         7,280
   Other accrued liabilities...........................................................           6,117         3,879
   Deferred income on shipments to distributors........................................          22,545        26,459
                                                                                           ------------  ------------
         Total current liabilities.....................................................          48,883        49,118
Deferred compensation plan liability...................................................           2,658         1,889
Deferred rent liability................................................................             783             -
                                                                                           ------------  ------------
         Total liabilities.............................................................          52,324        51,007
Commitments and contingencies
Shareholders' equity:
   Preferred stock, $.001 par value; 4,500,000 shares authorized; 1,000,000 issued and
     converted to common stock; and none outstanding...................................               -             -
   Series A Preferred stock, $.001 par value; 500,000 shares authorized; none issued
     or outstanding....................................................................               -             -
   Common stock, $.001 par value; 55,000,000 shares authorized; 25,388,746 and
     24,176,540 shares issued and outstanding at December 31, 2003 and 2002,
     respectively......................................................................              25            24
   Additional paid-in capital..........................................................         184,674       168,428
   Retained earnings ..................................................................          79,518        73,290
   Unearned compensation cost .........................................................             (44)         (179)
   Accumulated other comprehensive income .............................................             260           751
                                                                                           ------------  ------------
         Total shareholders' equity....................................................         264,433       242,314
                                                                                           ------------  ------------
                                                                                           $    316,757  $    293,321
                                                                                           ============  ============
</TABLE>

                                  See Notes to Consolidated Financial Statements

<PAGE>


                                ACTEL CORPORATION


                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                                     Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2003          2002          2001
                                                                             ------------  ------------  ------------
<S>                                                                          <C>           <C>           <C>
Net revenues............................................................     $    149,910  $    134,368  $    145,559
Costs and expenses:
   Cost of revenues.....................................................           59,734        52,935        62,210
   Research and development.............................................           39,602        39,349        38,172
   Selling, general, and administrative.................................           44,650        43,033        41,464
   Amortization of goodwill and other acquisition-related intangibles...            2,670         2,724        14,757
                                                                             ------------  ------------  ------------
         Total costs and expenses.......................................          146,656       138,041       156,603
                                                                             ------------  ------------  ------------
Income (loss) from operations...........................................            3,254        (3,673)      (11,044)
Interest income and other, net of expense...............................            3,210         5,530         7,280
Gain (loss) on sales and write-downs of equity investments..............               91        (3,707)           -
                                                                             ------------  ------------  ------------
Income (loss) before tax (benefit) provision............................            6,555        (1,850)       (3,764)
Tax (benefit) provision.................................................              327        (1,925)          937
                                                                             ------------  ------------  ------------
Net income (loss).......................................................     $      6,228  $         75  $     (4,701)
                                                                             ============  ============  ============
Net income (loss) per share:
   Basic................................................................     $       0.25  $       0.00  $      (0.20)
                                                                             ============  ============  ============
   Diluted..............................................................     $       0.24  $       0.00  $      (0.20)
                                                                             ============  ============  ============
Shares used in computing net income (loss) per share:
   Basic................................................................           24,808        24,302        23,743
                                                                             ============  ============  ============
   Diluted..............................................................           26,300        25,252        23,743
                                                                             ============  ============  ============
</TABLE>


                                  See Notes to Consolidated Financial Statements


<PAGE>



                                ACTEL CORPORATION

<TABLE>
<CAPTION>

 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND OTHER COMPREHENSIVE INCOME/(LOSS)
                      (in thousands, except share amounts)

                                                                                  Notes                  Accumulated
                                                        Additional              Receivable  Unearned       Other         Total
                                               Common    Paid-In    Retained      From     Compensation Comprehensive  Shareholders'
                                               Stock     Capital    Earnings     Officer      Cost         Income        Equity
                                              -------  ----------  ---------    ---------- ------------  ------------   -----------
<S>                                           <C>      <C>         <C>          <C>         <C>          <C>            <C>
Balance at December 31, 2000................  $    23  $  150,709  $  79,908    $     (368) $      (922) $        751   $   230,101
                                              =======  ==========  =========    ==========  ===========  ============   ===========
Net loss....................................        -           -     (4,701)            -            -             -        (4,701)
Other comprehensive income (loss):
     Change in unrealized gain (loss)
     on investments.........................        -           -          -             -            -            56            56
                                                                                                                        -----------
     Comprehensive income (loss)............                                                                                 (4,645)

Issuance of 670,499 shares of common stock
   under employee stock plans, net of
   repurchases..............................        1       7,675          -             -            -             -         7,676
Issuance of 54,290 shares to Prosys security
   holders in connection with achievement
   of technological milestones..............        -       1,132          -             -            -             -         1,132
Issuance of stock options to consultant.....        -         116          -             -            -             -           116
Amortization of unearned compensation cost..        -           -          -             -           225            -           225
Purchase price adjustment related to
   GateField employees' unvested stock
   options originally assumed in connection
   with the GateField acquisition...........        -           -          -             -           383            -           383
Tax benefit from exercise of stock options..        -       2,692          -             -             -            -         2,692
                                              --------  ----------  ---------   ----------  -----------  ------------   -----------
Balance at December 31, 2001................  $     24  $  162,324  $  75,207   $     (368) $      (314) $        807  $    237,680
                                              ========  ==========  =========   ==========  ===========  ============  ============
</TABLE>



                                  See Notes to Consolidated Financial Statements

<PAGE>


                                ACTEL CORPORATION
<TABLE>
<CAPTION>

 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND OTHER COMPREHENSIVE INCOME/(LOSS) (Continued)
                      (in thousands, except share amounts)


                                                                                  Notes                  Accumulated
                                                        Additional              Receivable  Unearned       Other         Total
                                               Common    Paid-In    Retained      From     Compensation Comprehensive  Shareholders'
                                               Stock     Capital    Earnings     Officer      Cost         Income        Equity
                                              -------- ----------  ---------    ---------- ------------  ------------   -----------
<S>                                           <C>      <C>         <C>          <C>        <C>           <C>           <C>
Balance at December 31, 2001................  $     24 $  162,324  $  75,207    $     (368)$       (314) $        807  $    237,680
                                              ======== ==========  =========    ==========  ===========  ============  ============
Net income..................................         -          -         75             -            -             -            75
Other comprehensive income (loss):
     Change in unrealized gain (loss)
     on investments.........................         -          -          -             -            -           (56)          (56)
                                                                                                                       ------------
     Comprehensive income (loss)............                                                                                     19
Repayment of note-receivable from officer...         -          -          -           368            -             -           368

Issuance of 784,073 shares of common stock
    under employee stock plans..............         -      9,430          -             -            -             -         9,430
Repurchase of 663,482 shares of common
    stock...................................         -     (5,907)    (1,992)            -            -             -        (7,899)
Amortization of unearned compensation cost..         -          -          -             -          135             -           135
Tax benefit from exercise of stock options..         -      2,581          -             -            -             -         2,581
                                              -------- ----------  ---------    ---------- ------------  ------------   -----------
Balance at December 31, 2002................  $     24 $  168,428  $  73,290    $        - $       (179) $        751  $    242,314
                                              ======== ==========  =========    ==========  ===========  ============  ============
Net income..................................         -          -      6,228             -            -             -         6,228
Other comprehensive income (loss):
     Change in unrealized gain (loss) on
     investments............................         -          -          -             -            -          (491)         (491)
                                                                                                                        -----------
     Comprehensive income (loss)............                                                                                  5,737

Issuance of 1,212,206 shares of common stock
    under employee stock plans..............         1     16,246          -             -            -             -        16,247
Amortization of unearned compensation cost..         -          -          -             -           135            -           135
                                              -------- ----------  ---------    ---------- ------------  ------------   -----------
Balance at December 31, 2003................  $     25 $  184,674  $  79,518    $        - $        (44) $        260  $    264,433
                                              ======== ==========  =========    ==========  ===========  ============  ============

</TABLE>



                 See Notes to Consolidated Financial Statements


<PAGE>


                                ACTEL CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                     Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2003          2002          2001
                                                                             ------------  ------------  ------------
<S>                                                                          <C>           <C>           <C>
Operating activities:
   Net income (loss)....................................................     $      6,228  $         75  $     (4,701)
   Adjustments to reconcile net income (loss) to net cash provided by
     (used in) operating activities:
     Depreciation and amortization......................................           10,168        10,012        21,755
     Stock compensation cost recognized.................................              135           135           341
     Impairment of equity investments...................................                -         3,041             -
     Changes in operating assets and liabilities:
       Accounts receivable..............................................           (2,922)         (856)       12,497
       Inventories......................................................           (4,073)        1,747       (10,835)
       Deferred income taxes............................................            8,363           104           (47)
       Prepaid expenses and other current assets........................            1,407           246           237
       Accounts payable, accrued salaries and employee benefits, and
         other accrued liabilities......................................            4,512        (4,002)      (14,109)
       Tax benefits from exercise of stock options......................               --         2,581         2,692
       Deferred income on shipments to distributors.....................           (3,914)         (299)      (18,100)
                                                                             ------------  ------------  ------------
   Net cash provided by (used in) operating activities..................           19,904        12,784       (10,270)
Investing activities:
   Purchases of property and equipment..................................          (11,229)       (8,827)       (9,526)
   Purchases of available-for-sale securities...........................         (179,276)     (177,473)     (135,016)
   Sales and maturities of available for sale securities................          149,315       181,763       145,878
   Changes in other long term assets....................................              480           149           (96)
                                                                             ------------  ------------  ------------
   Net cash provided by (used in) investing activities..................          (40,710)       (4,388)        1,240
Financing activities:
   Repayment of note-receivable from officer............................                -           368             -
   Issuance of common stock under employee stock plans..................           16,247         9,430         7,676
   Repurchase of common stock...........................................                -        (7,899)            -
                                                                             ------------  ------------  ------------
   Net cash provided by financing activities............................           16,247         1,899         7,676
Net increase (decrease) in cash and cash equivalents....................           (4,559)       10,295        (1,354)
Cash and cash equivalents, beginning of year............................           18,207         7,912         9,266
                                                                             ------------  ------------  ------------
Cash and cash equivalents, end of year..................................     $     13,648  $     18,207  $      7,912
                                                                             ============  ============  ============

Supplemental disclosures of cash flow information and non-cash investing
    and financing activities:
Cash (received)/paid during the year for income taxes...................     $    (12,367) $       (157) $        473
Issuance of common stock for acquisitions...............................                -             -         1,132
</TABLE>

                                  See Notes to Consolidated Financial Statements

<PAGE>


                                ACTEL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.   Organization and Summary of Significant Accounting Policies

     Actel Corporation (Actel or us, we, or our) was incorporated under the laws
of  California  on October  16,  1985.  We  design,  develop,  and market  field
programmable  gate arrays  (FPGAs) and  supporting  products and  services.  Net
revenues  from the sale of FPGAs  accounted for 96% of our net revenues in 2003,
2002, and 2001. Our Protocol  Design Services  organization  accounted for 1% of
our net  revenues  in 2003,  2002,  and 2001.  Royalties  and the  licensing  of
software  and sale of  hardware  that  are  used to  design  and  program  FPGAs
accounted for 3% of our net revenues in 2003, 2002, and 2001.

     FPGAs  are  integrated  circuits  that  adapt  the  processing  and  memory
capabilities of electronic systems to specific  applications.  FPGAs are used by
designers  of  communications,  computer,  consumer,  industrial,  military  and
aerospace,  and other electronic systems to differentiate their products and get
them to market faster.  We are the leading  supplier of FPGAs based on flash and
antifuse  technologies.  See Note 9 for  information  on our sales by geographic
area.

o    Advertising and Promotion Costs

     Our  policy  is to  expense  advertising  and  promotion  costs as they are
incurred. Our advertising and promotion expenses were approximately $3.3 million
in 2003, $3.7 million in 2002, and $3.8 million in 2001.

o    Basis of Presentation

     The  consolidated  financial  statements  include  the  accounts  of  Actel
Corporation  and our wholly owned  subsidiaries.  We use the U.S.  Dollar as the
functional  currency in our foreign  operations.  All  significant  intercompany
accounts and transactions have been eliminated in consolidation.

     Our fiscal year ends on the first  Sunday after  December  30.  Fiscal 2003
ended on January 4, 2004;  fiscal 2002 ended on January 5, 2003; and fiscal 2001
ended on January 6, 2002. Fiscal 2001 was a 53 week fiscal year, rather than the
normal 52 week  fiscal  year.  For ease of  presentation,  December  31 has been
indicated as the year end for all fiscal years.

o    Cash Equivalents and Investments

     For  financial  statement  purposes,  we  consider  all highly  liquid debt
instruments with insignificant interest rate risk and a maturity of three months
or  less  when  purchased  to be  cash  equivalents.  Cash  equivalents  consist
primarily  of cash  deposits  in  money  market  funds  that are  available  for
withdrawal without  restriction.  Short-term  investments consist principally of
corporate,  federal,  state,  and local  municipal  obligations.  See Note 3 for
further information regarding short-term investments.



<PAGE>


     We  account  for our  investments  in  accordance  with the  provisions  of
Statement of Financial  Accounting  Standards  (SFAS) No. 115,  "Accounting  for
Certain Investments in Debt and Equity Securities." We determine the appropriate
classification  of debt securities at the time of purchase and re-evaluate  such
designation  as of each  balance  sheet date.  At December  31,  2003,  all debt
securities are designated as available-for-sale. We also make equity investments
for the  promotion of business and strategic  objectives.  We monitor our equity
investments  for impairment on a periodic  basis. In the event that the carrying
value of the equity  investment  exceeds its fair value and the decline in value
is determined to be other than  temporary,  the carrying value is reduced to its
current fair market  value.  Non-marketable  equity  investments  valued at $0.1
million  are  included  in  other  assets.  See Note 3 for  further  information
regarding investments.

     Available-for-sale   securities  are  carried  at  fair  value,   with  the
unrealized gains and losses reported as a component of  comprehensive  income in
shareholders'  equity. The amortized cost of debt securities in this category is
adjusted for  amortization  of premiums and  accretion of discounts to maturity.
Such amortization and accretion is included in interest and other income, net of
expense.  The cost of  securities  sold is based on the specific  identification
method.  Interest and dividends on securities  classified as  available-for-sale
are included in interest income and other.

     In  accordance  with SFAS No.  115,  if a decline  in value  below  cost is
determined to be other than temporary, the unrealized losses will be recorded as
expense on the income  statement in the period when that  determination is made.
In the  absence of other  overriding  factors,  we  consider a decline in market
value to be other than temporary  when a publicly  traded stock has traded below
book value for a consecutive  six-month  period.  If an investment  continues to
trade below book value for more than six months,  and mitigating factors such as
general economic and industry  specific trends are not present,  this investment
would be evaluated  for  impairment  and written down to a balance  equal to the
estimated  fair  value  at the  time  of  impairment,  with  the  amount  of the
write-down realized as expense on the income statement.  During 2002, we held an
investment in a publicly traded company that had traded below book value.  Based
on our  assessment of industry  trends,  as well as the  volatility  and trading
volumes of this equity security,  we concluded that the declines in value at the
end of the  second  and  fourth  quarters  of 2002 were  other  than  temporary.
Accordingly, we recorded as expense, in accordance with SFAS No. 115, impairment
write-downs of $0.5 million in the second quarter and $0.4 million in the fourth
quarter.  At December 31, 2002,  we held an  investment  in the  publicly-traded
equity  security with a market value of $0.2 million in short-term  investments.
During 2003,  this  publicly-traded  equity security was sold for a gain of $0.1
million.

     At December 31, 2001, we held a strategic equity investment of $2.2 million
in a private company located in the United Kingdom. Under our accounting policy,
the carrying value of a cost method non-marketable investment is the amount paid
for the investment  unless it has been  determined to be other than  temporarily
impaired,  in which case we write the investment  down to its impaired value. We
review  all  of  our  investments  periodically  for  impairment;  however,  for
non-marketable  equity securities,  the impairment analysis requires significant
judgment.   This  analysis  includes  assessment  of  the  investee's  financial
condition,  the business outlook for its products and technology,  its projected
results  and cash  flows,  the  likelihood  of  obtaining  subsequent  rounds of
financing, and the impact of any relevant contractual equity preferences held by
us or others.  If an investee  obtains  additional  funding at a valuation lower
than our  carrying  amount,  we  presume  that  the  investment  is  other  than
temporarily impaired, unless specific facts and circumstances indicate otherwise
(for example,  if we hold contractual  rights that give us a preference over the
rights of other  investors).  During  2002,  a  sufficient  market  for the U.K.
company's technology did not develop and additional financing was raised from an
existing shareholder during the fourth quarter to enable the company to continue
operations.  The  market  value of the  company  implied  in the 2002  financing
indicated significant impairment of our investment in the company. In accordance
with our  accounting  policy,  we wrote the investment  down to $0.1 million,  a
balance  equal to the estimated  fair value of our  investment in the company at
the time of the financing.  The $0.1 million balance is included on the December
31, 2003 and 2002, balance sheets in other assets. The impairment  write-down of
$2.1  million was  realized as an expense on the income  statement in the fourth
quarter of 2002.

     We maintain  trading  assets to  generate  returns  that offset  changes in
liabilities  related to our  deferred  compensation  plan.  The  trading  assets
consist of insurance  contracts and our Common Stock  contributed to the plan by
participants  and are  stated at fair  value.  Recognized  gains and  losses are
included in interest income and other, net of expense,  and generally offset the
change  in the  deferred  compensation  liability,  which  is also  included  in
interest  income and other,  net of expense.  Net gains  (losses) on the trading
asset  portfolio  were not  significant  for 2003,  2002, and 2001. The deferred
compensation assets were $2.5 million, and the deferred compensation liabilities
were $2.7 million, at December 31, 2003.

o    Concentration of Credit Risk

     Financial  instruments that  potentially  subject us to  concentrations  of
credit risk consist  principally of cash investments and trade  receivables.  We
limit  our  exposure  to  credit  risk by  investing  excess  liquidity  only in
securities of A, A1, or P1 grade. We are exposed to credit risks in the event of
default by the financial institutions or issuers of investments to the extent of
amounts recorded on the balance sheet.

     We sell our products to customers in diversified industries. We are exposed
to credit  risks in the  event of  non-payment  by  customers  to the  extent of
amounts  recorded on the balance sheet.  We limit our exposure to credit risk by
performing ongoing credit evaluations of our customers'  financial condition and
generally require no collateral.  We are exposed to credit risks in the event of
insolvency by our  customers  and manage such  exposure to accounting  losses by
limiting  the  amount  of  credit  extended  whenever  deemed   necessary.   Our
distributors  accounted for  approximately  69% of our revenues in 2003,  65% in
2002, and 68% in 2001. During 2001, we consolidated our distribution  channel by
terminating our agreement with Arrow Electronics,  Inc. (Arrow). During 2003, we
further  consolidated our distribution channel by terminating our agreement with
Pioneer-Standard Electronics, Inc. (Pioneer), leaving Unique Technologies,  Inc.
(Unique)  as our sole  distributor  in North  America.  The loss of  Unique as a
distributor  could have a materially  adverse effect on our business,  financial
condition,  or results  of  operations.  Lockheed  Martin  accounted  for 11% of
revenues  in  2003.  See  Note  9 for  further  information  regarding  our  10%
customers.

     As of December 31,  2003,  we had an accounts  receivable  balance of $21.6
million,  net of an allowance for doubtful  accounts of $1.1  million.  If sales
levels were to increase,  it is likely that the level of receivables  would also
increase.  In the event that customers delay their payments to us, the levels of
accounts  receivable  would also increase.  We maintain  allowances for doubtful
accounts for estimated  losses  resulting from the inability of our customers to
make required  payments.  The  allowance for doubtful  accounts is based on past
payment history with the customer,  analysis of the customer's current financial
condition,  outstanding invoices older than 90 days, and other known factors. If
the financial  condition of our customers were to  deteriorate,  resulting in an
impairment  of their  ability to make  payments,  additional  allowances  may be
required.

o    Fair Value of Financial Instruments

     We use the following  methods and  assumptions in estimating our fair value
disclosures for financial instruments:

     o    Accounts Payable

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

     o    Cash and Cash Equivalents

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

     o    Insurance Contracts

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

     o    Investment Securities

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

o    Goodwill and other Acquisition-Related Intangibles

     In past years we made business  acquisitions that resulted in the recording
of a  significant  amount of  goodwill  and  identified  intangible  assets.  At
December 31, 2003, we had $32.1 million of remaining net book value  assigned to
goodwill  from those  acquisitions  and $4.6 million of remaining net book value
assigned  to  identified  intangible  assets,  such  as  patents  and  completed
technology.

     Historically  and  through the end of 2001,  goodwill  was  amortized  on a
straight-line  basis over its useful life.  At the beginning of 2002, we adopted
SFAS No. 142,  "Goodwill  and Other  Intangible  Assets,"  which  addresses  the
financial  accounting and reporting  standards for goodwill and other intangible
assets  subsequent to their  acquisition.  In  accordance  with SFAS No. 142, we
ceased to amortize  goodwill  and instead test for  impairment  annually or more
frequently  if  certain  events or changes in  circumstances  indicate  that the
carrying  value  may  not be  recoverable.  We  completed  our  annual  goodwill
impairment tests during the fourth quarter of 2003, and noted no impairment. The
initial test of goodwill  impairment  requires us to compare our fair value with
our book value,  including goodwill.  Based on our total market  capitalization,
which we believe  represents the best indicator of our fair value, we determined
that  our  fair  value  was in  excess  of our  book  value.  Since  we found no
indication of impairment, no further testing was necessary.

     At December 31, 2003,  we had  identified  intangible  assets  arising from
prior  business  acquisitions  with a net book value of $4.6 million,  which are
being  amortized  on a  straight  line  basis over  their  estimated  lives.  In
accordance  with SFAS No. 144,  "Accounting  for the  Impairment  or Disposal of
Long-Lived  Assets," we recognize  impairment  losses on  identified  intangible
assets when indicators of impairment are present and the undiscounted cash flows
estimated  to be  generated  by those assets are less than the net book value of
those assets. The impairment loss is measured by comparing the fair value of the
asset to its carrying value.  Fair value is based on discounted cash flows using
present value techniques  identified in SFAS No. 144. We assessed our identified
intangible  assets for impairment in accordance with SFAS No. 144 as of December
31,  2003,  and  noted no  impairment.  If  these  estimates  or  their  related
assumptions change in the future, it could result in lower estimated future cash
flows that may not support the current  carrying  value of these  assets,  which
would require us to record impairment charges for these assets.

o    Impact of Recently Issued Accounting Standards

     In May,  2003,  the FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No.  150  requires  certain  financial   instruments  to  be  accounted  for  as
liabilities  that  previously  were  accounted  for  as  equity.  The  financial
instruments  affected include  mandatory  redeemable  stock;  certain  financial
instruments  that  require  or may  require  the  issuer to buy back some of its
shares in exchange for cash or other assets; and certain obligations that can be
settled  with  shares of stock.  SFAS No.  150 is  effective  for all  financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the first interim period  beginning after June 15,
2003. We do not currently have any financial instruments that are subject to the
provisions of SFAS No. 150, so the adoption of SFAS No. 150 had no impact on our
consolidated financial position or results of operations.

     In January  2003,  the FASB issued  Financial  Standards  Accounting  Board
Interpretation  (FIN) No.  46 (FIN  46),  "Consolidation  of  Variable  Interest
Entities," an  interpretation  of  Accounting  Research  Bulletin  (ARB) No. 51,
"Consolidated Financial Statements." FIN 46, which amended the interpretation in
December 2003,  establishes  accounting guidance for consolidation of a variable
interest  entity  (VIE).  FIN 46  requires  an  investor  with a majority of the
variable interests (primary  beneficiary) in a variable interest entity (VIE) to
consolidate  the entity and also  requires  majority  and  significant  variable
interest investors to provide certain  disclosures.  A VIE is an entity in which
the equity investors do not have a controlling interest or the equity investment
at risk is insufficient  to finance the entity's  activities  without  receiving
additional    subordinated   financial   support   from   the   other   parties.
Development-stage  entities that have sufficient  equity invested to finance the
activities  they are currently  engaged in and entities  that are  businesses as
defined in the  Interpretation are not considered VIEs. The provisions of FIN 46
were  effective  immediately  for all  arrangements  entered  into with new VIEs
created  after  January  31,  2003.  We do not  currently  have any  contractual
relationship or other business  relationship  with a VIE, so the adoption of FIN
46  had  no  impact  on  our  consolidated  financial  position  or  results  of
operations.

o    Income Taxes

     We account for income taxes in  accordance  with SFAS No. 109,  "Accounting
for Income  Taxes," which  requires that deferred tax assets and  liabilities be
recognized  using  enacted  tax rates for the  effect of  temporary  differences
between the book and tax bases of recorded  assets and  liabilities.  Under SFAS
No. 109, the liability  method is used in accounting for income taxes.  Deferred
tax assets and  liabilities  are  determined  based on the  differences  between
financial  reporting  and the tax  basis  of  assets  and  liabilities,  and are
measured  using the  enacted  tax rates and laws that will be in effect when the
differences  are expected to reverse.  SFAS No. 109 also  requires that deferred
tax assets be reduced by a  valuation  allowance  if it is more  likely than not
that some or all of the  deferred  tax asset will not be  realized.  We evaluate
annually the realizability of our deferred tax assets by assessing our valuation
allowance  and by adjusting  the amount of such  allowance,  if  necessary.  The
factors used to assess the  likelihood  of  realization  include our forecast of
future  taxable  income and  available  tax  planning  strategies  that could be
implemented to realize the net deferred tax assets.

     At December 31, 2003, we had $61.7 million of gross  deferred tax assets in
excess of deferred tax liabilities.  Based on the factors cited above, including
our forecast of future taxable income and  limitations  under Section 382 of the
Internal  Revenue  Code,  we  determined  at December 31, 2003,  that it is more
likely than not that $34.2 million of deferred tax assets will be realized. This
resulted in a valuation  allowance of $27.5  million.  In order to fully utilize
the $34.2  million of net deferred tax assets,  taxable  income in the amount of
approximately  $89 million  must be earned in future  periods.  Factors that may
affect our ability to achieve sufficient future taxable income include,  but are
not limited to, increased  competition,  a decline in sales or margins,  loss of
market share, delays in product availability, and technological obsolescence.

o    Inventories

     As of December 31, 2003, we had a net inventory  balance of $38.7  million,
stated at the lower of cost  (first-in,  first-out)  or market  (net  realizable
value). We believe that a certain level of inventory must be carried to maintain
an adequate supply of product for customers. This inventory level may vary based
upon orders  received from  customers or internal  forecasts of demand for these
products. Other considerations in determining inventory levels include the stage
of products in the product life cycle,  design win activity,  manufacturing lead
times, customer demands, strategic relationships with foundries, and competitive
situations in the  marketplace.  Should any of these factors  develop other than
anticipated, inventory levels may be materially and adversely affected.

     We write down our  inventory  for estimated  obsolescence  or  unmarketable
inventory  equal  to the  difference  between  the  cost  of  inventory  and the
estimated realizable value based upon assumptions about future demand and market
conditions. To address this difficult, subjective, and complex area of judgment,
we apply a methodology that includes  assumptions and estimates to arrive at the
net realizable value.  First, we identify any inventory that has been previously
written down in prior periods.  This inventory  remains written down until sold,
destroyed, or otherwise  dispositioned.  Second, our quality assurance personnel
examine  inventory  line  items that may have some form of  obsolescence  due to
non-conformance with electrical and mechanical  standards.  Third, we assess the
inventory not otherwise  identified to be written down against  product  history
and forecasted demand (typically for the next six months).  Finally,  we analyze
the result of this  methodology  in light of the product life cycle,  design win
activity,  and competitive situation in the marketplace to derive an outlook for
consumption of the inventory and the  appropriateness of the resulting inventory
levels.  If actual future demand or market  conditions  are less  favorable than
those we have projected, additional inventory write-downs may be required.

     During  2003,  we modified  our  inventory  valuation  policies to properly
account  for "last time buy"  inventory  purchases.  Last time buys occur when a
wafer  supplier  is about to shut  down the  manufacturing  line  used to make a
product and current  inventories  are  insufficient to meet  foreseeable  future
demand.  We made last time buys of certain  products from our wafer suppliers in
2003.  Since this inventory was not acquired to meet current demand,  we did not
believe  the  application  of our  existing  inventory  write  down  policy  was
appropriate,  so a discrete  write down  policy was  established  for  inventory
purchased in last time buy transactions.  As a consequence,  these  transactions
and the related inventory are excluded from the standard excess and obsolescence
write down policy.  Inventory  purchased in last time buy  transactions  will be
evaluated on an ongoing basis for indications of excess or obsolescence based on
rates of actual sell through;  expected  future demand for those products over a
longer time  horizon;  and any other  qualitative  factors that may indicate the
existence of excess or obsolete inventory. In the event that actual sell through
does not meet  expectations  and estimations of expected future demand decrease,
last time buy inventory could be written down in the future. Evaluations of last
time buy  inventory in 2003 did not result in any write  downs.  At December 31,
2003,  $5.4  million  related to last time buy type  purchases  was  included in
inventory on the balance sheet. See Note 2 for information on inventory amounts.

o    Legal Matters

     As is typical in the semiconductor  industry, we have been and expect to be
notified from time to time of claims, including claims that we may be infringing
patents  owned by others.  During  2003,  we held  settlement  discussions  with
several third parties. When probable and reasonably estimable, we make provision
for  estimated  liabilities.  As we  sometimes  have in the past,  we may settle
disputes  and/or obtain  licenses under patents that we are alleged to infringe.
During 2003,  we settled a  threatened  patent  infringement  claim and obtained
licenses under the patents that we were alleged to infringe.  As a result of the
settlement,  we reduced our accruals for  estimated  legal  liabilities  by $0.6
million,  which had a favorable  impact on SG&A spending in the third quarter of
2003,.  We can offer no assurance  that any pending or threatened  claim will be
resolved or that the  resolution  of any such claims will not have a  materially
adverse effect on our business,  financial condition,  or results of operations.
In addition, our evaluation of the impact of these pending and threatened claims
could change based upon new information learned by us. Subject to the foregoing,
we do not believe that the  resolution of any pending or threatened  legal claim
is  likely  to have a  materially  adverse  effect  on our  business,  financial
condition, or results of operations.

o    Product Warranty

     Our product warranty accrual includes  specific  accruals for known product
issues and an accrual  for an  estimate of  incurred  but  unidentified  product
issues based on historical  activity.  Due to effective  product testing and the
short time between product  shipment and the detection and correction of product
failures,  the warranty  accrual  based on  historical  activity and the related
expense for known product issues were not significant in 2003, 2002, or 2001.

o    Property and Equipment

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

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

See Note 2 for information on property and equipment amounts.

o    Revenue Recognition

     In  accordance  with SEC Staff  Accounting  Bulletin  No.  101,  revenue is
recognized  when there is evidence of an  arrangement,  delivery has occurred or
services  have  been  completed,  the  price  is  fixed  or  determinable,   and
collectability  is  reasonably  assured.  Revenue  from  product  shipped to end
customers is recorded when all of the foregoing  conditions  are met and risk of
loss and title  passes to the  customer.  Revenue  related to  products  shipped
subject to customers' evaluation is recognized upon final acceptance.  Shipments
to distributors are made under agreements  allowing certain rights of return and
price protection on unsold merchandise. For that reason, we defer recognition of
revenues and related cost of revenues on sales of products to distributors until
such products are sold by the  distributor  and title transfers to the end user.
Royalty income is recognized upon notice to us of the sale by others of products
subject  to  royalties.  Revenues  generated  by the  Protocol  Design  Services
organization are recognized as the services are performed.

     We record a provision for price adjustments on unsold  merchandise  shipped
to  distributors  in the same period as the related  revenues are  recorded.  If
market  conditions  were  to  decline,  we may  need  to take  action  with  our
distributors  to ensure the  sell-through  of inventory  already in the channel.
These actions  during a market  downturn could result in  incrementally  greater
reductions to net revenues than  otherwise  would be expected.  We also record a
provision  for  estimated  sales  returns on  products  shipped  directly to end
customers in the same period as the related revenues are recorded. The provision
for sales returns is based on historical sales returns,  analysis of credit memo
data, and other factors. If our calculation of these estimates does not properly
reflect  future  return  patterns,  future  net  revenues  could  be  materially
different.

o    Stock-Based Compensation

     We have employee  stock plans that are  described  more fully in Note 6. We
account  for our  stock  options  and  equity  awards  in  accordance  with  the
provisions of Accounting  Principles Board (APB) Opinion No. 25, "Accounting for
Stock  Issued to  Employees,"  and related  interpretations  and have elected to
follow the "disclosure only" alternative prescribed by SFAS No. 123, "Accounting
for Stock-Based Compensation."

     We account for  stock-based  awards to employees  using the intrinsic value
method  in  accordance  with  APB  Opinion  No.  25 and  FIN No.  44  (FIN  44),
"Accounting  for  Certain   Transactions   Involving  Stock  Compensation  -  an
Interpretation  of APB Opinion No. 25."  Accordingly,  no compensation  cost has
been recognized for our fixed-cost stock option plans because stock-based awards
are issued at fair market  value on the date of grant for our stock option plans
or 85% of fair market value at the date of grant for our employee stock purchase
plan.  Options and warrants granted to consultants and vendors are accounted for
at fair value  determined by using the  Black-Scholes  method in accordance with
EITF Issue No.  96-18,  "Accounting  for Equity  Instruments  that are Issued to
Other than Employees for Acquiring,  or in  Conjunction  with Selling,  Goods or
Services."

     Pro forma  information  regarding  net  income  and net income per share is
required by SFAS No. 148, "Accounting for Stock-Based  Compensation - Transition
and Disclosure an Amendment of FASB Statement No. 123," which also requires that
the information be determined as if we had accounted for our stock-based  awards
to employees granted under the fair value method. Our stock based awards consist
of  options  and  employee  stock  purchase  rights.  The fair  value  for these
stock-based  awards to  employees  was  estimated at the date of grant using the
Black-Scholes pricing model with the following weighted-average assumptions:

<TABLE>
<CAPTION>

                                                          Stock Options               Stock Purchase Plan Rights
                                                  -----------------------------      -----------------------------
Years ended December 31,                           2003        2002       2001        2003        2002       2001
--------------------------------------------      ------      ------     ------      ------      ------     ------
<S>                                                <C>         <C>        <C>         <C>         <C>        <C>
Expected life of options (years)............       4.29        4.14       3.46        1.26        1.14       0.50
Expected stock price volatility.............       0.62        0.66       0.67        0.62        0.66       0.67
Risk-free interest rate.....................       2.3%        3.7%       4.1%        1.8%        2.2%       3.0%
</TABLE>

The weighted-average fair value of options granted during 2003 was $9.05, during
2002 was $10.19, and during 2001 was $10.49. The weighted-average  fair value of
ESPP rights  granted  during 2003 was $6.38,  during 2002 was $6.27,  and during
2001 was $8.14.

     For  purposes of pro forma  disclosures,  the  estimated  fair value of our
stock-based  awards to employees is amortized to expense using the graded method
for options and during the purchase  periods for employee stock purchase rights.
Our pro forma information is as follows:

<TABLE>
<CAPTION>

                                                                                     Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2003          2002          2001
                                                                             ------------  ------------  ------------
                                                                             (in thousands, except per share amounts)

<S>                                                                          <C>           <C>           <C>
Net income (loss) applicable to common stockholders, as reported........     $      6,228  $         75  $     (4,701)
Add back:
   Stock-based employee compensation included in reported net
   income (loss)........................................................              135           135           341
Less:
   Total stock-based employee compensation expense determined under
   the fair value method for all awards, net of tax.....................          (12,094)      (17,827)      (12,466)
                                                                             ------------  ------------  ------------
Pro forma net loss applicable to common stockholders....................     $     (5,731) $    (17,617) $    (16,826)
                                                                             ------------  ------------  ------------
Earnings (loss) per share as reported:
   Basic................................................................     $       0.25  $       0.00  $      (0.20)
                                                                             ============  ============  ============
   Diluted..............................................................     $       0.24  $       0.00  $      (0.20)
                                                                             ============  ============  ============
Pro forma earnings (loss) per share:
   Basic................................................................     $      (0.23) $      (0.72) $      (0.71)
                                                                             ============  ============  ============
   Diluted..............................................................     $      (0.23) $      (0.72) $      (0.71)
                                                                             ============  ============  ============
</TABLE>

     During the  fourth  quarter of 2003,  a review of our  financial  reporting
procedures  revealed  errors in the process by which we had calculated pro forma
compensation  expense  for the  purpose  of  providing  the pro  forma  footnote
disclosure  required  by SFAS Nos.  123 and 148.  The  errors  were  limited  to
footnote  disclosure  under  SFAS  Nos.  123  and  148  of  non-cash  pro  forma
compensation  expense and did not change or have any impact on our  historically
reported  statements of income,  balance sheets, or statements of cash flows. We
corrected  the process by which such pro forma  footnote  disclosure is prepared
and instituted  additional  internal controls to ensure that the correct process
is followed.


     Although we believe that the errors were  immaterial,  we have adjusted the
pro forma information for the quarters ended July 6 and April 6, 2003, and years
ended  December  31, 2002 and 2001,  to reflect  the  correction  of  previously
calculated pro forma tax benefits from non qualified stock options and pro forma
compensation  cost related to our employee stock purchase plan. The adjusted pro
forma  information  for all  fiscal  years and  interim  periods  that  required
adjustment is as follows:

<TABLE>
<CAPTION>

                                                                   Three Months Ended              Year Ended
                                                               --------------------------  --------------------------
                                                                 Jun. 30,      Mar. 31,      Dec. 31,      Dec. 31,
                                                                   2003          2003          2002          2001
                                                               ------------  ------------  ------------  ------------
<S>                                                            <C>           <C>           <C>           <C>
Pro Forma amounts under fair value method:
Pro Forma stock based employee compensation cost, net of
   related tax...............................................  $      3,466  $      3,579  $     17,692  $     12,125
Pro forma net income (loss)..................................  $     (2,080) $     (3,348) $    (17,617) $    (16,826)
Pro forma earnings (loss) per share:
     Basic...................................................  $      (0.08) $      (0.14) $      (0.72) $      (0.71)
     Diluted.................................................  $      (0.08) $      (0.14) $      (0.72) $      (0.71)
</TABLE>

         Our originally reported pro forma information was as follows:

<TABLE>
<CAPTION>

                                                                   Three Months Ended              Year Ended
                                                               --------------------------  --------------------------
                                                                 Jun. 30,      Mar. 31,      Dec. 31,      Dec. 31,
                                                                   2003          2003          2002          2001
                                                               ------------  ------------  ------------  ------------
<S>                                                            <C>           <C>           <C>           <C>
Pro Forma amounts under fair value method:
Pro Forma stock based employee compensation cost, net of
   related tax...............................................  $     4,091   $    3,865    $    19,610   $     15,011
Pro forma net income (loss)..................................  $    (2,705)  $   (3,634)   $   (19,535)  $    (19,712)
Pro forma earnings (loss) per share:
     Basic...................................................  $     (0.11)  $    (0.15)   $     (0.80)  $      (0.83)
     Diluted.................................................  $     (0.11)  $    (0.15)   $     (0.80)  $      (0.83)
</TABLE>


     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded options,  which have no vesting restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions,  including  the  expected  stock price
volatility.  Because our  stock-based  awards to employees have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
our opinion the existing  models do not  necessarily  provide a reliable  single
measure of the fair value of our stock-based  awards to employees.  In addition,
the effects on pro forma  disclosures  of applying SFAS Nos. 123 and 148 are not
likely to be  representative  of the effects on pro forma  disclosures in future
years.  See Note 6 for further  information  regarding  our stock option  plans.


o    Use of Estimates

     The  preparation  of financial  statements  in conformity  with  accounting
principles generally accepted in the United States requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues,
and expenses and the related disclosure of contingent assets and liabilities. We
base our estimates on  historical  experience  and on various other  assumptions
that we believe to be reasonable under the  circumstances,  the results of which
form the basis for  making  judgments  about the  carrying  values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ materially from these estimates. In addition, if these estimates or their
related  assumptions  change in the future,  there could be a materially adverse
effect on our operating results.

2.   Balance Sheet Detail
<TABLE>
<CAPTION>

                                                                                                   December 31,
                                                                                           --------------------------
                                                                                               2003          2002
                                                                                           ------------  ------------
                                                                                                 (in thousands)
<S>                                                                                        <C>           <C>
 Accounts receivable:
   Trade accounts receivable...........................................................    $     20,457  $     17,421
   Interest receivable.................................................................           1,158         1,272
   Allowance for doubtful accounts.....................................................          (1,078)       (1,078)
                                                                                           ------------  ------------
                                                                                           $     20,537  $     17,615
                                                                                           ============  ============
 Inventories:
   Purchased parts and raw materials...................................................    $      5,243  $      4,066
   Work-in-process.....................................................................          29,243        26,484
   Finished goods......................................................................           4,178         4,041
                                                                                           ------------  ------------
                                                                                           $     38,664  $     34,591
                                                                                           ============  ============
 Property and equipment:
   Equipment...........................................................................    $     63,377  $     56,529
   Furniture and fixtures..............................................................           2,521         2,409
   Leasehold improvements..............................................................           2,346         5,662
                                                                                           ------------  ------------
                                                                                                 68,244        64,600
   Accumulated depreciation and amortization...........................................         (48,309)      (48,396)
                                                                                           ------------  ------------
                                                                                           $     19,935  $     16,204
                                                                                           ============  ============
</TABLE>

     Depreciation  expense was approximately  $7.5 million in 2003, $7.3 million
in 2002, and $7.0 million in 2001, and is included with amortization  expense in
the Consolidated Statement of Cash Flows.


     During 2003,  we removed  certain fully  depreciated  assets with a cost of
$7.5  million  that were no longer  being  utilized,  which had no impact on the
income statement.

<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                                           --------------------------
                                                                                               2003          2002
                                                                                           ------------  ------------
                                                                                                 (in thousands)
<S>                                                                                        <C>           <C>
Goodwill:
   Goodwill............................................................................    $     48,575  $     48,575
   Less accumulated amortization.......................................................         (16,433)      (16,433)
                                                                                           ------------  ------------
                                                                                           $     32,142  $     32,142
                                                                                           ============  ============
Other Assets:
   Prepaid long-term license fees......................................................    $      1,215  $      1,500
   Deferred compensation plan assets...................................................           2,476         1,830
   Identifiable intangible assets from acquisitions....................................          12,728        12,728
   Acquired patents....................................................................           1,842         1,842

   Non-current deferred tax asset (net of related deferred tax liability of $1,603 in
     2003 and $2,764 in 2002)..........................................................          15,429        14,247
   Other...............................................................................           1,025         1,097
                                                                                           ------------  ------------
         Subtotal......................................................................          34,715        33,244
   Accumulated amortization expenses...................................................          (9,996)       (7,326)
                                                                                           ------------  ------------
                                                                                           $     24,719  $     25,918
                                                                                           ============  ============
</TABLE>

     Historically  and  through the end of 2001,  goodwill  was  amortized  on a
straight-line  basis over its useful life.  At the beginning of 2002, we adopted
SFAS No. 142,  "Goodwill  and Other  Intangible  Assets," and ceased to amortize
goodwill. Instead, we test for impairment annually or more frequently if certain
events or changes in  circumstances  indicate that the carrying value may not be
recoverable. We completed our annual goodwill impairment tests during the fourth
quarter  of 2003,  and  noted no  impairment.  A  reconciliation  of  previously
reported  net income and  earnings  per share to the  amounts  adjusted  for the
exclusion of goodwill amortization,  net of the related income tax effect, is as
follows:
<TABLE>
<CAPTION>


                                                                                     Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2003          2002          2001
                                                                             ------------  ------------  ------------
                                                                             (in thousands, except per share amounts)

<S>                                                                          <C>           <C>           <C>
Reported net income/(loss)..............................................     $      6,228  $         75  $     (4,701)
Amortization of goodwill................................................                -             -        11,691
                                                                             ------------  ------------  ------------
Adjusted net income excluding amortization of goodwill..................     $      6,228  $         75  $      6,990
                                                                             ============  ============  ============
Reported net income/(loss) per share:
   Basic................................................................     $       0.25  $       0.00  $      (0.20)
                                                                             ============  ============  ============
   Diluted..............................................................     $       0.24  $       0.00  $      (0.20)
                                                                             ============  ============  ============
Adjusted net income per share:
   Basic................................................................     $       0.25  $       0.00  $       0.29
                                                                             ============  ============  ============
   Diluted..............................................................     $       0.24  $       0.00  $       0.28
                                                                             ============  ============  ============
Shares used in computing adjusted net income per share:
   Basic................................................................           24,808        24,302        23,743
                                                                             ============  ============  ============
   Diluted..............................................................           26,300        25,252        25,125
                                                                             ============  ============  ============
</TABLE>

         Goodwill was adjusted during the three years ended December 31, 2003,
as follows:

<TABLE>
<CAPTION>

                                                                                     Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2003          2002          2001
                                                                             ------------  ------------  ------------
                                                                                          (in thousands)

<S>                                                                          <C>           <C>           <C>
Balance at January 1....................................................     $     32,142  $     37,180  $     46,820
                                                                             ============  ============  ============
   Additions............................................................                -             -         2,051
   Amortization.........................................................                -             -       (11,691)
   Adjustment for recognition of deferred tax asset.....................                -        (5,038)            -
                                                                             ------------  ------------  ------------
Balance at December 31..................................................     $     32,142  $     32,142  $     37,180
                                                                             ============  ============  ============
</TABLE>

The  reduction  in  goodwill  in  2002  was due  primarily  to a  balance  sheet
reclassification  of $5.0  million  from  goodwill to deferred  tax assets.  The
goodwill  was  reclassified  because we believe  (based on a number of  factors,
including  our  estimate  of future  taxable  income)  that a portion of the net
operating  losses generated by GateField  Corporation  (GateField) and valued at
zero when we  acquired  GateField  in 2000  will be used by us to  reduce  taxes
payable in the  future.  During  2003 and 2002,  no  goodwill  was  acquired  or
impaired.  During 2001,  additional  consideration of $1.7 million was issued to
Prosys  Technology  (Prosys)   shareholders   pursuant  to  the  achievement  of
technological  milestones  specified  in the  agreement  under which we acquired
Prosys in 2000.

     We assess  identified  intangible  assets for impairment in accordance with
SFAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets,"
and recognize  impairment  losses when  indicators of impairment are present and
the  undiscounted  cash flows estimated to be generated by those assets are less
than the net book value of those assets.  We assessed our identified  intangible
assets for  impairment in accordance  with SFAS No. 144 as of December 31, 2003,
and noted no impairment.  Identified  intangible assets as of December 31, 2003,
consisted of the following:

<TABLE>
<CAPTION>

                                                                                           Accumulated
                                                                             Gross Assets  Amortization      Net
                                                                             ------------  ------------  ------------
                                                                                          (in thousands)
<S>                                                                          <C>           <C>           <C>
Acquisition-related developed technology................................     $     11,454  $     (7,543) $      3,911
Other acquisition-related intangibles...................................            2,600        (2,012)          588
Acquired patents........................................................              516          (441)           75
                                                                             ------------  ------------  ------------
         Total identified intangible assets.............................     $     14,570  $     (9,996) $      4,574
                                                                             ============  ============  ============
</TABLE>

Identified  intangible  assets  as  of  December  31,  2002,  consisted  of  the
following:

<TABLE>
<CAPTION>

                                                                                           Accumulated
                                                                             Gross Assets  Amortization      Net
                                                                             ------------  ------------  ------------
                                                                                          (in thousands)
<S>                                                                          <C>           <C>           <C>
Acquisition-related developed technology................................     $     11,454  $     (5,253) $      6,201
Other acquisition-related intangibles...................................            2,600        (1,681)          919
Acquired patents........................................................              516          (392)          124
                                                                             ------------  ------------  ------------
         Total identified intangible assets.............................     $     14,570  $     (7,326) $      7,244
                                                                             ============  ============  ============
</TABLE>

All  of  our  identified   intangible   assets  are  subject  to   amortization.
Amortization of identified intangibles included the following:

<TABLE>
<CAPTION>

                                                                                 2003          2002          2001
                                                                             ------------  ------------  ------------
                                                                                         (in thousands)
<S>                                                                          <C>           <C>           <C>
Acquisition-related developed technology................................     $      2,291  $      2,291  $      2,291
Other acquisition-related intangibles...................................              331           330           687
Acquired patents........................................................               48           103            88
                                                                             ------------  ------------  ------------
         Total amortization expense.....................................     $      2,670  $      2,724  $      3,066
                                                                             ============  ============  ============
</TABLE>

Based on the carrying value of identified intangible assets recorded at December
31, 2003, and assuming no subsequent  impairment of the underlying  assets,  the
annual  amortization  expense is  expected  to be $2.6  million  for 2004,  $1.9
million for 2005, less than $0.1 million in 2006, and none thereafter.


3.   Available-for-Sale Securities

     The following is a summary of available-for-sale securities at December 31,
2003 and 2002:
<TABLE>
<CAPTION>

                                                                              Gross         Gross
                                                                            Unrealized    Unrealized    Estimated
                                                                 Cost         Gains         Losses     Fair Values
                                                              -----------  ------------  ------------  ------------
                                                                                 (in thousands)
<S>                                                           <C>          <C>           <C>           <C>
December 31, 2003
Auction Market Preferred..................................    $     4,800  $          -  $          -  $      4,800
Corporate bonds...........................................         49,168           396           (47)       49,517
U.S. government securities................................         63,529            76           (53)       63,552
Floating rate notes.......................................         17,750            13             -        17,763
Municipal obligations.....................................          9,085            48             -         9,133
                                                              -----------  ------------  ------------  ------------
Total available-for-sale securities.......................        144,332           533          (100)      144,765
                                                              ===========  ============  ============  ============

December 31, 2002
Certificate of deposit....................................    $     1,999  $         11  $          -  $      2,010
Commercial paper..........................................          5,865             1            (2)        5,864
Corporate bonds...........................................         43,010           537           (92)       43,455
U.S. government securities................................         47,962           570             -        48,532
Floating rate notes.......................................          5,800             -             -         5,800
Municipal obligations.....................................         12,866           226             -        13,092
                                                              -----------  ------------  ------------  ------------
Total available-for-sale securities.......................        117,502         1,345           (94)      118,753
Less amounts classified as cash equivalents...............         (3,363)            -             -        (3,363)
                                                              -----------  ------------  ------------  ------------
Total short-term available-for-sale debt securities.......        114,139         1,345           (94)      115,390
Short-term marketable strategic equity investments........            232             -             -           232
                                                              -----------  ------------  ------------  ------------
Total available-for-sale securities.......................    $   114,371  $      1,345  $        (94) $    115,622
                                                              ===========  ============  ============  ============
</TABLE>

     Available-for-sale  securities  that were in an unrealized loss position as
of December 31, 2003, have all been in an unrealized loss position for less than
twelve months.

     The  adjustments to unrealized  gains and (losses) on  investments,  net of
taxes,  included  as  a  separate  component  of  shareholders'  equity  totaled
approximately  ($0.5  million)  for the year  ended  December  31,  2003,  ($0.1
million) for the year ended  December  31,  2002,  and $0.1 million for the year
ended  December  31,  2001.  See  Note  7  for   information   regarding   other
comprehensive income/(loss).  Realized gains were $0.5 million during 2003, $0.2
million during 2002, and $0.4 million during 2001.

     We occasionally make equity  investments in public or private companies for
the promotion of business and strategic  objectives.  During 2002, we recognized
losses and recorded impairment  write-downs  totaling $3.7 million in connection
with our strategic equity  investments,  which consisted of $1.6 million related
to an equity investment in a publicly traded company and $2.1 million related to
an equity investment in a private company.  The $1.6 million loss related to the
investment  in a  publicly  traded  company  was  comprised  of $0.7  million of
realized  losses on shares sold during the first and second quarters of 2002 and
$0.9  million  of  impairment  write-downs  recorded  in the  second  and fourth
quarters of 2002.  These  impairment  write-downs  were  recorded as a result of
declines in the market  value of shares  still held by us. The $2.1 million loss
related to the equity investment in a private company  consisted  entirely of an
impairment  write-down  that was recorded when the  estimated  fair value of the
private  company was determined to be below its carrying value after the private
company  received  new  financing  in the fourth  quarter of 2002 at a per share
price  significantly  less  than  our  initial  investment.  We sold  all of our
remaining  strategic  equity  investment in a publicly  traded  company in 2003,
realizing a gain of $0.1 million from the sale.  As of December 31, 2003, we had
$0.1 million of strategic equity investments remaining on the balance sheet. See
Note  1  for  further  information   regarding  our  policy  on  accounting  for
investments and the manner in which fair values were determined.

     The expected  maturities of our  investments in debt securities at December
31,  2003,  are shown below.  Expected  maturities  can differ from  contractual
maturities  because the issuers of the  securities  may have the right to prepay
obligations without prepayment penalties.

<TABLE>
<CAPTION>

<S>                                                                                                     <C>
Available-for-sale debt securities:                                                                     (in thousands)
   Due in less than one year.........................................................................    $      8,957
   Due in one to five years..........................................................................         121,158
   Due in five to ten years..........................................................................              --
   Due after ten years...............................................................................          14,650
                                                                                                         ------------
                                                                                                         $    144,765
                                                                                                         ============
</TABLE>

     A  portion  of our  securities  represents  investments  in  floating  rate
municipal  bonds with  contractual  maturities  greater  than one year with some
greater than ten years.  However,  the interest  rates on these debt  securities
generally  reset every ninety days, at which time we have the option to sell the
security or roll over the investment at the new interest  rate.  Since it is not
our  intention  to  hold  these  floating  rate  municipal   bonds  until  their
contractual  maturities,  these  amounts  have  been  classified  as  short-term
investments.


4.   Commitments and Contingencies

o    Commitments

     We lease our facilities under non-cancelable lease agreements.  The current
primary  facilities  lease  agreement  expires in January  2014 and  includes an
annual  increase in lease payments of three percent per year.  Facilities  lease
expense is recorded on a straight-line basis over the term of the lease. As cash
payments in 2003 were less than rent expense recognized on a straight line basis
we recorded a deferred  rent  liability of $0.8 million in 2003.  The  equipment
lease  terms  are  month-to-month.  Our  facilities  and  equipment  leases  are
accounted  for  as  operating  leases  and  require  us to pay  property  taxes,
insurance and  maintenance,  and repair costs. At December 31, 2003 and 2002, we
had no capital lease obligations.

     We have entered into  non-cancelable  licensing  agreements  with  external
software developers to enable us to include their proprietary  technology in our
design  and  programming   software.   The  following   represents   contractual
commitments   associated  with  operating   leases  and  royalty  and  licensing
agreements:

<TABLE>
<CAPTION>
                                                           Payments Due by Period
                          ----------------------------------------------------------------------------------------------
                                                                                                                2009
                            Total          2004          2005          2006          2007          2008       and later
                          ----------    ----------    ----------    ----------    ----------    ----------    ----------
                                                              (in thousands)
<S>                       <C>           <C>           <C>           <C>           <C>           <C>           <C>
Operating leases...       $   28,160    $    2,884    $    2,695    $    2,761    $    2,795    $    2,644    $   14,381
Royalty/
   licensing
   agreements......           14,428         6,296         7,019         1,113             -             -             -
                          ----------    ----------    ----------    ----------    ----------    ----------    ----------
Total..............       $   42,588    $    9,180    $    9,714    $    3,874    $    2,795    $    2,644    $   14,381
                          ==========    ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>


Purchase  orders or contracts  for the purchase of raw materials and other goods
and services  are not included in the table above.  We are not able to determine
the  aggregate  amount  of  such  purchase  orders  that  represent  contractual
obligations as purchase orders may represent  authorizations  to purchase rather
than binding agreements. For the purposes of this table, contractual obligations
for purchase of goods or services are defined as agreements that are enforceable
and legally  binding on us and that specify all  significant  terms,  including:
fixed or minimum  quantities to be purchased;  fixed,  minimum or variable price
provisions;  and the approximate timing of the transaction.  Our purchase orders
are based on our current manufacturing needs and fulfilled by our vendors within
short time horizons.  We do not have significant  agreements for the purchase of
raw materials or other goods  specifying  minimum  quantities or set prices that
exceed our expected  requirements for three months. We also enter into contracts
for outsourced services; however, the obligations under these contracts were not
significant  and  the  contracts   generally   contain   clauses   allowing  for
cancellation without significant penalty.


     Rental expense under operating  leases was  approximately  $4.2 million for
2003, $4.2 million for 2002, and $4.4 million for 2001.  Amounts purchased under
royalty/licensing  agreements  was  approximately  $5.5  million  in 2003,  $4.1
million in 2002, and $3.7 million in 2001.

o    Contingencies

     From time to time we are notified of claims,  including  claims that we may
be infringing  patents owned by others, or otherwise become aware of conditions,
situations,  or  circumstances  involving  uncertainty  as to the  existence  of
liability or the amount of the loss. When probable and reasonably estimable,  we
make  provision  for  estimated  liabilities.  During 2003,  we held  settlement
discussions with several third parties. As we sometimes have in the past, we may
settle  disputes  and/or  obtain  licenses  under patents that we are alleged to
infringe.  During 2003, we settled a threatened  patent  infringement  claim and
obtained  licenses  under the patents  that we were  alleged to  infringe.  As a
result  of  the  settlement,   we  reduced  our  accruals  for  estimated  legal
liabilities  by $0.6 million,  which had a favorable  impact on SG&A spending in
the  third  quarter  of 2003.  We can offer no  assurance  that any  pending  or
threatened  claim  or  other  loss  contingency  will be  resolved  or that  the
resolution of any such claim or contingency  will not have a materially  adverse
effect on our  business,  financial  condition,  or  results of  operations.  In
addition,  our evaluation of the impact of these claims and contingencies  could
change based upon new information learned by us. Subject to the foregoing, we do
not believe that the resolution of any pending or threatened legal claim or loss
contingency  is  likely to have a  materially  adverse  effect on our  business,
financial condition, or results of operations.

5.   Retirement Plan

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

     We may make  contributions  to the plan at the  discretion  of the Board of
Directors.  We made no  contributions to the plan for 2003, 2002, or 2001. There
is no  guarantee  we will  make any  contributions  to the  plan in the  future,
regardless of our financial performance.

6.   Shareholders' Equity

o    Stock Repurchase

     Our Board of Directors  authorized a stock repurchase  program in September
1998 whereby  shares of our Common  Stock may be purchased  from time to time in
the  open  market  at the  discretion  of  management.  Additional  shares  were
authorized  for  repurchase in each of 1999 and 2002.  In 2002,  we  repurchased
663,482 shares of Common Stock for $7.9 million.  No shares were  repurchased in
2003.  We reissue  repurchased  shares  through our  employee  stock  option and
purchase  plans.  As of December 31, 2003, we have  remaining  authorization  to
repurchase up to 900,000 shares.

o    Shareholder Rights Plan

     Our Board of Directors  adopted a Shareholder  Rights Plan in October 2003.
Under the Plan,  we issued a dividend  of one right for each share of our Common
Stock held by shareholders of record as of the close of business on November 10,
2003. Each right will entitles the shareholder to purchase a fractional share of
our Preferred  Stock for $220.00.  However,  the rights will become  exercisable
only if a person or group acquires, or announces a tender or exchange offer that
would  result in the  acquisition  of, 15% or more of our Common Stock while the
Plan remains in place.  Then,  unless we redeem the rights for $0.001 per right,
the rights will become  exercisable by all rights holders  (except the acquiring
person or group)  for shares of Actel (or  shares of the third  party  acquirer)
having a value equal to twice the right's then-current exercise price.

o    Stock Option Plans

     We have adopted  stock option plans under which  officers,  employees,  and
consultants may be granted  incentive  stock options or nonqualified  options to
purchase  shares of our Common Stock.  In connection  with our  acquisitions  of
AutoGate Logic, Inc.  (AutoGateLogic)  in 1999 and Prosys and GateField in 2000,
we assumed the stock option plans of AutoGate Logic,  Prosys,  and GateField and
the related options are incorporated in the amounts below. At December 31, 2003,
17,722,566  shares of Common Stock were reserved for issuance under these plans,
of which  2,680,730 were available for grant.  There were no options  granted to
consultants  in 2003 or 2002 and  options  granted to  consultants  in 2001 were
recorded  at fair  value  of $0.1  million  using  the  Black-Scholes  model  in
accordance with EITF 96-18 and FIN No. 44.

     We also adopted a new  Directors'  Stock  Option Plan in 2003,  under which
directors who are not employees of Actel may be granted  nonqualified options to
purchase  shares of our Common  Stock.  The new  Directors'  Stock  Option  Plan
replaced a 1993 plan that expired in 2003. At December 31, 2003,  500,000 shares
of Common Stock were  reserved for issuance  under such plan,  of which  500,000
were available for grant.

     We grant stock  options  under our plans at a price equal to the fair value
of our Common Stock on the date of grant. Subject to continued service,  options
generally vest over a period of four years and expire ten years from the date of
grant.

     The  following  table  summarizes  our stock  option  activity  and related
information for the three years ended December 31, 2003:
<TABLE>
<CAPTION>

                                              2003                        2002                        2001
                                     ------------------------   -------------------------   -------------------------
                                                    Weighted                    Weighted                    Weighted
                                                    Average                     Average                     Average
                                      Number of     Exercise      Number of     Exercise      Number of     Exercise
                                       Shares        Price         Shares        Price         Shares        Price
                                     ----------    ----------   -----------    ----------   -----------    ----------
<S>                                   <C>          <C>            <C>          <C>            <C>          <C>
Outstanding at January 1......        8,327,898    $    19.26     7,508,292    $    18.70     6,840,991    $    19.08
Granted.......................        1,215,180         18.26     1,492,076         19.15     2,472,715         21.21
Exercised.....................         (889,048)        14.28      (514,727)        10.57      (514,574)         9.86
Cancelled.....................         (309,090)        21.79      (157,743)        20.02    (1,290,840)        29.00
                                     ----------                  ----------                  ----------
Outstanding at December 31....        8,344,940    $    19.55     8,327,898    $    19.26     7,508,292    $    18.70
                                     ==========                  ==========                  ==========
</TABLE>

         The following table summarizes information about stock options
outstanding at December 31, 2003:
<TABLE>
<CAPTION>

                                                                          December 31, 2003
                                                  -----------------------------------------------------------------
                                                           Options Outstanding                Options Exercisable
                                                  ---------------------------------------   -----------------------
                                                                  Weighted
                                                                  Average
                                                                 Remaining      Weighted                   Weighted
                                                                  Contract      Average                    Average
                                                    Number of       Life        Exercise    Number of      Exercise
           Range of Exercise Prices                   Shares     (in years)      Price        Shares       Price
---------------------------------------------     -----------    ----------    ----------   ----------   ----------
<C>                                                 <C>                <C>          <C>      <C>              <C>
$   0.07 - 11.75............................        1,032,472          3.00         10.84    1,005,252        10.85
   11.88 - 14.81............................          873,132          5.72         13.53      790,384        13.57
   14.88 - 15.15............................          862,480          8.80         15.13       53,579        15.02
   16.00 - 19.50............................          398,254          6.64         17.06      229,669        16.89
   19.73 - 19.73............................          990,551          8.19         19.73        6,562        19.73
   19.91 - 20.56............................          874,451          7.53         20.16      607,973        20.15
   20.66 - 21.30............................          202,264          7.75         21.08       87,861        21.06
   21.75 - 21.90............................          933,925          7.53         21.90      422,738        21.90
   21.93 - 25.00............................          858,144          7.43         23.70      375,874        23.67
   25.56 - 54.45............................        1,319,267          6.90         28.87      882,452        28.41
                                                    ---------                                ---------
                                                    8,344,940          6.84         19.55    4,462,344        18.77
                                                    =========                                =========
</TABLE>

At December 31, 2002,  4,028,287  outstanding  options were exercisable;  and at
December 31, 2001, 2,634,531 outstanding options were exercisable.


o    Employee Stock Purchase Plan

     We have  adopted an  Employee  Stock  Purchase  Plan  (ESPP),  under  which
eligible employees may designate not more than 15% of their cash compensation to
be deducted each pay period for the purchase of Common Stock (up to a maximum of
$25,000  worth  of  Common  Stock  each  year).  The  ESPP  is  administered  in
consecutive,  overlapping  offering  periods of up to 24 months each,  with each
offering  period  divided  into  four  consecutive  six-month  purchase  periods
beginning August 1 and February 1 of each year. On the last business day of each
purchase  period,  shares of Common Stock are purchased with employees'  payroll
deductions accumulated during the prior six months at a price per share equal to
85% of the market price of the Common  Stock on the first day of the  applicable
offering period or the last day of the purchase  period,  whichever is lower. At
December 31, 2003, 3,519,680 shares of Common Stock were authorized for issuance
under the ESPP. There were 361,688 shares issued in 2003 under the ESPP, 269,346
shares in 2002, and 223,311 shares in 2001.  862,559 shares  remained  available
for issuance under the ESPP at December 31, 2003.

7.   Comprehensive Income (Loss)

     The components of comprehensive income (loss), net of tax, are as follows:
<TABLE>
<CAPTION>

                                                                                      Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2003          2002          2001
                                                                             ------------  ------------  ------------
                                                                                          (in thousands)
<S>                                                                          <C>           <C>           <C>
Net income (loss).......................................................     $      6,228  $         75  $     (4,701)

Change in gain on available-for-sale securities, net of tax of $1 in
   2003,  $(38) in 2002, and $185 in 2001...............................               (2)          189           276
Less reclassification adjustment for gains included in net income
   (loss)...............................................................             (489)         (245)         (220)
                                                                             ------------  ------------  ------------
Other comprehensive income (loss).......................................             (491)          (56)           56
                                                                             ------------  ------------  ------------
Total comprehensive income (loss).......................................     $      5,737  $         19  $     (4,645)
                                                                             ============  ============  ============
</TABLE>

Accumulated  other  comprehensive  income for 2003 and 2002 is  presented on the
accompanying  consolidated balance sheets and consists solely of the accumulated
net unrealized gain on available-for-sale securities.


8.   Tax Provision

     The tax provision (benefit) consists of:
<TABLE>
<CAPTION>

                                                                                    Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2003          2002          2001
                                                                             ------------  ------------  ------------
                                                                                          (in thousands)
<S>                                                                          <C>           <C>           <C>
Federal - current.......................................................     $     (8,454) $       (177) $       (146)
Federal - deferred......................................................            9,396        (1,052)        1,917
State - current.........................................................               10            10           (84)
State - deferred........................................................           (1,033)         (914)       (1,045)
Foreign - current.......................................................              408           208           295
                                                                             ------------  ------------  ------------
                                                                             $        327  $     (1,925) $        937
                                                                             ============  ============  ============
</TABLE>

     The  tax  provision   (benefit)   reconciles  to  the  amount  computed  by
multiplying income before tax by the U.S. statutory rate as follows:

<TABLE>
<CAPTION>

                                                                                           December 31,
                                                                             ----------------------------------------
                                                                                 2003          2002          2001
                                                                             ------------  ------------  ------------
                                                                                          (in thousands)
<S>                                                                          <C>           <C>           <C>
Provision/(benefit) at federal statutory rate...........................     $      2,294  $       (648) $     (1,317)
Change in valuation allowance...........................................             (445)          625          (440)
Tax exempt interest income..............................................             (122)         (455)         (910)
Federal research credits................................................             (843)         (989)       (1,100)
State taxes, net of federal benefit.....................................             (664)         (588)         (420)
Write-down of deferred tax asset due to state tax rate reduction........               --            --         1,044
Non-deductible impact of amortization of intangibles/investments........               --            --         4,092
Other...................................................................              107           130           (12)
                                                                             ------------  ------------  ------------
Tax provision...........................................................     $        327  $     (1,925) $        937
                                                                             ============  ============  ============
</TABLE>

     Significant  components  of our  deferred  tax assets and  liabilities  for
federal and state income taxes are as follows:

<TABLE>
<CAPTION>

                                                                                                  December 31,
                                                                                           --------------------------
                                                                                               2003          2002
                                                                                           ------------  ------------
                                                                                                 (in thousands)
<S>                                                                                        <C>           <C>
Deferred tax assets:
   Depreciation........................................................................    $      1,333  $      2,524
   Deferred income on shipments to distributors........................................           8,569        10,417
   Intangible assets...................................................................           3,444         4,035
   Inventories.........................................................................           5,534         6,357
   Net operating losses................................................................          30,750        36,007
   Capitalized research and development expenses.......................................           4,823         4,078
   Research and development tax credit.................................................           5,584         2,864
   Other, net..........................................................................           3,276         2,609
                                                                                           ------------  ------------
                                                                                                 63,313        68,891
   Valuation allowance.................................................................         (27,496)      (23,826)
                                                                                           ------------  ------------
         Net deferred tax assets.......................................................    $     35,817  $     45,065
                                                                                           ============  ============

Deferred tax liabilities:
   Intangible assets...................................................................    $      1,603  $      2,764
                                                                                           ============  ============
</TABLE>

     The valuation allowance increased by approximately $3.7 million in 2003 and
decreased by $4.2 million in 2002.  The  valuation  allowance in 2003 includes a
$4.1 million tax benefit  associated  with stock option  deductions.  The amount
will be credited to additional paid-in capital when the benefit is realized. The
valuation  allowance  decreased in 2002 due to a $5.0  million  reclassification
adjustment  to reduce  goodwill  as a result of the  realization  of  previously
reserved  deferred tax assets  associated with the net operating losses acquired
from  GateField.  This  reduction in the  valuation  allowance  was offset by an
increase to the valuation  allowance of $0.6 million which was primarily related
to impairments on equity investments for which we believe it is more likely than
not such  impairments  will be realized for tax  purposes.  Approximately  $21.8
million of the  valuation  allowance at December 31, 2003,  will be allocated to
reduce goodwill or other  non-current  intangible assets from the acquisition of
GateField when realized.


     We have a  federal  operating  loss  carryforward  of  approximately  $83.7
million,  which will  expire at various  times  beginning  in 2006 and ending in
2023. We also have federal  research and  development  credits of  approximately
$3.0 million, which will expire at various times beginning in 2013 and ending in
2023.  In  addition,   we  have   California   research  and   development   and
manufacturer's investment credits of approximately $4.8 million that will expire
beginning in 2006. Pre-tax income from foreign subsidiaries is immaterial.

9.   Segment Disclosures

     We  operate  in a single  operating  segment:  designing,  developing,  and
marketing  FPGAs.  FPGA sales accounted for 96% of net revenues for 2003,  2002,
and  2001.  We  derive  non-FPGA  revenues  from our  Protocol  Design  Services
organization, royalties, and the licensing of software and sale of hardware that
is  used  to  design  and  program  our  FPGAs.  The  Protocol  Design  Services
organization,  which we acquired  from  GateField in the third  quarter of 1998,
accounted for 1% of our net revenues for 2003, 2002 and 2001.

     We market  our  products  in the United  States  and in  foreign  countries
through   our  sales   personnel,   independent   sales   representatives,   and
distributors. Our geographic sales are as follows:
<TABLE>
<CAPTION>

                                                                Years Ended December 31,
                                   -------------------------------------------------------------------------------
                                              2003                        2002                        2001
                                   -----------------------     -----------------------     -----------------------
                                                           (in thousands, except percentages)
<S>                                <C>                <C>      <C>                <C>      <C>                <C>
United States.................     $     91,652       61%      $     83,276       62%      $     89,847       62%
Export:
Europe........................           37,521       25%            30,716       23             40,652       28
Japan.........................            6,489        4%             8,398        6              6,630        4
Other international...........           14,248       10%            11,978        9              8,430        6
                                   -----------------------     -----------------------     -----------------------
                                   $    149,910      100%      $    134,368      100%      $    145,559      100%
                                   =======================     =======================     =======================
</TABLE>

     We  generate  a  majority  of our  revenues  from the sale of our  products
through  distributors.  As of December 31, 2003,  our principal  distributor  is
Unique.  The following table sets forth the percentage of revenues  derived from
each customer  that  accounted for 10% or more of our net revenues in any of the
last three years:

<TABLE>
<CAPTION>

                                                                                 2003          2002          2001
                                                                                ------        ------        ------
<S>                                                                               <C>           <C>           <C>
Pioneer.................................................................           6%           26%           20%
Unique..................................................................          41            22            19
Arrow...................................................................           -             -            13
Lockheed Martin.........................................................          11             3             3
</TABLE>

     Our property  and  equipment  is located  primarily  in the United  States.
Property,  plant, and equipment information is based on the physical location of
the assets at the end of each of the fiscal  years.  Net  property,  plant,  and
equipment by geographic region was as follows:

<TABLE>
<CAPTION>

                                                                                                  December 31,
                                                                                           --------------------------
                                                                                               2003          2002
                                                                                           ------------  ------------
                                                                                                 (in thousands)
<S>                                                                                        <C>           <C>
United States..........................................................................    $     17,031  $     14,138
Europe.................................................................................             535           805
Japan..................................................................................             187            14
Other international....................................................................           2,182         1,247
                                                                                           ------------  ------------
                                                                                           $     19,935  $     16,204
                                                                                           ============  ============
</TABLE>


10.  Earnings Per Share

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share:
<TABLE>
<CAPTION>

                                                                                     Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2003          2002          2001
                                                                             ------------  ------------  ------------
                                                                                          (in thousands,
                                                                                   except per share amounts)
Basic:
<S>                                                                          <C>           <C>           <C>
   Weighted-average common shares outstanding...........................           24,808        24,302        23,743
                                                                             ============  ============  ============
   Net income (loss)....................................................     $      6,228  $         75  $     (4,701)
                                                                             ============  ============  ============
   Net income (loss) per share..........................................     $       0.25  $       0.00  $      (0.20)
                                                                             ============  ============  ============


Diluted:
   Weighted-average common shares outstanding...........................           24,808        24,302        23,743

   Net effect of dilutive stock options, warrants, and convertible
     preferred stock - based on the treasury stock method...............            1,492           950             -
                                                                             ------------  ------------  ------------
   Shares used in computing net income per share........................           26,300        25,252        23,743
                                                                             ============  ============  ============
   Net income (loss)....................................................     $      6,228  $         75  $     (4,701)
                                                                             ============  ============  ============
   Net income (loss) per share..........................................     $       0.24  $       0.00  $      (0.20)
                                                                             ============  ============  ============
</TABLE>

     For 2003,  options  outstanding  under our stock  option  plans to purchase
approximately  1,913,000  shares of our  Common  Stock  were  excluded  from the
calculation  to derive diluted  income per share because their  inclusion  would
have had an anti-dilutive effect.


     For 2002,  options  outstanding  under our stock  option  plans to purchase
approximately  5,160,000  shares of our  Common  Stock  were  excluded  from the
calculation  to derive diluted  income per share because their  inclusion  would
have had an anti-dilutive effect.

     For 2001,  we were in a net loss  position  and the  inclusion of any stock
options in the shares used for  computing  diluted net loss per share would have
been  anti-dilutive  (reduced  the loss  per  share).  Therefore,  approximately
4,016,000  options were excluded from the  calculation  of net less per share in
2001 because their inclusion would have had an anti-dilutive effect.



<PAGE>





                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


THE BOARD OF DIRECTORS AND SHAREHOLDERS
ACTEL CORPORATION

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Actel
Corporation  as of  December  31, 2003 and 2002,  and the  related  consolidated
statements of operations,  shareholders' equity and other comprehensive  income,
and cash flows for each of the three  years in the  period  ended  December  31,
2003. These financial  statements are the responsibility of Actel's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Actel
Corporation at December,  31 2003 and 2002 and the  consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 2003, in conformity with accounting  principles  generally accepted
in the United States.

As  discussed  in Note 1 and Note 2 to the  consolidated  financial  statements,
effective January 1, 2002, the company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets."







                                                         /s/ ERNST & YOUNG LLP

San Jose, California
January 21, 2004


<PAGE>


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

         None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

     Our management  evaluated,  with the  participation  of our Chief Executive
Officer and our Chief Financial  Officer,  the  effectiveness  of our disclosure
controls  and  procedures  as of the end of the period  covered  by this  Annual
Report on Form 10-K. Based on this evaluation,  our Chief Executive  Officer and
our  Chief  Financial  Officer  concluded  that  our  disclosure   controls  and
procedures are effective to ensure that  information we are required to disclose
in reports that we file or submit under the  Securities  Exchange Act of 1934 is
recorded, processed,  summarized, and reported within the time periods specified
in the SEC's rules and forms.

Changes in Internal Control over Financial Reporting

     As discussed in Note 1 of Notes to Consolidated  Financial Statements under
the caption to "Stock-Based  Compensation," pro forma information  regarding net
income and net income per share is  required by SFAS No.  148,  "Accounting  for
Stock-Based  Compensation  -  Transition  and  Disclosure  an  Amendment of FASB
Statement No. 123," which also requires that the information be determined as if
we had accounted for our stock-based  awards to employees granted under the fair
value  method.  Our stock based  awards  consist of options and  employee  stock
purchase rights.  The fair value for these  stock-based  awards to employees was
estimated at the date of grant using the  Black-Scholes  pricing  model with the
following weighted-average assumptions:
<TABLE>
<CAPTION>

                                                          Stock Options               Stock Purchase Plan Rights
                                                  -----------------------------      -----------------------------
Years ended December 31,                           2003        2002       2001        2003        2002       2001
--------------------------------------------      ------      ------     ------      ------      ------     ------
<S>                                                <C>         <C>        <C>         <C>         <C>        <C>
Expected life of options (years)............       4.29        4.14       3.46        1.26        1.14       0.50
Expected stock price volatility.............       0.62        0.66       0.67        0.62        0.66       0.67
Risk-free interest rate.....................       2.3%        3.7%       4.1%        1.8%        2.2%       3.0%
</TABLE>

The weighted-average fair value of options granted during 2003 was $9.05, during
2002 was $10.19, and during 2001 was $10.49. The weighted-average  fair value of
ESPP rights  granted  during 2003 was $6.38,  during 2002 was $6.27,  and during
2001 was $8.14.


     For  purposes of pro forma  disclosures,  the  estimated  fair value of our
stock-based  awards to employees is amortized to expense using the graded method
for options and during the purchase  periods for employee stock purchase rights.
Our originally reported pro forma information was as follows:
<TABLE>
<CAPTION>

                                                                   Three Months Ended              Year Ended
                                                               -------------------------   -------------------------
                                                                 Jun. 30,      Mar. 31,      Dec. 31,      Dec. 31,
                                                                   2003          2003          2002          2001
                                                               -----------   ----------    -----------   -----------
<S>                                                            <C>           <C>            <C>          <C>
Pro Forma amounts under fair value method:
Pro Forma stock based employee compensation cost, net of
   related tax...............................................  $     4,091   $    3,865    $    19,610   $    15,011
Pro forma net income (loss)..................................  $    (2,705)  $   (3,634)   $   (19,535)  $   (19,712)
Pro forma earnings (loss) per share:
     Basic...................................................  $     (0.11)  $    (0.15)   $     (0.80)  $     (0.83)
     Diluted.................................................  $     (0.11)  $    (0.15)   $     (0.80)  $     (0.83)
</TABLE>

     During the  fourth  quarter of 2003,  a review of our  financial  reporting
procedures  revealed  errors in the process by which we had calculated pro forma
compensation  expense  for the  purpose  of  providing  the pro  forma  footnote
disclosure  required  by SFAS Nos.  123 and 148.  The  errors  were  limited  to
footnote  disclosure  under  SFAS  Nos.  123  and  148  of  non-cash  pro  forma
compensation  expense and did not change or have any impact on our  historically
reported  statements of income,  balance sheets, or statements of cash flows. We
corrected  the process by which such pro forma  footnote  disclosure is prepared
and instituted  additional  internal controls to ensure that the correct process
is followed.


     Although we believe that the errors were  immaterial,  we have adjusted the
pro forma information for the quarters ended July 6 and April 6, 2003, and years
ended  December  31, 2002 and 2001,  to reflect  the  correction  of  previously
calculated pro forma tax benefits from non qualified stock options and pro forma
compensation  cost related to our employee stock purchase plan. The adjusted pro
forma information is as follows:
<TABLE>
<CAPTION>

                                                                   Three Months Ended              Year Ended
                                                               -------------------------   -------------------------
                                                                 Jun. 30,      Mar. 31,      Dec. 31,      Dec. 31,
                                                                   2003          2003          2002          2001
                                                               -----------   ----------    -----------   -----------
<S>                                                            <C>           <C>            <C>          <C>
Pro Forma amounts under fair value method:
Pro Forma stock based employee compensation cost, net of
   related tax...............................................  $     3,466   $    3,579   $     17,692   $    12,125
Pro forma net income (loss)..................................  $    (2,080)  $   (3,348)  $    (17,617)  $   (16,826)
Pro forma earnings (loss) per share:
     Basic...................................................  $     (0.08)  $    (0.14)  $      (0.72)  $     (0.71)
     Diluted.................................................  $     (0.08)  $    (0.14)  $      (0.72)  $     (0.71)
</TABLE>



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

     The following table identifies each of our directors as of March 1, 2004:
<TABLE>
<CAPTION>


                                                                                                           Director
               Name of Nominee                   Age                 Principal Occupation                   Since
--------------------------------------------   ------   ----------------------------------------------     --------

<S>                                              <C>    <C>                                                  <C>
John C. East ...............................     59     President and Chief Executive Officer                1988
                                                        Actel Corporation

James R. Fiebiger (1)(2)....................     62     Chairman and Chief Executive Officer                 2000
                                                        Lovoltech, Inc.

Jacob S. Jacobsson (1)(3)...................     50     President and Chief Executive Officer                1998
                                                        Forte Design Systems

Henry L. Perret (2).........................     58     President and Chief Financial Officer and            2003
                                                          Acting Chief Financial Officer
                                                        Legerity, Inc.

Robert G. Spencer (2)(3)....................     60     Principal                                            1989
                                                        The Spencer Group
</TABLE>

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

(1)......Member of Nominating Committee.

(2)......Member of Audit Committee.

(3)......Member of Compensation Committee.

     Mr.  East has  served as our  President,  Chief  Executive  Officer,  and a
director since December 1988.

     Mr. Fiebiger has been a director since December 2000.  Since December 1999,
he has been Chairman and Chief Executive Officer of Lovoltech, Inc., a privately
held semiconductor  company  specializing in low voltage devices. He also serves
as a director of Mentor Graphics Corporation,  QLogic Corporation, and a private
company.  Mr.  Fiebiger was Vice  Chairman and Managing  Director of  Technology
Licensing of GateField Corporation, a semiconductor company that we purchased in
November 2000, from 1998 to 2000, and President,  Chief Executive Officer, and a
director of GateField from 1996 to 1998.

     Mr.  Jacobsson has been a director since May 1998.  Since November 2000, he
has been President, Chief Executive Officer, and a director of Cynapps, Inc. and
its successor by merger,  Forte Design Systems,  a  privately-held  company that
offers  products and services for the  hierarchical  design and  verification of
large, complex systems and integrated circuits.  For the five years before that,
he was President and Chief  Executive  Officer of SCS  Corporation,  a privately
held  semiconductor  company in the Radio  Frequency  Identification  area.  Mr.
Jacobsson also serves as a director of various private companies.

     Mr. Perret has been a director since January 2003.  Since November 2003, he
has been a director and President and Chief  Executive  Officer and acting Chief
Financial  Officer of Legerity,  Inc. Before that, he had been Vice President of
Finance,  Chief  Financial  Officer,  and General  Manager of the Voice  Network
Access product line at Legerity since August 2001. Before joining Legerity,  Mr.
Perret was our Vice President of Finance and Chief  Financial  Officer from June
1997 and our Controller  from January 1996. From April 1992 until joining us, 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 with National Semiconductor, a
semiconductor manufacturer.

     Mr.  Spencer  has been a  director  since  February  1989.  He has been the
principal of The Spencer Group, a consulting firm, for the past five years.

     Jos C. Henkens, a director since April 1988, died unexpectedly in 2003. The
Nominating  Committee is in the process of searching  for a director to fill the
vacancy.

     There is no family relationship  between any of our directors and executive
officers.

Executive Officers

     The following table  identifies each of our executive  officers as of March
1, 2004:
<TABLE>
<CAPTION>

                  Name                      Age                         Position
-------------------------------------       ---    -------------------------------------------------------
<S>                                         <C>    <C>
John C. East.........................       59     President and Chief Executive Officer

Esmat Z. Hamdy.......................       54     Senior Vice President of Technology & Operations

Jon A. Anderson......................       45     Vice President of Finance and Chief Financial Officer

Anthony Farinaro.....................       41     Vice President & General Manager of Design Services

Paul V. Indaco.......................       53     Vice President of Worldwide Sales

Dennis G. Kish.......................       40     Vice President of Marketing

Barbara L. McArthur..................       53     Vice President of Human Resources

Fares N. Mubarak.....................       42     Vice President of Engineering

David L. Van De Hey..................       48     Vice President & General Counsel and Secretary
</TABLE>

     Mr. East has served as our  President  and Chief  Executive  Officer  since
December  1988.  From April 1979 until  joining  us, 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, Mr. East served in various
marketing,  manufacturing,  and engineering  positions for Fairchild  Camera and
Instrument Corporation, a semiconductor manufacturer.

     Dr. Hamdy is one of our founders, was our 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 our Senior Vice President of Technology and
Operations  since  September  1996.  From  November 1985 to July 1991, he held a
number of management  positions with our 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.  Anderson  joined us in March 1998 as Controller  and has been our Vice
President of Finance and Chief  Financial  Officer since August 2001.  From 1987
until joining us, he held various financial positions at National Semiconductor,
a semiconductor  company,  with the most recent position of Director of Finance,
Local Area Networks  Division.  From 1982 to 1986, he was an auditor with Touche
Ross & Co., a public accounting firm.

     Mr.  Farinaro  joined us in August 1998 as Vice President & General Manager
of Design  Services.  From  February  1990  until  joining  us, 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 its spin-off, Plessey Electronic Systems Corporation.

     Mr.  Indaco joined us in March 1999 as Vice  President of Worldwide  Sales.
From  January  1996 until  joining us, he served as Vice  President of Sales for
Chip Express, a semiconductor manufacturer. From September 1994 to January 1996,
Mr. Indaco was Vice President of Sales for Redwood Microsystems, a semiconductor
manufacturer.  From  February  1984 to  September  1994,  he held  senior  sales
management  positions with LSI Logic, a  semiconductor  manufacturer.  From June
1978 to February  1984,  Mr.  Indaco held various  field  engineering  sales and
marketing positions with Intel Corporation, a semiconductor  manufacturer.  From
June  1976  to June  1978,  he  held  various  marketing  positions  with  Texas
Instruments, a semiconductor manufacturer.

     Mr. Kish joined us in December 1999 as Vice President of Strategic  Product
Marketing  and became our Vice  President of  Marketing  in July 2000.  Prior to
joining us, he held senior management positions at Synopsys, an EDA company, and
Atmel,  a  semiconductor  manufacturer.  Before  that,  Mr.  Kish held sales and
engineering positions with Texas Instruments, a semiconductor manufacturer.

     Ms.  McArthur  joined  us in  July  of 2000  as  Vice  President  of  Human
Resources. From 1997 until joining us, she was Vice President of Human Resources
at Talus  Solutions.  Before  that,  Ms.  McArthur  held senior  human  resource
positions at Applied  Materials from 1993 to 1997, at 3Com Corporation from 1987
to 1993, and at Saga Corporation from 1978 to 1986.

     Mr.  Mubarak  joined us in November  1992,  was our Director of Product and
Test  Engineering  until  October  1997,  and has  been our  Vice  President  of
Engineering  since  October  1997.  From 1989 until  joining us, 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.

     Mr.  Van De Hey  joined us in July 1993 as  Corporate  Counsel,  became our
Secretary in May 1994, and has been our 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 our outside legal counsel. From August 1985 until October
1988, he was an associate with the Cleveland office of Jones Day, a law firm.

     Subject  to  their  rights  under  any  contract  of  employment  or  other
agreement, executive officers serve at the discretion of the Board of Directors.

Audit Committee and Audit Committee Financial Expert

     Our Board of Directors has a separately-designated standing Audit Committee
for the purpose of overseeing our accounting and financial  reporting  processes
and audits of our financial  statements.  The Audit Committee currently consists
of Messrs. Spencer (Chairman), Fiebiger, and Perret.

     Mr.  Perret was added to our Board of Directors  on January 17,  2003,  and
appointed  to the  Audit  Committee  to serve as the Audit  Committee  Financial
Expert.  Mr.  Perret was  employed by Actel from January 1996 until August 2001,
last serving as Vice President of Finance and Chief  Financial  Officer.  At the
time of Mr.  Perret's  appointment,  the Board of Directors  determined  that he
qualified as an audit committee  financial expert;  was "independent" as defined
in Section  10A(m)(3) of the Sarbanes  Oxley Act; and was not  "independent"  as
defined in NASD Rules 4200 and 4350 (Rules) proposed by The Nasdaq Stock Market,
Inc. (Nasdaq).  Relying on an exception to the independence  requirements in the
proposed  Rules,  the  Board of  Directors  also  determined  that Mr.  Perret's
membership  on the Audit  Committee  was in the best  interests of Actel and its
shareholders  because of his  experience  and  sophistication  in accounting and
financial  matters and his familiarity with Actel and its financial  statements.
As the  result of an  amendment  to the Rules  proposed  by Nasdaq on October 9,
2003, the exception relied upon by the Board was not included in the final Rules
approved by the SEC on November 3, 2003.  However,  the Rules are not  effective
until  the  earlier  of  October  31,  2004,  and our  2004  Annual  Meeting  of
Shareholders,  which the Board has  scheduled  for October 14,  2004.  The Board
determined at its meeting on January 16, 2004, that Mr. Perret was not currently
"independent"  under the final Rules, but that he would be  "independent"  under
the final Rules before the 2004 Annual Meeting of Shareholders.

Section 16(a) Beneficial Ownership Reporting Compliance

     To our  knowledge,  based  solely on our  review of the  copies of  reports
furnished to us, all of our directors,  officers, beneficial owners of more than
ten percent of our Common Stock,  and other persons subject to Section 16 of the
Exchange  Act with  respect to our Common  Stock  filed with the SEC on a timely
basis all reports  required by Section 16(a) of the Exchange Act during our most
recent fiscal year.

Code of Ethics

     We have  adopted  a Code of Ethics  that  applies  to our  Chief  Executive
Officer,  Chief Financial Officer, and Controller.  A copy of the Code of Ethics
is filed as an exhibit to this Annual Report on Form 10-K.


<PAGE>


ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation

o    Summary of Officer Compensation

     The following table sets forth  information  concerning the compensation of
the five  mostly  highly  compensated  executive  officers  who were  serving as
executive officers of the Company at the end of the last completed fiscal year:

<TABLE>
<CAPTION>

                                                                                                       Long Term
                                                                                                     Compensation
                                                                                                     -------------
                                                                  Annual Compensation                    Awards
                                                     ---------------------------------------------   -------------
                                                                                                       Securities
                                                                                   Other Annual        Underlying
       Name and Principal Position           Year       Salary       Bonus (2)     Compensation         Options
-----------------------------------------   -------  -------------  -----------  -----------------   ------------

<S>                                          <C>     <C>           <C>           <C>                      <C>
John C. East...........................      2003    $    364,391  $     63,929  $           0            107,000
   President and Chief Executive             2002         381,894             0              0            120,000
   Officer                                   2001         362,800             0              0            125,000

Esmat Z. Hamdy.........................      2003         280,957        31,355              0             40,000
   Senior Vice President of                  2002         280,957             0              0             45,000
   Technology & Operations                   2001         280,957             0              0             50,000

Paul Indaco............................      2003         259,064        28,911          8,700 (3)         40,000
   Vice President of Sales                   2002         259,064             0          8,700 (3)         45,000
                                             2001         259,064             0          8,700 (3)         50,000

Dennis G. Kish  .......................      2003         235,000        26,226              0             40,000
   Vice President of Marketing               2002         233,257             0              0             45,000
                                             2001         235,000             0              0             50,000

Fares Mubarak..........................      2003         273,420        30,514              0             40,000
   Vice President of Engineering             2002         273,505             0              0             45,000
                                             2001         283,936             0              0             50,000
</TABLE>

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

(1)  Except as set forth in this  table,  there was no  reportable  compensation
     awarded to, earned by, or paid to the named executive officers in 2003.

(2)  The Company  pays bonuses in the year  following  that in which the bonuses
     were earned.

(3)  Other compensation related to car allowance.

o    Option Grants

     The following  table sets forth certain  information  with respect to stock
options  granted  during  2003 to each of the  executive  officers  named in the
Summary Compensation Table:

<TABLE>
<CAPTION>

                                               Options Grants in Last Fiscal Year

                                                                                    Potential Realizable Value at
                                                                                 Assumed Annual Rates of Stock Price
                                           Individual Grants (1)                   Appreciation for Option Term (2)
                            ---------------------------------------------------  ------------------------------------

                                           % of Total
                                             Options
                               Number of   Granted to     Per
                              Securities    Employees     Share
                              Underlying    in Fiscal   Exercise     Expiration
           Name               Options (3)      Year      Price          Date      0%         5%            10%
-----------------------     --------------  ----------  ---------    ----------  -----  -------------  -------------
<S>                            <C>            <C>       <C>          <C>         <C>    <C>            <C>
John C. East...........        107,000 (4)    9.07%     $  15.15     01/28/13    $   0  $   1,019,470  $   2,583,536

Esmat Z. Hamdy.........         40,000 (4)    3.39%        15.15     01/28/13        0        381,110        965,808

Paul V. Indaco.........         40,000 (4)    3.39%        15.15     01/28/13        0        381,110        965,808

Dennis G. Kish.........         40,000 (4)    3.39%        15.15     01/28/13        0        381,110        965,808

Fares N. Mubarak.......         40,000 (4)    3.39%        15.15     01/28/13        0        381,110        965,808
</TABLE>


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

(1)  The  exercise  price of these  options is equal to the fair market value of
     our  Common  Stock on the date of  grant,  as  determined  by our  Board of
     Directors.  The  options  expire ten years from the date of grant,  are not
     transferable by the optionee (other than by will or the laws of descent and
     distribution),  and are exercisable during the optionee's  lifetime only by
     the optionee. To the extent exercisable at the time of termination, options
     may be exercised within six months following  termination of the optionee's
     employment,  unless  termination is the result of death,  in which case the
     options  become  fully  vested and may be  exercised  at any time within 12
     months  following  death by the optionee's  estate or a person who acquired
     the right to exercise the option by bequest or inheritance.

(2)  The 0%, 5%, and 10% assumed  annual rates of  appreciation  are mandated by
     the rules of the SEC and do not  represent  our estimate or  projection  of
     future Common Stock prices. The "potential realizable value" was calculated
     at the assumed rates of appreciation using the applicable exercise price as
     the base.

(3)  Options  vest and are fully  exercisable  upon an  involuntary  termination
     other  than "for  cause," or a  voluntary  termination  "for good  reason,"
     following a "change of control."

(4)  Option begins vesting August 1, 2003, and vests 50% on August 1, 2005, then
     quarterly at a rate of 6.25% until August 1, 2007.

o    Option Values

     The following table sets forth certain information concerning the number of
options  exercised  during 2003 by the executive  officers  named in the Summary
Compensation  Table, as well as the number and aggregate value of shares covered
by both  exercisable  and  unexercisable  stock  options held by such  executive
officers as of January 4, 2004, the end of the fiscal year.

                   Aggregated Option Exercises in Last Fiscal Year
                        and Fiscal Year End Option Values
<TABLE>
<CAPTION>

                                                               Number of Securities         Value of Unexercised
                                                              Underlying Unexercised       In-the-Money Options at
                                                            Options at Fiscal Year-End       Fiscal Year-End (1)
                                                           -----------------------------  --------------------------

                                 Shares
                                Acquired         Value                         Not                           Not
            Name               On Exercise   Realized (2)    Exercisable   Exercisable    Exercisable    Exercisable
---------------------------    -----------  -------------  -------------  ------------  -------------  -------------

<S>                                <C>      <C>                  <C>           <C>      <C>            <C>
John C. East...............        98,542   $   1,109,975        273,429       302,625  $     989,916  $   1,576,423

Esmat Z. Hamdy.............        26,700         224,437         80,061       117,939        146,835        603,800

Paul Indaco................             0               0        216,811       115,189      1,672,299        594,841

Dennis G. Kish.............        10,000          78,344        146,561       118,439        375,647        605,428

Fares Mubarak..............        41,146         565,043        142,609       118,439        715,327        605,428
</TABLE>

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

(1)  Calculated on the basis of the difference between the closing sale price at
     the fiscal year end ($23.82) and the exercise price.

(2)  Calculated on the basis of the  difference  between the exercise  price and
     (i) the sale  price  when the  exercised  option is sold on the same day or
     (ii) the closing sale price on the exercise date.

Director Compensation

o    Cash Compensation

     As compensation for their services, directors who are not employees receive
an annual  retainer  of  $18,000.  The  chairs of the Audit,  Compensation,  and
Nominating  Committees  and the Audit  Committee  Financial  Expert  receive  an
additional $5,000 annual retainer.  Directors also receive $2,000 for each Board
meeting  attended  in person,  $1,000 for each  committee  meeting  attended  in
person,  and $750 for each Board and  committee  meeting  attended by telephone.
Directors are also reimbursed for reasonable  out-of-pocket expenses incurred in
the performance of their duties.

o    2003 Director Stock Option Plan

     Our 2003  Directors'  Stock Option Plan  (Director  Plan)  provides for the
grant of nonstatutory stock options to nonemployee directors. Under the Director
Plan,  each eligible  director is granted an initial  option to purchase  12,500
shares of our Common  Stock on the date on which such  person  first  becomes an
eligible  director and an  additional  option to purchase  12,500 shares on each
subsequent  date that such person is elected as a director at an annual  meeting
of our shareholders. The exercise price is the closing sales price of our Common
Stock  quoted on the Nasdaq  National  Market on the date of grant.  All options
become  exercisable  on the date of the first  annual  meeting  of  shareholders
following the date of grant,  subject to the optionee remaining a director until
that annual meeting.  Vested options are exercisable within four years after the
date an optionee  ceases to serve as a director,  provided that no option may be
exercised after its expiration date (which is ten years from the date of grant).

Change-in-Control Arrangements

     We have entered into  Management  Continuity  Agreements with our executive
officers,  which are  designed  to ensure  continued  service  in the event of a
"change of  control."  Each  Agreement  provides for  accelerated  vesting of an
officer's  stock options  outstanding  at the time of a change in control if the
officer dies or in the event of an  "involuntary  termination"  of the officer's
employment other than for "cause" following the change of control.

     We also have an Employee  Retention Plan, which provides that all employees
who hold unvested  stock options as of the date of any "change of control" shall
receive,  upon remaining in our employ for six months following the date of such
change of control (or earlier, if terminated other than for "cause"),  an amount
equal to one-third of the aggregate "spread" on their unvested options as of the
date of such change of control.  "Spread" is defined as the  difference  between
the  change-of-control  price and the option exercise price. Payment may be made
in cash, common stock, or a combination of cash and common stock.

     "Change  of  control"  is  defined  as (i)  acquisition  by any  person  of
beneficial  ownership  of more  than  30% of the  combined  voting  power of our
outstanding securities;  (ii) a change of the majority of our Board of Directors
within a  two-year  period;  (iii) our  merger or  consolidation  with any other
corporation that has been approved by our  shareholders,  other than a merger or
consolidation that would result in our voting securities outstanding immediately
prior the merger or  consolidation  continuing  to represent at least 50% of the
total voting power of the surviving entity  outstanding  immediately  after such
merger or  consolidation;  or (iv)  approval  by our  shareholders  of a plan of
complete  liquidation  or an  agreement  for the sale or  disposition  of all or
substantially all of our assets.

Compensation Committee Interlocks and Insider Participation

     Prior  to  our  Annual  Meeting  of  Shareholders  on  May  23,  2003,  the
Compensation  Committee  consisted of Jos C. Henkens,  Jacob S.  Jacobsson,  and
Frederic N.  Schwettmann.  Following our 2003 Annual Meeting,  the  Compensation
Committee  consisted of Messrs.  Henkens  (Chairman),  Jacobsson,  and Robert G.
Spencer.  Since  the  unexpected  death  of Mr.  Henkens  on July 8,  2003,  the
Compensation  Committee  has  consisted  of  Messrs.  Jacobsson  (Chairman)  and
Spencer.  None of the members of the  Compensation  Committee during 2003 was an
officer  or  employee  or  former  officer  or  employee  of Actel or any of its
subsidiaries, or had any other relationship requiring disclosure.

Compensation Committee Report

     The  following  report is  provided  to  shareholders  by the  Compensation
Committee  of the  Board of  Directors.  This  report  shall not be deemed to be
"filed" with the  Securities  and Exchange  Commission or subject to Regulations
14A or 14C or to the liabilities of Section 18 of the Securities Exchange Act of
1934.

o    Background

         The Compensation Committee is a standing committee of the Board of
Directors with the same authority as the Board to act on all compensation
matters, except for actions requiring shareholder approval or related to the
compensation of directors. Since Actel's incorporation in 1986, the Compensation
Committee has been primarily responsible for establishing and reviewing Actel's
management compensation policies. Since Actel's initial public offering in
August 1993, the Compensation Committee has formally administered Actel's
management compensation policies and plans, including our 1986 Incentive Stock
Option Plan, 1995 Employee and Consultant Stock Plan, and 1993 Employee Stock
Purchase Plan.

     No member of the  Compensation  Committee is a former or current officer or
employee of Actel. The current members of the  Compensation  Committee are Jacob
S.  Jacobsson  and Robert G.  Spencer.  Mr.  Jacobsson  has been a member of the
Compensation  Committee since 1998, and Mr. Spencer since 2003.  Meetings of the
Compensation   Committee  are  attended  by  Actel's  Vice  President  of  Human
Resources,  who provides  background and market  information and makes executive
compensation  recommendations  but  does  not  vote  on any  matter  before  the
Compensation  Committee.  Other  executive  officers,  including  Actel's  Chief
Executive Officer and Chief Financial  Officer,  may attend portions of meetings
of the  Compensation  Committee at the request of the  Committee.  The Committee
meets in private at the end of each meeting.

o    Compensation Policy

     There are three major elements of Actel's executive  compensation  program.
The first  element is annual  cash  compensation  in the form of base salary and
incentive  bonuses.  The second  element is long-term  incentive  stock options,
which are designed to align compensation  incentives with shareholder goals. The
third element is compensation and employee benefits  generally  available to all
employees  of Actel,  such as the 1993  Employee  Stock  Purchase  Plan,  health
insurance, and a 401(k) plan.

     The  Compensation  Committee  establishes the  compensation of each officer
principally  by  considering  the average  compensation  for officers in similar
positions with 30 companies in the semiconductor,  software,  and CAE industries
that have annual  revenues  between  $100  million and $999  million  (Reference
Group). The purpose of monitoring the Reference Group is to provide a stable and
continuing frame of reference for compensation decisions.  Most of the companies
in the Reference Group are included in the Nasdaq  Electronic  Component  Stocks
index (see "Company Stock Performance"  below). The composition of the Reference
Group is subject to change from year to year based on the Committee's assessment
of  comparability,  including the extent to which the Reference  Group  reflects
changes occurring within Actel and in the industry as a whole. Actel's policy is
to have officer compensation near the average of the Reference Group.

     After  analyzing  Reference Group base salaries and comparing them with the
base salaries of Actel's  officers,  the  Compensation  Committee  determines an
annual  salary  increase  budget.  In January 2003,  the  Committee  approved no
changes to base salary.

     Under Actel's  Executive Bonus Plan for 2003,  incentive cash payments were
based on Actel's profitability  (pro-forma profit before tax). The profitability
objective was  established in the Executive  Bonus Plan on a sliding  scale,  so
that the percentage  achievement was determinable  objectively at the end of the
year. In 2003, Actel achieved  profitability above the minimum level required by
the Executive Bonus Plan's profitability  objective.  The measure of performance
was then  multiplied  by the target bonus under the Plan,  which was 60% of base
salary for each Executive officer (other than the Chief Executive Officer).  The
result was bonus payments to Executive  officers (other than the Chief Executive
Officer) for 2003 that  averaged  approximately  11.2 % of base salary.  Bonuses
were paid  under the  Executive  Bonus Plan in January  2004.  The  Compensation
Committee believes that the payment of bonuses for 2003 was appropriate in light
of Actel's operating results.

     Actel believes that executive  officers should hold substantial,  long-term
equity  stakes  in  Actel so that  the  interests  of  executive  officers  will
correspond with the interests of the shareholders.  As a result,  stock or stock
options  constitute a significant  portion of the compensation  paid by Actel to
its  officers.  After  analyzing  the  practices  of the  Reference  Group,  the
Compensation  Committee determines an annual budget for option grants to Actel's
employees and officers. In granting stock options to officers,  the Compensation
Committee  considers  a  number  of  factors,  such as the  officer's  position,
responsibility,  and equity interest in Actel,  and evaluates the officer's past
performance  and  future   potential  to  influence  the  long-term  growth  and
profitability  of Actel.  After taking these  considerations  into account,  the
Compensation Committee granted to Messrs. East, Hamdy, Indaco, Kish, and Mubarak
in 2003 the  options to  purchase  shares of Common  Stock  shown on the "Option
Grants"  table.  All of such options were granted at the value of Actel's Common
Stock on the date of grant.

o    Compensation of Chief Executive Officer

     The  Compensation  Committee  generally  uses the same factors and criteria
described above in making  compensation  decisions regarding the Chief Executive
Officer. In 2003, Mr. East's annual base salary remained at $381,894. Mr. East's
2003  bonus was  determined  under  Actel's  Executive  Bonus Plan in the manner
described  above  (except  that his target bonus was 90% of his base salary) and
resulted in a payment of $63,929, or approximately 16.7% of his base salary.

o    Deductibility of Executive Compensation

     Beginning in 1994, the Internal Revenue Code limited the federal income tax
deductibility of compensation paid to Actel's chief executive and to each of the
other  four  most  highly  compensated  executive  officers.  For this  purpose,
compensation  can  include,  in addition to cash  compensation,  the  difference
between the  exercise  price of stock  options  and the value of the  underlying
stock on the date of exercise. Actel may deduct compensation with respect to any
of these  individuals  only to the  extent  that  during  any  fiscal  year such
compensation  does not exceed $1 million or meets certain other conditions (such
as shareholder  approval).  Considering  Actel's current  compensation plans and
policy, Actel and the Compensation  Committee believe that, for the near future,
there is little risk that Actel will lose any significant tax deduction relating
to  executive  compensation.  If the  deductibility  of  executive  compensation
becomes a  significant  issue,  Actel's  compensation  plans and policy  will be
modified to maximize deductibility if the Compensation Committee determines that
such action is in the best interests of Actel.

                                                             Jacob S. Jacobsson
                                                             Robert G. Spencer

<PAGE>


Company Stock Performance

     The following  graph shows a comparison of cumulative  total return for our
Common  Stock,  The Nasdaq Stock Market (US),  and Nasdaq  Electronic  Component
Stocks.  In  preparing  the graph,  it was assumed that (i) $100 was invested on
December 31, 1998, in our Common Stock, The Nasdaq Stock Market (US), and Nasdaq
Electronic  Component  Stocks  and  (ii) all  dividends  were  reinvested.  This
information  shall not be deemed to be "filed" with the  Securities and Exchange
Commission or subject to Regulations 14A or 14C or to the liabilities of Section
18 of the Securities Exchange Act of 1934.

                     Comparison of Cumulative Total Return
                                [OBJECT OMITTED]


<TABLE>
<CAPTION>
                                      12/31/98  12/31/99  12/31/00  12/31/01  12/31/02  12/31/03
                                      --------  --------  --------  --------  --------  --------
<S>                                     <C>       <C>       <C>       <C>       <C>       <C>

Nasdaq Stock Market..................   $100      185       112        89        61        92

Nasdaq Electronic Components Stocks..   $100      186       153       104        56       108

Actel Corporation....................   $100      120       121       100        81       120

</TABLE>



The closing sale price of our Common Stock on December 31, 2003, was $23.82. The
closing sale price of our Common Stock on March 12, 2004, was $22.00.


<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Securities Authorized for Issuance under Equity Compensation Plans

     The  following  table  summarizes  as of  January  4,  2004,  the number of
securities to be issued upon the exercise of outstanding  derivative  securities
(options,  warrants,  and rights);  the  weighted-average  exercise price of the
outstanding  derivative  securities;  and the  number  of  securities  remaining
available for future issuance under our equity compensation plans.
<TABLE>
<CAPTION>

                                                          Equity Compensation Plan Information

                                            (a)                          (b)                         (c)
                                                                                            Number of securities
                                                                                           remaining available for
                                Number of securities to be    Weighted-average exercise      future issuance under
                                  issued upon exercise of       price of outstanding       equity compensation plans
                                   outstanding options,         options, warrants and        (excluding securities
        Plan Category               warrants and rights                rights               reflected in column (a)
------------------------------  --------------------------    -------------------------    --------------------------
<S>                                        <C>                           <C>                       <C>
Equity compensation plans
approved by security holders..             6,809,830                     $ 19.93                   1,672,484 (1)(2)

Equity compensation plans not
approved by security holders
(3)...........................             1,446,673                     $ 17.79                   2,277,565
                                --------------------------    -------------------------    --------------------------

Total.........................             8,344,940 (4)                 $ 19.55 (4)               3,950,049 (2)
</TABLE>

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

(1)  Consists of 309,925 shares  available for issuance under our 1986 Incentive
     Stock Option Plan,  500,000  shares  available for issuance  under our 2003
     Director Stock Option Plan, and 862,559 shares available for issuance under
     our ESPP. On January 31, 2004,  216,537  shares were issued under our ESPP,
     leaving 646,022 shares available for issuance.

(2)  Does not include 959,512 shares added to our 1986 Incentive Stock Option on
     January 5, 2004, under the annual replenishment provisions of the Plan.

(3)  Consists  of options  granted and  available  for  issuance  under our 1995
     Employee and Consultant Stock Plan.

(4)  Includes  information  for options  assumed in connection  with mergers and
     acquisitions.  As of January 5,  2004,  a total of 88,437  shares of Common
     Stock with a  weighted-average  exercise price of $19.60 were issuable upon
     exercise of such outstanding options.

Summary of 1995 Employee and Consultant Stock Plan

     The 1995 Employee and Consultant  Stock Plan (1995 Plan) was adopted by our
Board of  Directors  on March 6,  1995.  The  purposes  of the 1995  Plan are to
attract and retain the best  available  personnel  for employee  and  consultant
positions,  to provide  additional  incentive  to such  persons,  and to thereby
promote the success of our  business.  Options  granted  under the 1995 Plan are
nonstatutory  stock  options.   The  1995  Plan  is  not  a  qualified  deferred
compensation plan under Section 401(a) of the Code nor is it subject to ERISA.

o    Administration; Eligibility; Terms of Options; Exercise of Options

     The 1995 Plan is  administered by the  Compensation  Committee of the Board
(Administrator). Options under the 1995 Plan may be granted as the Administrator
determines,  in its  discretion,  only to employees or  consultants  who are not
directors or officers.  Each option  granted under the 1995 Plan is subject to a
written  stock  option  agreement.  The  agreement  sets  forth  the  terms  and
conditions of such grants, including the schedule under which the option becomes
exercisable  and the exercise  price of the option.  An option is exercised when
the optionee gives written notice specifying the number of full shares of Common
Stock to be purchased and tenders payment of the purchase price.  Funds received
by us upon exercise of an option are used for general corporate purposes.

o    Termination of Status as Employee or Consultant

     If the  optionee's  status as an employee or consultant  terminates for any
reason (other than as a result of death), the optionee may, within the period of
time set forth in the stock option agreement,  exercise any option granted under
the 1995 Plan, but only to the extent such option was exercisable on the date of
such  termination.  To the extent that the option is not  exercised  within such
period,  the option  terminates.  If the  optionee's  status as an  employee  or
consultant  terminates as a result of death, the optionee's legal representative
may exercise the entire  option at any time within 12 months  following the date
of death.  To the extent that the option is not  exercised  within such 12-month
period,  the option  terminates.  An option is not transferable by the optionee,
other than by will or the laws of descent and  distribution,  and is exercisable
during the optionee's lifetime only by the optionee.

o    Adjustments; Dissolution; Mergers and Asset Sales

     In the event any change, such as a stock split or dividend,  is made in our
capitalization  that  results  in an  increase  or  decrease  in the  number  of
outstanding  shares of our Common Stock  without  receipt of  consideration,  an
appropriate  adjustment will be made in the number of shares under the 1995 Plan
and the price per share covered by each  outstanding  option.  In the event of a
dissolution or liquidation,  all outstanding options will terminate  immediately
prior to the consummation of such action.  In the event of a merger with or into
another  corporation or a sale of all or substantially  all of our assets,  each
outstanding  option will be assumed or an equivalent  option  substituted by the
successor  corporation.  If the  successor  corporation  refuses to assume  such
options or to substitute equivalent options, each outstanding option will become
fully vested and exercisable.

o    Amendment and Termination

     The Board may amend or  terminate  the 1995 Plan at any time,  but any such
action will not  adversely  affect any stock option then  outstanding  under the
1995 Plan  without the  consent of the holder of the option.  The 1995 Plan will
terminate on July 19, 2012, unless earlier terminated as described above.

Security Ownership of Certain Beneficial Owners

     The following table sets forth certain information regarding the beneficial
ownership of our Common Stock by each person who we believe  owned  beneficially
more than 5% of our outstanding shares as of December 31, 2003:
<TABLE>
<CAPTION>

                                                                                          Amount and
                                                                                           Nature of
                                                                                          Beneficial      Percent of
                         Name and Address of Beneficial Owner                              Ownership      Class (1)
-----------------------------------------------------------------------------------      -------------    ----------
<S>                                                                                      <C>       <C>       <C>
Franklin Resources, Inc............................................................      1,411,250 (2)       5.6%
One Franklin Parkway
San Mateo, California 94403-1906

Mellon Financial Corporation.......................................................      1,271,538 (3)       5.0%
One Mellon Center
Pittsburgh, Pennsylvania  12528

Neuberger Berman, Inc..............................................................      2,206,702 (4)       8.7%
605 Third Ave.
New York, NY, 10158-3698
</TABLE>


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

(1)  Calculated as a percentage of shares of our Common Stock  outstanding as of
     December 31, 2003.

(2)  As reported by the beneficial  owner as of December 31, 2003, in a Schedule
     13G filed with the Securities and Exchange Commission (SEC) on February 13,
     2004. The reporting person,  which is a parent holding company,  has direct
     and indirect  investment advisor  subsidiaries that advise one or more open
     or  closed-end  investment  companies or other managed  accounts.  Franklin
     Advisers,  Inc., an indirect wholly owned investment advisory subsidiary of
     the reporting person,  has sole voting and dispositive  powers with respect
     to 889,400 shares of Common Stock.  Fiduciary Trust Company  International,
     an investment  advisory subsidiary of the reporting person, has sole voting
     and dispositive  powers with respect to 521,850 shares of Common Stock. The
     two affiliates of the reporting  person  reported the securities over which
     they hold  investment and voting power  separately  from each other because
     such powers are  exercised  independently  from each other,  the  reporting
     person,  and all other  investment  advisor  subsidiaries  of the reporting
     person.

(3)  As  reported  by the  beneficial  owner in a  Schedule  13G filed  with the
     Securities and Exchange Commission (SEC) on February 4, 2004. The reporting
     person,  which is a parent  holding  company,  has sole  voting  power with
     respect to 1,026,848 shares of Common Stock,  shared voting and dispositive
     power with respect to 233,240 shares of Common Stock,  and sole dispositive
     power with  respect to  1,010,668  shares of Common  Stock.  The  reporting
     person  and direct or  indirect  subsidiaries  beneficially  own all of the
     shares in their various fiduciary capacities.  As a result,  another entity
     in every  instance  is  entitled to  dividends  or  proceeds  of sale.  The
     reporting  person,  on  behalf  of  itself  and  its  direct  and  indirect
     subsidiaries  (including  Mellon Bank,  N.A., which is a bank as defined in
     Section  3(a)(6) of the Securities  Exchange Act of 1934  (Exchange  Act)),
     disclaims that the filing of the Schedule 13G is an admission of beneficial
     ownership of any such shares for the purposes of Section  13(d) or 13(g) of
     the Exchange Act.

(4)  As reported by the beneficial  owner as of December 31, 2003, in a Schedule
     13G  (Amendment  No.  3)  filed  with the SEC on  February  13,  2004.  The
     reporting  person has sole voting power with  respect to 124,803  shares of
     Common  Stock,  shared  voting power with  respect to  1,636,400  shares of
     Common Stock, and shared dispositive power with respect to 2,206,722 shares
     of Common Stock. The reporting person, which is an investment company and a
     parent holding company,  owns 100% of Neuberger  Berman,  LLC and Neuberger
     Berman Management Inc.  Neuberger Berman,  LLC is an investment advisor and
     broker/dealer  with  discretion.  Neuberger  Berman  Management  Inc. is an
     investment  advisor to a Series of Public  Mutual Funds.  Neuberger  Berman
     Genesis Fund Portfolio,  a series of Equity  Managers  Trust,  beneficially
     owns  1,591,200  shares of Common Stock.  Neuberger  Berman,  LLC serves as
     sub-adviser  and  Neuberger  Berman  Management  Inc.  serves as investment
     manager of Neuberger Berman Genesis Fund Portfolio, which holds such shares
     in the ordinary course of its business and not with the purpose of changing
     or  influencing  the control of the issuer.  The balance of the shares with
     respect to which the  reporting  person has shared  voting power is held by
     Neuberger  Berman's  various  other  Funds.  Neuberger  Berman,  LLC is the
     sub-advisor to such Funds. Neuberger Berman, LLC also has the sole power to
     vote the  shares of many  unrelated  clients.  The  clients  are the actual
     owners of those  shares and have the sole right to receive and the power to
     direct the  receipt of  dividends  from or  proceeds  from the sale of such
     shares.  The  balance of the  shares  with  respect to which the  reporting
     person has shared dispositive power is for individual client accounts.

Security Ownership of Management

     The following table sets forth certain information regarding the beneficial
ownership of our Common Stock as of March 1, 2004,  by (i) each  director,  (ii)
each officer named in the Summary  Compensation  Table,  and (iii) all directors
and officers as a group:
<TABLE>
<CAPTION>

                                                                                         Shares         Percentage
                                                                                       Beneficially     Beneficially
                                       Name                                             Owned (1)        Owned (2)
--------------------------------------------------------------------------------      --------------   ------------
<S>                                                                                          <C>           <C>
John C. East (3)................................................................             312,832       1.2%

James R. Fiebiger (3)...........................................................              11,250         *

Esmat Z. Hamdy (3)..............................................................             128,261         *

Paul V. Indaco (3)..............................................................             227,296         *

Jacob S. Jacobsson (3)..........................................................              20,000         *

Dennis G. Kish (3)..............................................................             153,748         *

Fares N. Mubarak (3)............................................................             151,582         *

Henry L. Perret.................................................................              24,238         *

Robert G. Spencer (3)...........................................................              35,166         *

All Directors and Executive Officers as a Group (13 persons) (3)................           1,397,235       5.4%
</TABLE>

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

*        Less than one percent.

(1)  Except  as  indicated  in the  footnotes  to this  table  and  pursuant  to
     applicable  community  property laws, the persons and entities named in the
     table have sole voting and sole investment power with respect to all shares
     of Common Stock beneficially owned.

(2)  Calculated  as a  percentage  of shares of Common Stock  outstanding  as of
     March 1, 2004.

(3)  Includes for each indicated  director and officer shares issuable  pursuant
     to stock options that are exercisable within 60 days after the Record Date:
     for Mr. East,  235,428 shares;  for Mr.  Fiebiger,  11,250 shares;  for Mr.
     Hamdy,  87,123 shares;  for Mr. Indaco,  223,186 shares; for Mr. Jacobsson,
     20,000 shares;  for Mr. Kish,  153,748  shares;  for Mr.  Mubarak,  149,796
     shares; for Mr. Spencer,  32,500 shares; and for all directors and officers
     as a group, 1,229,249 shares.

Changes in Control

     We know of no arrangements that may result in a change in control of Actel.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

     The  aggregate  fees  billed  for  professional  services  rendered  by our
auditors,  Ernst & Young LLP, for the most two recent fiscal years  consisted of
the following:
<TABLE>
<CAPTION>

                                                                                          2003             2002
                                                                                    ----------------  ----------------
<S>                                                                                 <C>               <C>
Audit Fees......................................................................    $    380,562      $    355,680

Audit Related Fees..............................................................          41,210            46,800

Tax Fees (1)....................................................................         346,944 (2)       315,378 (3)

All Other Fees..................................................................               0                 0
</TABLE>

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

(1)  Consists  of  tax-related   services   performed  in  connection  with  the
     preparation  of  state  and  federal  tax  returns,  as well as  other  tax
     consulting  matters,  including an analysis  regarding the realizability of
     net operating losses we acquired in our purchase of GateField  Corporation.
     The  completion  of  the  net  operating   loss  analysis   resulted  in  a
     reclassification  from  goodwill to net deferred tax assets.  See Note 2 of
     Notes to Consolidated Financial Statements for more information.

(2)  Includes  $90,000 in fees for  services  performed in  connection  with the
     preparation of state and federal tax returns.

(3)  Includes  $94,508 in fees for  services  performed in  connection  with the
     preparation of state and federal tax returns.

Audit Committee's Pre-Approval Policies and Procedures

     Our  Audit  Committee  pre-approves  all audit  and  permissible  non-audit
services provided by our independent auditors.  These services may include audit
services, audit-related services, tax services, and other services. Pre-approval
is generally  provided for up to one year and any pre-approval is detailed as to
the  particular  service or category of services and is  generally  subject to a
specific  budget.  The  independent  auditors  and  management  are  required to
periodically  report to the Audit  Committee  regarding  the extent of  services
provided by the independent  auditors in accordance with this pre-approval.  The
Audit  Committee  may also  pre-approve  particular  services on a  case-by-case
basis.  In  addition,  the Audit  Committee  has  delegated  to its Chairman the
authority to pre-approve audit and permissible non-audit services, provided that
any such  pre-approval  decision is presented to the full Audit Committee at its
next scheduled meeting. All audit, audit-related,  and tax services for our 2002
fiscal  year  rendered  by  Ernst  &  Young   following  the  enactment  of  the
Sarbanes-Oxley  Act of  2002  and all  audit,  audit-related,  and tax  services
rendered  by Ernst & Young for our 2003  fiscal  year were  pre-approved  by the
Audit Committee.

                                     PART IV

ITEM 15.      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 our 2002  Annual  Report are
     incorporated by reference in Item 8 of this Annual Report on Form 10-K:

          Consolidated balance sheets at December 31, 2003 and 2002

          Consolidated  statements of operations  for each of the three years in
          the period ended December 31, 2003

          Consolidated    statements   of   shareholders'   equity   and   other
          comprehensive  income/(loss) for each of the three years in the period
          ended December 31, 2003

          Consolidated  statements  of cash flows for each of the three years in
          the period ended December 31, 2003

          Notes to consolidated financial statements

          (2) Financial  Statement  Schedule.  The financial  statement schedule
     listed under 15(d) hereof is filed with this Annual Report on Form 10-K.

          (3)  Exhibits.  The exhibits  listed under Item 15(c) hereof are filed
     with, or incorporated by reference into, this Annual Report on Form 10-K.

     (b) Reports on Form 8-K.

     On October 22, 2003,  we announced  our  financial  results for the quarter
ended October 5, 2003.  The full text of the press release  issued in connection
with the announcement was attached as Exhibit 99.1 to our Current Report on Form
8-K (Item 9 pursuant to Item 12) furnished to the SEC on October 22, 2003.

     On October 17,  2003,  we entered into a Preferred  Stock Rights  Agreement
(Rights  Agreement)  with  Wells  Fargo  Bank,  MN N.A.,  as Rights  Agent,  and
announced  that our Board of Directors  had adopted a  Shareholder  Rights Plan.
Under the Shareholder Rights Plan, our Board of Directors declared a dividend of
one right  (Right) to purchase  one  one-thousandth  (0.001) of one share of our
Series A Participating Preferred Stock (Series A Preferred) for each outstanding
share of our Common Stock.  The dividend is payable on November 10, 2003 (Record
Date) to  shareholders  of record as of the close of business on that date. Each
Right entitles the registered  holder to purchase from Actel one  one-thousandth
(0.001)  of a share of  Series A  Preferred  at an  exercise  price of  $220.00,
subject to  adjustment.  The full text of the press release issued in connection
with the  announcement  was  attached  as Exhibit  99.1 and the full text of the
Rights Plan was attached as Exhibit 4.1 to our Current Report on Form 8-K (Items
5 and 7) filed with the SEC on October 24, 2004.

     (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,  as amended  (filed as
                    Exhibit 3.1 to the  Registrant's  Annual Report on Form 10-K
                    (File No.  0-21970)  for the fiscal  year  ended  January 5,
                    2003).

        3.2         Restated  Bylaws  (filed as Exhibit 3.1 to the  Registrant's
                    Annual Report on Form 10-K (File No. 0-21970) for the fiscal
                    year ended January 5, 2003).

        3.3         Certificate of Amendment to Certificate of  Determination of
                    Rights, Preferences and Privileges of Series A Participating
                    Preferred Stock of Actel  Corporation  (filed as Exhibit 3.3
                    to the Registrant's Registration Statement on Form 8-A (File
                    No. 000-2197), filed on October 24, 2003).

        4.1         Preferred  Stock Rights  Agreement,  dated as of October 17,
                    2003,  between the Registrant and Wells Fargo Bank, MN N.A.,
                    including the  Certificate  of Amendment of  Certificate  to
                    Determination,  the  form  of  Rights  Certificate  and  the
                    Summary of Rights attached  thereto as Exhibits A, B, and C,
                    respectively  (filed  as  Exhibit  4.1 to  the  Registrant's
                    Registration  Statement  on Form 8-A  (File  No.  000-2197),
                    filed on October 24, 2003).

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

       10.2 (1)     1986  Incentive  Stock Option Plan,  as amended and restated
                    (filed as Exhibit 10.1 to the Registrant's  Quarterly Report
                    on Form 10-Q (File No. 0-21970) for the fiscal quarter ended
                    July 7, 2002).

       10.3 (1)     2003 Director Stock Option Plan (filed as Exhibit 4.4 to the
                    Registrant's  Registration  Statement  on Form S-8 (File No.
                    333-112215), declared effective on January 26, 2004).

       10.4 (1)     Amended and  Restated  1993  Employee  Stock  Purchase  Plan
                    (filed as Exhibit 10.4 to the Registrant's  Annual Report on
                    Form 10-K  (File No.  0-21970)  for the  fiscal  year  ended
                    January 5, 2003).

       10.5         1995  Employee  and  Consultant  Stock Plan,  as amended and
                    restated   (filed  as  Exhibit  10.2  to  the   Registrant's
                    Quarterly  Report on Form 10-Q  (File No.  0-21970)  for the
                    fiscal quarter ended July 7, 2002).

       10.6 (1)     Employee  Retention  Plan, as amended and restated (filed as
                    Exhibit 10.6 to the Registrant's  Annual Report on Form 10-K
                    (File No.  0-21970)  for the fiscal  year  ended  January 6,
                    2002).

       10.7 (1)     Deferred  Compensation  Plan, as amended and restated (filed
                    as Exhibit 10.7 to the  Registrant's  Annual  Report on Form
                    10-K (File No.  0-21970) for the fiscal year ended  December
                    31, 2000).

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

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

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

       10.11        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
                    fiscal quarter ended October 2, 1994).

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

       10.13        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).

       10.14        Patent  Cross  License  Agreement  dated  August  25,  1998,
                    between Actel Corporation and QuickLogic Corporation. (filed
                    as Exhibit 10.19 to the  Registrant's  Annual Report on Form
                    10-K (File No. 0-21970) for the fiscal year ended January 3,
                    1999).

       10.15        Development  Agreement by and between Actel  Corporation and
                    Infineon Technologies AG effective as of June 6, 2002 (filed
                    as Exhibit 10.19 to the  Registrant's  Annual Report on Form
                    10-K (File No. 0-21970) for the fiscal year ended January 5,
                    2003).

       10.16        Supply  Agreement  by  and  between  Actel  Corporation  and
                    Infineon Technologies AG effective as of June 6, 2002 (filed
                    as Exhibit 10.20 to the  Registrant's  Annual Report on Form
                    10-K (File No. 0-21970) for the fiscal year ended January 5,
                    2003).

       10.17        Office Lease  Agreement for the  Registrant's  facilities in
                    Mountain View, California, dated February 27, 2003 (filed as
                    Exhibit 10.21 to the Registrant's Annual Report on Form 10-K
                    (File No.  0-21970)  for the fiscal  year  ended  January 5,
                    2003).

       14           Code of Ethics for Principal  Executive and Senior Financial
                    Officers.

       21           Subsidiaries of Registrant.

       23           Consent of Ernst & Young LLP, Independent Auditors.

       24           Power of Attorney.

       31.1         Certification  of Chief Executive  Officer  pursuant to Rule
                    13a-14(a)  (17 CFR  240.13a-14(a)),  as adopted  pursuant to
                    Section 302 of the Sarbanes-Oxley Act of 2002.


       31.2         Certification  of Chief Financial  Officer  pursuant to Rule
                    13a-14(a)  (17 CFR  240.13a-14(a)),  as adopted  pursuant to
                    Section 302 of the Sarbanes-Oxley Act of 2002.


       32           Certification of Chief Executive Officer and Chief Financial
                    Officer  pursuant  to 18 U.S.C.  Section  1350,  as  adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

     (1)  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:
<TABLE>
<CAPTION>

              Schedule                         Description                                          Page
            ------------   ----------------------------------------------------                  ---------
<S>                                                                                                 <C>
                 II         Valuation and qualifying accounts                                       111
</TABLE>

     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.



<PAGE>


                                   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




               Date: March 17, 2004      By:        /s/ John C. East
                                           -------------------------------------
                                                          John C. East
                                           President and Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
Annual  Report on Form 10-K has been signed  below by the  following  persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

                 Signature                                          Title                                Date
                                              -------------------------------------------------     --------------
<S>                                           <C>                                                   <C>

              /s/ John C. East                President and Chief Executive Officer (Principal
-----------------------------------------     Executive Officer) and Director                       March 17, 2004
               (John C. East)

             /s/ Jon A. Anderson              Vice President of Finance and Chief Financial
-----------------------------------------     Officer (Principal Financial and Accounting
               (Jon A. Anderson)              Officer)                                              March 17, 2004

            /s/ James R. Fiebiger
-----------------------------------------
            (James R. Fiebiger)               Director                                              March 17, 2004

             /s/ Henry L. Perret
-----------------------------------------
             (Henry L. Perret)                Director                                              March 17, 2004

           /s/ Jacob S. Jacobsson
-----------------------------------------
            (Jacob S. Jacobsson)              Director                                              March 17, 2004

            /s/ Robert G. Spencer
-----------------------------------------
            (Robert G. Spencer)               Director                                              March 17, 2004

</TABLE>

<PAGE>


                                   SCHEDULE II



                                ACTEL CORPORATION

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

                        Valuation and Qualifying Accounts

<TABLE>
<CAPTION>


                                                                Balance at                                Balance at
                                                                beginning                                   end of
                                                                of period     Provisions    Write-Offs      period
                                                               ------------  ------------  ------------  ------------
                                                                                   (in thousands)
<S>                                                            <C>           <C>           <C>           <C>
Allowance for doubtful accounts:
   Year ended December 31, 2001...........................     $      1,070  $        572  $        314  $      1,328
   Year ended December 31, 2002...........................            1,328            86           336         1,078
   Year ended December 31, 2003...........................            1,078           355           355         1,078
</TABLE>