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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 29, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-21970
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ACTEL CORPORATION
(Exact name of Registrant as specified in its charter)
California 77-0097724
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
955 East Arques Avenue
Sunnyvale, California 94086-4533
(Address of principal executive offices) (Zip Code)
(408) 739-1010
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report on Form 10-K or any
amendment to this Annual Report on Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing price for shares of the Registrant's
Common Stock on March 27, 1997, as reported by the National Market System of the
National Association of Securities Dealers Automated Quotation System, was
approximately $281,810,000. 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 other purpose.
Number of shares of Common Stock outstanding as of March 30, 1997:
20,814,611.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in Parts II, III, and
IV of this Annual Report on Form 10-K: (i) portions of Registrant's annual
report to security holders for the fiscal year ended December 29, 1996 (Parts II
and IV), and (ii) portions of Registrant's proxy statement for its annual
meeting of shareholders to be held on May 2, 1997 (Part III).
PART I
ITEM 1. BUSINESS
Overview
Actel designs, develops, and markets field programmable gate arrays
("FPGAs") and associated development system software and programming hardware.
FPGAs are used by designers of communications, computer, industrial,
military/aerospace, and other electronic systems to differentiate their products
and get them to market faster. The Company is the leading supplier of FPGAs
based on antifuse switching elements, which are smaller than alternative
switching elements (such as static random access memories ("SRAMs") or erasable
programmable read only memories ("EPROMs")), permitting reduced circuit size and
cost and increased design efficiencies. Actel shipped its first products in 1988
and has sold more than 7,500 development systems to customers, including Allen
Bradley/Rockwell, AST Computer, Alcatel, Bay Networks, Cabletron, DSC
Communications, Hughes Aircraft, Lockheed-Martin, Lucent Technologies, and
Siemens. The Company has foundry relationships with Chartered Semiconductor
Manufacturing Pte Ltd ("Chartered Semiconductor") in Singapore, Lockheed-Martin
Federal Systems Company ("Lockheed-Martin FSC") in the United States, Matsushita
Electronics Company and Matsushita Electrical Industry Company Ltd.
(collectively, "Matsushita") in Japan, Texas Instruments Incorporated ("TI") in
the United States, and Winbond Electronics Corp. ("Winbond") in Taiwan,
permitting Actel to focus its resources on its core strengths of designing,
developing, and marketing FPGAs.
The Company's FPGAs are based on two proprietary technologies: the Actel
antifuse and a circuit architecture that takes advantage of the Company's
antifuse. The principal advantages of the antifuse over alternative switching
elements are smaller size and lower electrical resistance. The smaller size of
the antifuse generally permits Actel to make programmable circuits that are
smaller, and hence less costly, than circuits of comparable performance and
capacity made under comparable design rules using alternative switch
technologies. Similarly, for circuits of comparable size and capacity
manufactured under comparable design rules, the antifuse facilitates the design
of circuits with a greater number of switches, which, in combination with the
lower electrical resistance of the antifuse, tends to enhance flexibility and/or
performance. In addition, the Company believes that its antifuse-based
architecture is better suited for the high-level tools generally employed to
design higher capacity devices than existing architectures using other types of
switching elements. Actel believes that the advantages of its antifuse and
architecture become more pronounced in higher capacity devices and that the
demand for higher capacity devices will increase faster than that for
programmable devices as a whole. Accordingly, the Company is focusing its
attention on the transition to higher capacity devices and the associated
high-level design methodologies. Actel's strategy is to provide the best FPGA
solutions by giving logic designers the capability to move up to higher capacity
designs with confidence and be successful.
The Company's product line currently consists of six families of FPGAs,
Designer Series Development System and CoreHDL software, Activator Device
Programmers, and a family of mask-programmed gate arrays ("MPGAs"). To meet the
diverse customer requirements in the broad FPGA market, each member of a product
family generally is offered in a variety of speed grades, package types,
reliability screenings, and ambient temperature tolerances. Designers typically
use popular third-party software for circuit design and then translate the
design into a programmed FPGA using Actel's proprietary, highly automated
software (Designer Series Development System) and hardware (Activator Device
Programmers). Customers with high-volume Actel FPGA designs may choose to
convert to lower-cost MPGAs.
In 1996, Actel introduced its CorePCI models, which are Peripheral
Component Interface (PCI) compliant blocks or "cores" that can be used to save
development time by being "dropped into" designs for ACT 3 PCI devices, which
were also introduced in 1996. In addition, the Company announced agreements with
two core providers to offer Actel-optimized cores, the first six of which were
immediately available. In 1996, Actel also announced an alliance with Synopsys
Inc. ("Synopsys") to produce a new category of logic devices called system
programmable gate arrays ("SPGAs"), which will permit designers to combine
complex system elements with traditional programmable logic to implement
programmable "systems-on-a-chip." In addition, the Company announced that its
first SPGA offering will be an "ES" product family that permits designers to
target system functional cores into Actel's new ES reprogrammable architecture.
The Company believes the ES product family will eventually include devices
containing embedded mask-programmed functional blocks for improved performance,
efficiency, and cost.
Actel markets its products through a worldwide, multi-tiered sales and
distribution network. The North American network includes 11 sales management
offices, 21 manufacturers' representative firms, and three distributors. The
European network includes sales management offices in England, France, and
Germany, as well as 23 distributors and two manufacturers' representatives. In
Japan, the Company markets its products through three distributors. Nine
additional distributors serve the remaining international markets in which Actel
offers its products.
The Company was incorporated in California in 1985. Actel's principal
facilities and executive offices are located at 955 East Arques Avenue,
Sunnyvale, California 94086-4533, and its telephone number at that address is
(408) 739-1010. The Company's World Wide Web address is http://www.actel.com. As
used in this Annual Report on Form 10-K, "Actel" and the "Company" mean Actel
Corporation and its consolidated subsidiaries. "Actel" and the Actel logo are
registered trademarks of the Company. This Annual Report on Form 10-K also
includes unregistered trademarks of the Company and trademarks of companies
other than Actel.
Industry Background
The three principal types of integrated circuits used in most digital
electronic systems are microprocessor, memory, and logic circuits.
Microprocessors are used for control and computing tasks; memory devices are
used to store program instructions and data; and logic devices are used to adapt
these processing and storage capabilities to a specific application. Logic
circuits are found in virtually every electronic system.
The logic design of competing electronic systems is often a principal area
of differentiation. Unlike the microprocessor and memory markets, which are
dominated by a relatively few standard designs, the logic market is highly
fragmented and includes, among many other segments, low-density standard
transistor-transistor logic circuits ("TTLs") and custom-designed application
specific integrated circuits ("ASICs"). TTLs are standard logic circuits that
can be purchased "off the shelf" and interconnected on a printed circuit board,
but they tend to limit system performance and increase system size and cost
compared with logic functions integrated at the circuit (rather than the board)
level. ASICs are customized circuits that offer electronic system manufacturers
the benefits of higher levels of circuit integration: improved system
performance, reduced system size, and lower system cost.
ASICs include conventional gate arrays and programmable logic circuits.
Conventional gate arrays are customized to perform desired logical functions at
the time the device is manufactured. Since they are "hard wired" at the wafer
foundry, conventional gate arrays are subject to the time and expense risks
associated with any development cycle involving a foundry. Typically,
conventional gate arrays are first delivered in production volumes months after
the successful production of acceptable prototypes. In addition, conventional
gate arrays cannot be modified after they are manufactured, which subjects them
to the risk of inventory obsolescence and constrains the system manufacturer's
ability to change the logic design. Programmable logic circuits, on the other
hand, are manufactured as standard devices and customized "in the field" by
electronic system manufacturers using computer-aided engineering ("CAE") design
and programming systems. Programmable logic circuits are being used by a growing
number of electronic system manufacturers as a solution to their increasing
demands for differentiation, rapid time to market, and manufacturing
flexibility. While conventional gate array designs are generally more complex
than programmable logic circuit designs, the average capacity (or "gates" per
circuit) of both conventional gate arrays and programmable logic circuits has
increased over time. This indicates that long-term growth in sales within each
market segment has increased faster for circuits with higher capacities.
Programmable logic circuits include programmable logic devices ("PLDs") and
FPGAs. The market for complex PLDs ("CPLDs") and FPGAs has grown rapidly because
they generally offer greater capacity, lower total cost, and lower power
consumption than TTLs and simple PLDs, and faster time to market and lower
development costs than conventional gate arrays. For many electronic system
manufacturers, the time-to-market and manufacturing-flexibility benefits of
CPLDs and FPGAs outweigh their price premium over conventional gate arrays of
comparable capacity. This is particularly true with respect to communications
applications.
Electronic system manufacturers customize programmable logic circuits to
perform the desired logical functions by using CAE systems to change the state
of the device's programming elements (such as fuses, antifuses, or transistors)
through the application of an electrical signal. Most CPLDs currently are
programmed with EPROM or other "floating gate" technologies. Many FPGAs
currently are programmed with SRAM technology. The principal limitation on the
wider use of CPLDs and FPGAs has been the difficulty in developing devices with
price and performance factors approaching those of conventional gate arrays. On
current architectures, programming elements based on EPROM or SRAM technologies
occupy relatively large amounts of area within a circuit, which tends to
increase the overall size and, in turn, the cost of each circuit. In addition,
on current architectures the size of the EPROM and SRAM programming elements
tends to limit the number of interconnect points in a circuit, which, in
combination with the relatively high electrical resistance of EPROM and SRAM
programming elements, tends to limit performance.
Before an FPGA can be programmed there are various steps that must be
accomplished by a designer using CAE design software. These steps include
defining the function of the FPGA, verifying the design, and laying out the
circuit. Traditionally, logic functions have been defined using schematic
capture tools, which essentially permit the designer to construct a circuit
diagram on the computer. As FPGA designers have begun to design higher capacity
circuits, the time required to create schematic diagrams using schematic capture
tools has become prohibitive. To address this problem, designers are
increasingly turning to hardware description languages ("HDLs), also known as
high-level description ("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 can then be
fed into logic synthesis software that automatically converts the abstract or
high-level description to a gate-level representation equivalent to that
produced by schematic capture tools. After a gate-level representation of the
logic function has been created and verified, it must be translated or "laid
out" onto the generic logic modules of the FPGA. This is achieved by placing the
logic gates and routing their interconnections, a process referred to as "place
and route." As designers have begun to design higher capacity circuits, the need
for automatic (instead of manual) place and route capability has become
increasingly important. This transition to the use of HDLs presents a challenge
to the designer to learn new design methods and to use new design tools. In
addition, not all programmable logic circuit architectures are equally well
suited for use with logic synthesis and place and route tools.
Technology
Actel's FPGAs are based on two proprietary technologies: the Actel antifuse
and a circuit architecture that takes advantage of the Company's antifuse. The
antifuse is a two-terminal switch that is open before being programmed. In
contrast to a conventional fuse, the application of sufficient voltage to an
antifuse causes the switch to close permanently, allowing current to pass. Actel
is the leading supplier of FPGAs based on antifuses.
Antifuse
Actel believes that it was first to achieve volume production of
antifuse-based FPGAs. The patented antifuse structure used by Actel in its
current product families consists of a "sandwich" of silicon oxide, silicon
nitride, and silicon oxide ("ONO"). This structure is similar to that of ONO
capacitors employed in the volume manufacture of many dynamic random access
memory (DRAM) circuits. The Company believes that the benefits of the antifuse
include the following:
Small Size
Antifuses are smaller than alternative switching elements (such as
SRAMs and EPROMs), so antifuse-based circuits tend to be smaller, and hence
less costly, than circuits of comparable performance and capacity
manufactured under comparable design rules with alternative switching
elements. This is particularly true of higher capacity circuits. Similarly,
for circuits of comparable size and capacity manufactured under comparable
design rules, the antifuse facilitates the design of circuits with a
greater number of switches, which tends to enhance flexibility and/or
performance.
Low Resistance
Antifuses typically exhibit lower electrical resistance than
alternative switching elements. Lower electrical resistance also tends to
enhances circuit performance.
High Reliability
The Company has performed extensive reliability testing on its
antifuses over many years with excellent results. The negligible rate of
individual antifuse failure permits antifuses to be used in substantial
numbers without degrading overall circuit reliability, which in turn
permits the small size and low resistance attributes of the antifuse to be
fully exploited.
Nonvolatility
After an antifuse-based FPGA is programmed, it retains its circuit
configuration permanently, even in the absence of electrical power. This is
not true of SRAM-based FPGAs. Although the reprogrammability of SRAM and
EPROM switches is desirable in some applications, nonvolatility is
necessary in certain military, aerospace, and communications applications.
Circuit Architecture
The Company believes that the principal advantages of its proprietary
circuit architecture include the following:
Synthesisizability
All of Actel's FPGAs are "synthesis friendly" by virtue of their use
of many, relatively simple logic building blocks (referred to as "fine
granularity") made possible by the antifuse. The Company believes that this
characteristic will become increasingly important to designers as circuit
capacities increase.
Few Programming Elements in Interconnect Path
Actel's circuit architecture usually provides for the minimum number
of antifuses in an interconnect path (two), and never permits more than
four antifuses in any interconnect path. In general, the fewer the number
of switches in an interconnect path, the faster the connection. Many
competing FPGAs include interconnect paths with more than four programming
elements, which increase resistance and therefore impede circuit
performance.
Routability
The plentiful number of antifuses and the patented segmented routing
tracks of different lengths in Actel's products provide numerous routing
alternatives and generally facilitate efficient results with automatic
place and route software, even when a high percentage of the FPGA's
potential gate capacity is used. Actel believes that these features make
its circuits easier to design with than most competing FPGAs.
Flexibility and Utilization
A key competitive factor in the programmable logic market is
utilization, or the extent to which a particular design can use the
potential number of gates available on the circuit. In the case of
SRAM-based FPGAs and EPROM-based CPLDs, utilization can vary substantially
from design to design, so that a "8,000-gate" circuit may in practice use
only a fraction of that number. By contrast, Actel's circuit architecture
permits its products to have a more predictable capacity over a broad range
of applications. This permits Actel's customers to select with a relatively
high degree of confidence the product that is most economical for a desired
application. Actel's circuit architecture also provides significant
flexibility in utilizing the logic capacity of the circuit to boost
performance.
The Company believes that the advantages of its antifuse and architecture
described above generally increase as circuit capacity increases, and that the
greatest growth in the programmable logic market will occur in higher capacity
devices. Accordingly, Actel is focusing its attention on the transition to
higher capacity devices and associated high-level design methodologies. The
Company's strategy is to provide the best FPGA solutions by giving logic
designers the capability to move up to higher capacity designs with confidence
and be successful.
Products
Actel's product line currently consists of six families of FPGAs, Designer
Series Development System and Core HDL software, Activator Device Programmers,
and a family of MPGAs. In 1996, the first member of the RadHard FPGA family was
shipped for revenue and an important software update was released.
FPGAs
Currently, all six of the Company's FPGA families are in production. To
meet the diverse customer requirements in the broad high-capacity programmable
logic market, each member of a family (except RadHard) is offered in a variety
of speed grades, package types, reliability screenings, and ambient temperature
tolerances. The five members of the ACT 1 and ACT 2 families, for example, can
be ordered in more than 100 speed, packaging, screening, and tolerance
variations.
ACT 1
The ACT 1 family consists of two products: the 1,200-gate A1010, which
was first shipped for revenue in 1988; and the 2,000-gate A1020, which was
first shipped for revenue in 1989. The A1020 is capable of integrating the
equivalent of 60 TTLs into a single package. This family of circuits was
introduced at 2.0 micron and currently is manufactured under 1.0 and 0.9
micron design rules. The Company offers 3.3-volt versions of its ACT 1
products.
ACT 2
The ACT 2 family consists of three products: the 4,000-gate A1240 and
the 8,000-gate A1280, which were first shipped for revenue in 1991; and the
2,500-gate A1225, which was first shipped for revenue in 1992. The A1280 is
capable of integrating the equivalent of 240 TTLs into a single package.
This family of circuits was introduced at 1.2 micron and currently is
manufactured under 1.0 micron design rules.
ACT 3
The ACT 3 family consists of five products: the 2,500-gate A1425 and
the 6,000-gate A1460, which were first shipped for revenue in 1993; and the
1,500-gate A1415, the 4,000-gate A1440, and the 10,000-gate A14100, which
were first shipped for revenue in 1994. The ACT 3 family was designed for
applications requiring high speed and a high number of inputs and outputs
("I/Os"). The five members of the ACT 3 family can be ordered in more than
70 speed, packaging, screening, and tolerance variations. The Company
offers 3.3-volt and, beginning in 1996, PCI-compliant versions of its ACT 3
products. The ACT 3 family was introduced at 0.8 micron and currently is
manufactured under 0.6 micron design rules.
1200XL
The 1200XL family, which was first shipped for revenue in 1995,
consists of three members ranging from 2,500 to 8,000 gates that can be
ordered in more than 50 speed, packaging, screening, and tolerance
variations. Taking advantage of 0.6 micron design rules and redesigned I/O
modules and clock distribution networks, 1200XL products offer system
performance significantly in excess of that offered by pin-compatible ACT 2
devices, which the 1200XL family will eventually replace. In 1996, Actel
began offering the 8,000-gate A1280XL in a 208-pin plastic quad flat pack
("PQFP") and the 4,000-gate A1240XL in a 100-pin PQFP. Designers using the
new packages will be able to migrate to higher density devices without
changing packages.
3200DX
The 3200DX family currently consists of the 6,500-gate A3265DX, which
was first shipped for revenue in 1995; and the 14,000-gate A32140DX and the
20,000-gate A32200DX, which were first shipped for revenue in 1996. The
3200DX family, which may range up to 40,000 gates, permits designers to
integrate the register-intensive datapath functions of FPGAs, the control
and decode modules commonly implemented in CPLDs, and the fast dual-port
SRAM typically used for high-speed buffering. Supported by the Company's
extensive selection of automated design tools, the 3200DX family is
optimized for synthesis design methodologies to yield predictable
performance for system logic integration. To further assist designers, most
members of the family offer JTAG boundary scan logic, which permits testing
of the design during manufacture. In 1996, Actel began offering the
A32140DX in a 176-pin thin quad flat pack (TQ176), which will enable
designers to easily migrate from smaller TQ176 devices. The 3200DX family
is based on 0.6 micron design rules.
RadHard
The RadHard family currently consists of the 8,000-gate RH1280, which
was first shipped for revenue in 1996 and ramped more quickly than any
other product in the Company's history. Actel and Lockheed-Martin FSC are
jointly developing the RadHard family to meet the demands of applications
requiring guaranteed levels of performance and radiation immunity,
including the growing commercial satellite market. The RadHard family is
based on 0.8 micron design rules.
Software
A key element of the Company's strategy is to support users' electronic
design automation ("EDA") tools of choice by establishing and maintaining
relationships with leading synthesis software vendors for the purpose of
permitting such tools to be used as a "front end" to Actel's proprietary
Designer Series Development System. Rather than developing this capability
alone, the Company has established the Actel Industry Alliance, which Actel uses
to establish relationships with EDA vendors for the purpose of developing
interfaces between such vendors' EDA tools and Actel's proprietary software.
Under the Alliance program, Actel provides members with, among other things,
access to its proprietary software specifications, early access to software
revisions, verification services, and participation in joint marketing efforts.
The Alliance currently has more than 20 members, including all major EDA vendors
supporting HLD for both VHDL and Verilog. The Company provides comprehensive HDL
solutions for the EDA environments of Cadence Design Systems, Mentor Graphics,
Synopsys, and Viewlogic.
Designer Series Development System
In 1996, the Company began to offer, and distributed as a free upgrade
to Actel customers who subscribe to the Company's support program, an
important software release, Designer Series 3.1, which supports all Actel
FPGA families. Designer Series 3.1 includes improvements to ACTmap, the
VHDL synthesis and optimization tool shipped with all versions of Actel's
Designer Series Development System, and ACTgen, an automatic VHDL macro
builder. In Designer Series 3.1, ACTmap handles the industry-standard array
of VHDL constructs. ACTgen enhancements include multipliers for improved
generation of digital signal processing ("DSP") functions and enhanced
synthesis of the SRAM and control and decode blocks available in the newer
members of the 3200DX family, including the A32200DX. By combining ACTmap's
VHDL behavioral language features with ACTgen's reusable functional
modules, Designer Series 3.1 permits designers to more quickly and easily
design and verify complex, high-capacity designs for applications such as
networking and telecommunications.
CoreHDL Intellectual Property
As integrated circuits move to ever higher levels of capacity and
integration, the use of intellectual property ("IP"), in the form of cores,
becomes more important. In offering CoreHDL IP, the Company is targeting
high-density FPGA designers who are interested in combining customized
logic with predefined functions optimized for high performance
applications. By using predefined cores, designers save engineering
resources for the value-added portions of their designs while shortening
the design cycle. In addition, the portable nature of cores enables design
reuse across multiple product versions.
Actel's CoreHDL IP portfolio currently consists of CorePCI, three
telecommunications cores, and three industrial cores, all of which were
introduced in 1996, and a Universal Serial Bus (USB) Interface. The Company
offers seven CorePCI models, which were developed internally, in both VHDL
and Verilog-HDL. The remaining cores were developed by Inicore AG, a Swiss
IP provider. The telecommunications cores include an ISDN G704-EI Framer,
an Asynchronous Transfer Mode (ATM) UTOPIA receiver interface, and an ATM
UTOPIA transmitter interface. The cores targeted to industrial control
applications are a Universal Asynchronous Receiver/Transmitter (UART), a
Controller Area Network (CAN) Interface, and a Serial Control Bus
Interface.
Activator Device Programmers
The Company's Activator Device Programmers are used to program Actel's
FPGAs. The Activator accepts data from Designer Series Development System
software, converts the data to the proper protocol, and applies the appropriate
electrical signals to the device so as to permanently imprint the user's circuit
design on the device. There are currently two Activator Device Programmers,
Activator 2 and Activator 2S, both of which execute all programming,
verification, and debugging functions. Customized programming adapters for each
device type permit different packages to be programmed by switching adapters.
Activator 2 programs up to four FPGAs at a time; Activator 2S programs one at a
time.
Actel also supports programmers manufactured by third parties, including
Data I/O, the leading supplier of third-party programmers. In 1996, BP
Microsystems Inc. became the first vendor to successfully receive support
certification for all of the Company's FPGAs.
MPGAs
The Company offers a family of MPGAs, which provides high-volume users of
Actel FPGA designs with a fast, convenient, low-cost alternative to traditional
gate array conversions.
Market and Applications
FPGAs can be used in a broad range of applications across nearly all
electronic system market segments. Most customers use the Company's FPGAs in
low- to medium-volumes in the final production form of their products. Some
high-volume electronic system manufacturers use Actel's FPGAs as a prototyping
vehicle and convert production to lower-cost conventional gate arrays, while
others with time-to-market constraints use the Company's FPGAs in the initial
production and then convert to conventional gate arrays. As product life cycles
continue to shorten, some high-volume electronic system manufacturers are
electing to retain FPGAs in volume production because conversion to conventional
gate arrays may not yield sufficiently attractive savings before the electronic
system reaches the end of its life.
Communications
The high capacity, high performance, and low power consumption of FPGAs
make them well suited for use in communications equipment. Increasingly complex
equipment must frequently be designed to fit in the space occupied by previous
product generations. The rapidly changing communications environment rewards
short development times and early market entry.
Representative Actel customers in the communications market include: 3Com,
ADC Kentrox, Advanced Fibre Communications, Alcatel, Ascend Communications, Bay
Networks, Cabletron, Cascade, Cisco Systems, Chipcom, DSC Communications, Hughes
Network Systems, Lucent Technologies, Motorola, and Nortel.
Computer Systems and Peripherals
The computer systems markets are intensely competitive, placing a premium
on early market entry for new products. FPGAs decrease the time to market and
facilitate early completion of production models so that development of hardware
and software can occur in parallel.
Representative Actel customers in the computer market include: AST
Computer, Hewlett-Packard, IBM, Olivetti, Sky Computer, and Tandem Computer.
Industrial Control Equipment
Industrial Control Equipment
Industrial control and instrumentation applications often require complex
electronic functions tailored to specific needs. FPGAs offer programmability and
high capacity, making them attractive to this segment of the electronic
equipment market.
Representative Actel customers in the industrial market include: Allen
Bradley/Rockwell, Eastman Kodak, General Electric, Hewlett-Packard, Marquette,
and Siemens.
Military and Aerospace
Rigorous quality and reliability standards, stringent volume requirements,
and the need for design security are characteristics of the military and
aerospace market. The Company's FPGAs have high quality, reliability, and
capacity, and are virtually impossible to reverse engineer, making them suitable
for many military and aerospace applications. Actel's FPGAs are especially well
suited for space applications, due to the high radiation tolerance of the
Company's antifuse, and for many aircraft and missile flight applications, due
to the high density and performance of Actel's FPGAs.
Representative Actel customers in the military market include: Alliant
Technology, Boeing, E-Systems, Harris, Honeywell, Hughes Aircraft, Jet
Propulsion Labs (JPL), Lockheed-Martin, Loral, National Aeronautics Space
Administration (NASA), Northrup, Olin Corporation, Raytheon, SCI Systems, TI,
and TRW.
Sales and Distribution
The Company maintains a worldwide, multi-tiered selling organization that
includes a direct sales force, independent manufacturers' representatives, and
electronics distributors.
Actel's domestic sales force currently consists of 48 sales and
administrative personnel and field application engineers ("FAEs") operating from
11 sales offices located in major metropolitan areas. Direct sales personnel
call on target accounts and support direct original equipment manufacturers
("OEMs"). Besides overseeing the activities of direct sales personnel, the
Company's sales managers also oversee the activities of 21 manufacturers'
representative firms that operate from approximately 43 office locations. The
manufacturers' representatives concentrate on selling to major industrial
companies in North America. To service smaller, geographically dispersed
accounts in North America, Actel has distributor agreements with
Pioneer-Standard Electronics, Inc. ("Pioneer"), Arrow Electronics, Inc. and Zeus
Electronics (collectively, "Arrow"), and Wyle Laboratories ("Wyle"). Arrow has
approximately 50 branch offices in North America; Pioneer and Wyle have a total
of approximately 60 branch locations in North America.
The Company generates a significant portion of its revenues from
international sales. Sales to customers outside the United States accounted for
approximately 33%, 38%, and 32% of net revenues in 1996, 1995, and 1994,
respectively. Actel's European sales organization currently consists of 23
distributors (including Arrow, which has 10 subsidiary companies in Europe)
having approximately 52 branch offices. The activities of these distributors are
supervised from sales management offices in Basingstoke (England), Paris
(France), and Munich (Germany), where a total of 17 people are employed.
Matsushita, which is a foundry and strategic partner of the Company, markets
Actel's products in Japan under the Company's brand name. The Company has two
additional distributors in Japan, including Innotech Corporation. Actel also has
distributors in Australia, China, Egypt, Hong Kong, India, Korea, Malaysia,
Singapore, South Africa, and Taiwan. In 1996, the Company added Dae Jin
Semiconductor Company as a new distributor. Dae Jin is a dominant distributor in
Korea's telecommunications market.
After the Company's sales representatives and distributors evaluate a
customer's logic design requirements and determine if there is an application
suitable for Actel's FPGAs, the next step typically is a visit to the qualified
customer by a regional sales manager or the FAE from the Company or its
distributor. The sales manager or FAE may then determine that additional
analysis is required by engineers based at Actel's headquarters. The Company's
sales cycle for the initial sale of a design system is generally lengthy and
requires the continued participation of salespersons, FAEs, engineers, and
management.
In 1996, more than half of Actel's sales in the United States and virtually
all of the Company's sales outside the United States were made through
distributors. As is common in the semiconductor industry, Actel generally grants
price protection to distributors. Under this policy, distributors are granted a
credit upon a price reduction for the difference between their original purchase
price for products in inventory and the reduced price. From time to time,
distributors are also granted credit on an individual basis for Company-approved
price reductions on specific transactions to meet competition. The Company also
generally grants distributors limited rights to return products. To date,
product returns under this policy have not been material. Actel maintains
reserves against which these credits and returns are charged. Because of its
price protection and return policies, the Company generally does not recognize
revenue on products sold to distributors until the products are resold to end
customers.
Backlog
At December 31, 1996, Actel's backlog was approximately $27.0 million,
compared with approximately $34.4 million at December 31, 1995. The Company
includes in its backlog all OEM orders scheduled for delivery over the next nine
months and all distributor orders scheduled for delivery over the next six
months. Actel produces standard products that may be shipped from inventory
within a short time after receipt of an order. The Company's business, and to a
large extent that of the entire semiconductor industry, is characterized by
short-term order and shipment schedules, rather than volume purchase contracts.
In accordance with industry practice, Actel's backlog may be cancelled or
rescheduled by the customer on short notice without significant penalty. As a
result, the Company's backlog may not be indicative of actual sales and
therefore should not be used as a measure of future revenue.
Customer Service and Support
Actel believes that superior customer service and technical support are
essential for success in the FPGA market. The Company facilitates service and
support through service team meetings that address particular aspects of the
overall service strategy and support. The most significant areas of customer
service and technical support are regularly measured. Actel's customer service
organization emphasizes prompt, accurate responses to questions about product
delivery and order status.
The Company's FAEs provide technical support to customers in the United
States and Europe. This network of experts is augmented by FAEs working for
Actel's sales representatives and distributors throughout the world. Customers
in any stage of design can also obtain assistance from the Company's technical
support hotline. In addition, Actel offers technical seminars on its products
and comprehensive training classes on its software.
The Company generally warrants its products against defects in material and
workmanship for one year. Actel also warrants that its automatic place and route
software will achieve gate utilization at not less than the rates advertised.
The Company has not experienced significant warranty returns to date.
Manufacturing and Assembly
Actel's current strategy is to utilize third-party manufacturers for its
wafer requirements, which permits the Company to allocate its resources to
product design, development, and marketing. Wafers used in Actel's FPGAs are
manufactured by Chartered Semiconductor in Singapore, by Lockheed-Martin FSC in
the United States, by Matsushita in Japan, by TI in the United States, and by
Winbond in Taiwan. The Company historically purchased wafers from Matsushita and
TI. Chartered Semiconductor, Lockheed-Martin FSC, and Winbond were added in
1994. Actel's FPGAs are currently manufactured by Chartered Semiconductor using
0.6 micron design rules; by Lockheed-Martin FSC using 0.8 micron design rules;
by Matsushita using 0.8, 0.9, and 1.0 micron design rules; by TI using 1.0
micron design rules; and by Winbond using 0.6 and 0.8 micron design rules.
Wafers purchased by the Company from its suppliers are assembled, tested,
marked, and inspected by Actel and/or a subcontractor of the Company before
shipment to customers. Actel assembles most of its plastic commercial products
in Hong Kong and Korea. Ceramic package assembly, which is generally required
for military applications, currently is performed at one or more subcontractor
manufacturing facilities, some of which are in the United States.
Research and Development
In 1996, 1995, and 1994, the Company spent $23.9 million, $20.6 million,
and $14.4 million, respectively, on research and development, which represented
approximately 16%, 19%, and 19%, of net revenues, respectively, for such
periods. Actel's research and development expenditures are currently divided
among circuit design, software development, and process technology activities.
In the areas of circuit design and process technology, the Company's research
and development activities include continuing efforts to reduce the cost and
improve the performance of current products, principally by reducing the design
rules under which such products are manufactured, and to develop new families of
FPGA products based on existing or emerging technologies. Actel's software
research and development activities are dedicated to providing customers with
access to a wide variety of CAE tools and HDL cores in a complete and automated
desktop design environment on popular personal computer and workstation
platforms, with the objective of giving logic designers the capability to move
up to higher complexity designs with confidence and be successful.
The research and development projects that the Company announced in 1996
are summarized below.
ES Architecture and ES Reprogrammable SPGA Products
On March 6, 1995, Actel and BTR, Inc. ("BTR") entered into a License
Agreement pursuant to which BTR licensed its proprietary technology to the
Company for development and use in FPGAs and certain multichip modules. As
partial consideration for the grant of the license, the Company is paying to BTR
non-refundable advance royalties. Actel has also employed the principals of BTR
to assist the Company in its development and implementation of the licensed
technology.
The ES architecture combines a new, fine-grained cell structure with a
routing-centric architecture. The expected result is logic cells that are more
readily synthesized and more efficient than current programmable architectures.
The key to the architectural efficiencies is a technology Actel calls MutliDrive
active routing. Separate transistors are used to implement logic and to drive
the interconnects. By separating these functions, Actel believes that more
transistors can be included per chip, which should translate to smaller die size
and more efficient and lower-cost designs. In addition, the interconnect drivers
are tailored to routing length, which should provide high performance even for
cross-chip routing. The ES architecture also makes greater use of hierarchy than
current programmable architectures. A constant, maximum routing delay is
associated with each level of hierarchy, which should provide the device with
fanout independent delays. This means that, regardless of the number of logic
elements being driven, the delay should always be constant, making the chip's
performance predictable.
The ES architecture is switch-technology independent, so products can
utilize SRAM, antifuse, flash, or any other basic programming element. The
Company currently intends to introduce the initial ES family based on
reprogrammable, three-layer metal SRAM technology manufactured using 0.35 micron
design rules. Actel envisions further products based on antifuse or flash
technologies in the future.
Embedded SPGA Products
On June 1, 1996, Actel and the Silicon Architects Group of Synopsys entered
into a Technology License and Services Agreement pursuant to which Synopsys
licensed its cell-based array ("CBA") architecture to Actel. The two companies
will jointly adapt CBA technology specifically to support SPGAs and jointly
develop Synopsys' synthesis technology to support the new device class. Embedded
SPGAs will combine the performance, efficiency, and cost advantages of
conventional gate arrays with the time-to-market and flexibility advantages of
the ES architecture by embedding mask-programmed elements within the device. The
programmable portion of the Embedded SPGA will provide all the features and
functionality of the Reprogrammable SPGA described above. The embedded
mask-programmed portion of the device will be based on CBA technology, which is
a gate array architecture with cell-based efficiencies. CBA supports the
implementation of multiple industry-standard or proprietary functions, including
DPS filters, datapaths, memories, and preconfigured kits of specific functional
blocks.
The Company believes that the Embedded SPGA will enable two fundamentally
different business models. In the first, the Actel Embedded SPGA is an
application-specific device available to multiple customers as an off-the-shelf,
field-programmable technology that is sold and supported like an FPGA. An
application-specific core (such as a PCI core, for example) is already embedded
in the device, creating significant value for customers who desire such cores
but cannot or do not wish to design them from scratch. In the second business
model, the Actel Embedded SPGA is a customer-specific device in which
proprietary functions are embedded and field-programmability is available for
later design variations. Under this scenario, the device is sold and supported
like a conventional gate array, and the customer uses the field-programmability
of the device to support varying industry standards or to offer differentiated
product derivatives.
Competition
The FPGA market is highly competitive, and the Company expects that
competition will continue to increase as the market grows. Actel's competitors
include suppliers of TTLs and ASICs, including conventional gate arrays, PLDs,
and FPGAs. Of these, the Company competes principally with suppliers of
conventional gate arrays, CPLDs, and FPGAs.
The primary advantages of conventional gate arrays are high capacity, high
speed, and low production cost in high volume. Actel competes with conventional
gate array suppliers by offering lower design costs, shorter design cycles, and
reduced inventory risks. However, some customers elect to design and prototype
with the Company's products and then convert to conventional gate arrays to
achieve lower costs for volume production. For this reason, Actel faces
competition from companies that specialize in converting CPLDs and FPGAs,
including the Company's products, into conventional gate arrays. Actel's MPGA
family offers designers a fast, convenient, low-cost alternative to traditional
gate array conversions.
The Company also competes with suppliers of CPLDs. Suppliers of these
devices include Altera Corporation ("Altera"), Advanced Micro Devices, and
Lattice Semiconductor. The circuit architecture of CPLDs gives them a
performance advantage in certain lower capacity applications, but Actel believes
that its products are better suited for higher capacity designs. Altera,
however, has a larger installed base of development systems than the Company. In
addition, CPLDs are reprogrammable, which permits customers to reuse a circuit
multiple times during the design process (unlike antifuse-based FPGAs, which
permanently retain the programmed configuration). No assurance can be given that
Actel will be able to overcome these competitive disadvantages.
The Company competes most directly with established FPGA suppliers, such as
Xilinx, Inc. ("Xilinx") and Lucent Technologies (which is a licensed second
source of some Xilinx products). While Actel believes its products and
technology are superior to those of Xilinx in many applications requiring
greater speed, lower cost, or nonvolatility, Xilinx came to market with its
FPGAs approximately three years before the Company, has a larger installed base
of development systems, and its SRAM-based products are reprogrammable. No
assurance can be given that Actel will be able to overcome these competitive
disadvantages.
Several companies have either already marketed antifuse-based FPGAs,
including QuickLogic Corporation ("QuickLogic"), or announced their intention to
do so. See "Legal." On March 31, 1995, the Company completed its acquisition of
the antifuse FPGA business of TI, which was the only second-source supplier of
the Company's products. Xilinx, which is a licensee of certain of the Company's
patents, introduced antifuse-based FPGAs in 1995 and terminated its antifuse
FPGA business in 1996. Cypress Semiconductor Corporation, which was a licensed
second source of QuickLogic, sold its antifuse FPGA business to QuickLogic in
the first quarter of 1997.
Actel expects significant additional competition from major domestic and
international semiconductor suppliers, such as Motorola, which has announced its
intention to enter the FPGA market. All such companies are larger, offer broader
product lines, and have substantially greater financial and other resources than
the Company, including the capability to manufacture their own wafers.
Additional competition could adversely affect Actel's business, financial
condition, or results of operations.
The Company may also face competition from suppliers of logic products
based on new or emerging technologies. For example, there are other known
techniques for manufacturing antifuses that offer certain advantages over
Actel's current fuse. The Company seeks to monitor developments in existing and
emerging technologies. No assurance can be given that Actel will be able to
compete successfully with suppliers offering products based on new or emerging
technologies.
Patents and Licenses
The Company currently has 107 United States patents and applications
pending for an additional 48 United States patents. Actel has one European
patent and has applications pending for an additional 40 patents outside the
United States. The Company's patents cover, among other things, Actel's basic
circuit architecture, antifuse structure, and programming method. The Company
expects to continue filing patent applications when appropriate to protect its
proprietary technologies. Actel believes that patents, along with such factors
as innovation, technological expertise, and experienced personnel, will become
increasingly important.
The Company attempts to protect its circuit designs, software, trade
secrets, and other proprietary information through patent and copyright
protection, agreements with customers and suppliers, proprietary information
agreements with employees, and other security measures. No assurance can be
given that the steps taken by Actel will be adequate to protect its proprietary
rights.
See "Business -- Research and Development" for summaries of certain
licensing agreements to which the Company is a party.
Employees
At the end of 1996, the Company had 356 full-time employees, including 113
in marketing, sales, and customer support; 122 in research and development; 94
in operations; and 27 in administration and finance. None of the Company's
employees is represented by a labor union nor does Actel have employment
agreements with any of its employees. The Company has not experienced any work
stoppages, and believes that its employee relations are satisfactory.
Risk Factors
Shareholders and prospective shareholders of Actel should carefully
consider, along with the other information in this Annual Report on Form 10-K,
the following risk factors:
Fluctuations In Operating Results
The Company's quarterly and annual operating results are subject to general
economic conditions and a variety of risks specific to Actel or characteristic
of the semiconductor industry, including booking and shipment uncertainties,
supply problems, and price erosion.
Booking and Shipment Uncertainties
Actel typically generates a large percentage of its quarterly revenues
from orders received during the quarter and shipped in the final weeks of
the quarter, making it difficult to accurately estimate quarterly revenues.
The Company's backlog (which may be cancelled or deferred by customers on
short notice without significant penalty) at the beginning of a quarter
accounts for only a fraction of Actel's revenues during the quarter. This
means that the Company generates the rest of its quarterly revenues from
orders received during the quarter and "turned" for shipment within the
quarter, and that any shortfall in "turns" orders will have an immediate
and adverse impact on quarterly revenues. There are many factors that could
cause a shortfall in "turns" orders, including but not limited to a decline
in general economic conditions or the businesses of end users, excess
inventory in the channel, conversion to conventional (or non-programmable)
grate arrays, or the loss of business to other competitors for price or
other reasons.
Historically, Actel has shipped a disproportionately large percentage
of its quarterly revenues in the final weeks of the quarter. Any failure by
the Company to effect scheduled shipments by the end of the quarter,
therefore, could have a materially adverse effect on revenues for such
quarter. Since Actel generally does not recognize revenue on the sale of a
product to a distributor until the distributor resells the product, the
Company's quarterly revenues are also dependent on, and subject to
fluctuations in, shipments by Actel's distributors. When there is a
shortfall in revenues, operating results are likely to be adversely
affected because most of the Company's expenses do not vary with revenues.
Supply Problems
In a typical semiconductor manufacturing process, silicon wafers
produced by a foundry are sorted and cut into individual die, which are
then assembled into individual packages and tested for performance. The
manufacture, assembly, and testing of semiconductor products is highly
complex and subject to a wide variety of risks, including defects in masks,
impurities in the materials used, contaminants in the environment, and
performance failures by personnel and equipment. Semiconductor products
intended for military and aerospace applications are particularly
susceptible to these conditions, any of which could have a materially
adverse effect on Actel's business, financial condition, or results of
operations.
As is common in the semiconductor industry, Actel's independent wafer
suppliers from time to time experience lower than anticipated yields of
usable die. For example, the Company experienced a yield problem at one of
its foundries in the fourth quarter of 1993 that was severe enough to have
a materially adverse effect on Actel's results of operations. To the extent
yields of usable die decrease, the average cost to the Company of each
usable die increases, which reduces gross margin. Wafer yields can decline
without warning and may take substantial time to analyze and correct,
particularly for a company such as Actel that does not operate its own
manufacturing facility, but instead utilizes independent facilities, most
of which are offshore. Yield problems may also increase the time to market
for the Company's products and create inventory shortages and dissatisfied
customers. In addition, Actel typically experiences difficulties or delays
in achieving satisfactory, sustainable yields on new processes or at new
foundries. Although the Company has been able eventually to overcome these
difficulties in the past, no assurance can be given that it will be able to
do so with respect to its current or future new processes and/or new
foundries. No assurance can be given that the Company will not experience
wafer supply problems in the future, or that any such problem would not
have a materially adverse effect on Actel's business, financial condition,
or results of operations.
Price Erosion
The semiconductor industry is characterized by intense competition.
Historically, average selling prices in the semiconductor industry
generally, and for the Company's products in particular, have declined
significantly over the life of each product. While Actel expects to reduce
the average selling prices of its products over time as the Company
achieves manufacturing cost reductions, Actel is sometimes required by
competitive pressures to reduce the prices of its products more quickly
than such cost reductions can be achieved. In addition, the Company
sometimes approves price reductions on specific sales to meet competition.
If not offset by reductions in manufacturing costs or by a shift in the mix
of products sold toward higher-margin products, declines in the average
selling prices of Actel's products will reduce gross margins and could have
a materially adverse effect on the Company's business, financial condition,
or results of operations.
Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The Company's fiscal year ends on the Sunday closest to December 31.
Fiscal 1996, 1995, and 1994 ended on December 29, 1996, December 31, 1995,
and January 1, 1995, respectively. For ease of presentation, December 31
has been utilized as the fiscal year-end, and March 31, June 30, and
September 30 have been utilized as the end of the first, second, and third
fiscal quarters, respectively, in this Annual Report on Form 10-K and the
portions of the Company's 1996 Annual Report to security holders
incorporated herein by reference.
The results of operations for fiscal 1996 or any other year are not
necessarily indicative of results that may be expected for any ensuing
year.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ materially from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value). Given the volatility of the market for the
Company's products, the Company makes inventory provisions for potentially
excess and obsolete inventory based on backlog and forecast demand.
However, such backlog demand is subject to revisions, cancellations, and
rescheduling. Actual demand will inevitably differ from such backlog and
forecast demand, and such differences may be material to the financial
statements. Excess inventory increases handling costs and the risk of
obsolescence, is a non-productive use of capital resources, and delays
realization of the price and performance benefits associated with more
advanced manufacturing processes.
Dependence on Independent Wafer Manufacturers
Actel does not manufacture any of the wafers used in the production of its
FPGAs. Currently, such wafers are manufactured by Chartered Semiconductor in
Singapore, Lockheed-Martin FSC in the United States, Matsushita in Japan, TI in
the United States, and Winbond in Taiwan. The Company's reliance on independent
wafer manufacturers to fabricate its wafers involves significant risks,
including the risk of events limiting production and reducing yields, such as
technical difficulties or damage to production facilities, lack of control over
capacity allocation and delivery schedules, and potential lack of adequate
capacity. These risks are particularly pronounced with respect to wafers
intended for use in military and aerospace applications.
Actel has from time to time experienced delays in obtaining wafers from its
foundries, and there can be no assurance that the Company will not experience
similar or more severe delays in the future. In addition, although Actel has
supply agreements with most of its wafer manufacturers, a shortage of raw
materials or production capacity could lead any of the Company's wafer suppliers
to allocate available capacity to customers other than Actel, or to internal
uses, which could interrupt the Company's capability to meet its product
delivery obligations. These risks are particularly pronounced with respect to
wafers intended for use in military and aerospace applications. Any inability or
unwillingness of Actel's wafer suppliers to provide adequate quantities of
finished wafers to satisfy the Company's needs in a timely manner would delay
production and product shipments and could have a materially adverse effect on
Actel's business, financial condition, or results of operations.
If the Company's current independent wafer manufacturers were unable or
unwilling to manufacture Actel's products as required, the Company would have to
identify and qualify additional foundries. The qualification process typically
takes one year or longer. No assurance can be given that any additional wafer
foundries would become available or be able to satisfy Actel's requirements on a
timely basis or that qualification would be successful. In addition, the
semiconductor industry has from time to time experienced shortages of
manufacturing capacity. To secure an adequate supply of wafers, the Company has
considered, and continues to consider, various possible transactions, including
the use of substantial nonrefundable deposits to secure commitments from
foundries for specified levels of manufacturing capacity over extended periods,
equity investments (such as Actel's investment in Chartered Semiconductor) in
exchange for guaranteed production, and the formation of joint ventures to own
foundries. No assurance can be given as to the effect of any such transaction on
the Company's business, financial condition, or results of operations.
Dependence on Customized Manufacturing Process
Actel's FPGAs are manufactured using customized steps that are added to
otherwise standard manufacturing processes of its independent wafer suppliers.
There is considerably less operating history for the Company's customized
process steps than for the foundries' standard manufacturing processes. The
dependence of Actel on customized processing steps means that, in contrast with
competitors using standard manufacturing processes, the Company has more
difficulty establishing relationships with independent wafer manufacturers,
takes longer to qualify a new wafer manufacturer, takes longer to achieve
satisfactory, sustainable wafer yields on new processes, may experience a higher
incidence of production yield problems, must pay more for wafers, and generally
will not obtain early access to the most advanced processes. These risks are
particularly pronounced with respect to wafers intended for use in military and
aerospace applications. Any of the above factors could be a material
disadvantage against the competing non-antifuse products of Actel's competitors,
which use standard manufacturing processes. As a result of these factors, the
Company's products typically have been fabricated using processes one or two
generations behind the processes used on competing products. As a consequence,
Actel to date has not fully realized the price and performance benefits of its
antifuse technology. The Company is attempting to accelerate the rate at which
its products are reduced to finer geometries and is working with its wafer
suppliers to obtain earlier access to advanced processes, but no assurance can
be given that such efforts with be successful.
Technological Change and Dependence on New Product Development
The market for Actel's products is characterized by rapidly changing
technology, frequent new product introductions, and declining average selling
prices over product life cycles, each of which makes the timely introduction of
new products a critical objective of the Company. Actel's future success is
highly dependent upon the timely completion and introduction of new products at
competitive price and performance levels. In evaluating new product decisions,
Actel must anticipate well in advance both the future demand and the technology
that will be available to supply such demand. Failure to anticipate customer
demand, delays in developing new products with anticipated technological
advances, and failure to coordinate the design and development of silicon and
associated software products each could have a materially adverse effect on
Actel's business, financial condition, or results of operation.
In addition, there are greater technological and operational risks
associated with new products. The inability of the Company's wafer suppliers to
produce advanced products, delays in commencing or maintaining volume shipments
of new products, the discovery of product, process, software, or programming
failures, and any related product returns could each have a materially adverse
effect on Actel's business, financial condition, or results of operation.
Actel is currently scheduled to introduce new members of the 3200DX and
RadHard families in 1997. In addition, a new family of FPGAs, based on a
"metal-to-metal" antifuse and a "sea of gates" architecture, is being brought
into production and is currently scheduled for introduction late in 1997. No
assurance can be given that the Company's design and introduction schedules for
such products or the supporting software will be met or that such products will
be well-received by customers. No assurance can be given that any other new
products will gain market acceptance or that the Company will respond
effectively to new technological changes or new product announcements by others.
Any failure of Actel to successfully define, develop, market, manufacture,
assemble, or test competitive new products could have a materially adverse
effect on its business, financial condition, or results of operations.
The Company must also continue to make significant investments in research
and development to develop new products and achieve market acceptance for such
products. Actel currently conducts most of its research and development
activities at facilities operated by Matsushita in Japan and Extel
Semiconductor, Inc. in the United States. Although the Company has not to date
experienced any significant difficulty in obtaining access to its current
facilities, no assurance can be given that access will not be limited or that
such facilities will be adequate to meet Actel's needs in the future.
Dependence on Independent Software Developers
Actel is dependent upon independent software developers for the
development, maintenance, and support of certain elements of its Designer Series
Development Systems software. The Company's reliance on independent software
developers involves certain risks, including lack of control over development
and delivery schedules and the availability of customer support. Actel is aware
that certain of its independent developers are currently experiencing severe
financial difficulties. No assurance can be given that the Company's independent
developers will be able to complete software currently under development, or
provide updates, or customer support in a timely manner, which could delay
future releases and disrupt Actel's ability to provide customer support
services. Any significant delays in the availability of the Company's software
would be detrimental to the capability of the Company's new families of products
to win designs, which could have a materially adverse effect on Actel's
business, financial condition, or results of operations.
Dependence on Design Wins
In order for the Company to sell an FPGA to a customer, the customer must
incorporate the FPGA into the customer's product in the design phase. Actel
therefore devotes substantial resources, which it may not recover through
product sales, in support of potential customer design efforts (including, among
other things, providing development system software) and to persuade potential
customers to incorporate the Company's FPGAs into new or updated products. These
efforts usually precede by many months (and sometimes a year or more) the
generation of volume FPGA sales, if any, by Actel. The value of any design win,
moreover, will depend in large part upon the ultimate success of the customer's
product. No assurance can be given that the Company will win sufficient designs
or that any design win will result in significant revenues.
Dependence on Military and Aerospace Customers
Although Actel is unable to determine with certainty the ultimate uses of
its products, the Company estimates that sales of its products to customers in
the military and aerospace industries, which sometimes carry higher profit
margins than sales of products to commercial customers, accounted for
approximately 10% to 15% of net revenues from 1992 through the first half of
1996. The Company believes that the military and aerospace industries accounted
for a significantly greater percentage of the Company's net revenues in the
second half of 1996, following the introduction of the RH1280. No assurance can
be given that future sales to customers in the military and aerospace industries
will continue at current volume or margin levels. Orders from the military and
aerospace customers tend to be large and irregular, which creates operational
challenges and contributes to fluctuations in Actel's net revenues and gross
margins. These sales are also subject to more extensive governmental
regulations, including greater import and export restrictions. In addition,
products for military and aerospace applications require processing and testing
that is more lengthy and stringent than for commercial applications, increasing
the risk of failure. It is often not possible to determine before the end of
processing and testing whether products intended for military or aerospace
applications will fail and, if they do fail, a significant period of time is
often required to process and test replacements, each of which makes it
difficult to accurately estimate quarterly revenues and could have a materially
adverse effect on Actel's business, financial condition, or results of
operations.
Semiconductor Industry Risks
The semiconductor industry has historically been cyclical and periodically
subject to significant economic downturns, which are characterized by diminished
product demand, accelerated price erosion, and overcapacity. The Company may in
the future experience substantial period-to-period fluctuations in business and
results of operations due to general semiconductor industry conditions, overall
economic conditions, or other factors, including legislation and regulations
governing the import or export of semiconductor products.
Dependence on International Operations
Actel buys a majority of its wafers from foreign foundries and has most of
its commercial products assembled by subcontractors located outside the United
States. These activities are subject to the uncertainties associated with
international business operations, including trade barriers and other
restrictions, changes in trade policies, foreign governmental regulations,
currency exchange fluctuations, reduced protection for intellectual property,
war and other military activities, terrorism, changes in political or economic
conditions, and other disruptions or delays in production or shipments, any of
which could have a materially adverse effect on the Company's business,
financial condition, or results of operations.
Competition
The semiconductor industry is intensely competitive and is characterized by
rapid rates of technological change, product obsolescence, and price erosion.
Actel's existing competitors include suppliers of conventional gate arrays,
CPLDs, and FPGAs. The Company's two principle competitors are Xilinx, a supplier
of FPGAs based on SRAM technology, and Altera, a supplier principally of CPLDs.
In connection with the settlement of patent litigation in 1993, Actel granted
Xilinx a license under certain of Actel's patents that permits Xilinx to
manufacture and market antifuse-based products. Xilinx announced in 1996 that it
had discontinued its antifuse-based FPGA product line. The Company also faces
competition from companies that specialize in converting FPGAs, including
Actel's products, into conventional gate arrays. In addition, the Company
expects significant competition in the future from major domestic and
international semiconductor suppliers, and Actel's patents may not bar
competitors to which it has not granted a license from manufacturing other
antifuse-based products. The Company may also face competition from suppliers of
logic products based on new or emerging technologies. Given the intensity of the
competition and the research and development being done, no assurance can be
given that Actel's antifuse and architecture technology will remain competitive.
The Company believes that important competitive factors in its market are
price, performance, number of usable gates, ease of use and functionality of
development system software, installed base of development systems, adaptability
of products to specific applications, length of development cycle (including
reductions to finer micron design rules), number of I/Os, reliability, adequate
wafer fabrication capacity and sources of raw materials, protection of products
by effective utilization of intellectual property laws, and technical service
and support. Failure of Actel to compete successfully in any of these or other
areas could have a materially adverse effect on its business, financial
condition, or results of operations. In addition, all existing FPGAs and CPLDs
not based on antifuse technology are reprogrammable, a feature that makes them
more attractive to many designers. The Company also believes that, if there were
a downturn in the market for CPLDs and FPGAs, companies that have broader
product lines and longer standing customer relationships may be in a stronger
competitive position than Actel. Many of the Company's current and potential
competitors offer broader product lines and have significantly greater
financial, technical, manufacturing, and marketing resources than Actel.
Patent Infringement
As is typical in the semiconductor industry, the Company has been and
expects to be from time to time notified of claims that it may be infringing
patents owned by others. No assurance can be given that such claims against
Actel will not result in litigation. In January 1994, the Company brought a
patent infringement lawsuit against QuickLogic, which in turn brought a patent
infringement counterclaim against Actel in May 1995. Management of the Company
believes that Actel has meritorious claims and defenses in this matter, and that
its resolution will not have a materially adverse effect on the Company's
business, financial condition, or results of operations, but no assurance can be
given to that effect. All litigation, whether or not determined in favor of
Actel, can result in significant expense to the Company and can divert the
efforts of Actel's technical and management personnel from productive tasks.
Although the Company has obtained patents covering aspects of its FPGA
architecture logic modules and certain techniques for manufacturing its
antifuse, no assurance can be given that Actel's patents will be determined to
be valid or that the claims of QuickLogic or any assertions of infringement or
invalidity by other parties (or claims for indemnity from customers resulting
from any infringement claims) will not be successful. In the event of an adverse
ruling in the QuickLogic case or any other litigation involving intellectual
property, the Company could suffer significant (and possibly treble) monetary
damages, which could have a materially adverse effect on Actel's business,
financial condition, and results of operations. The Company may also be required
to discontinue the use of infringing processes; cease the manufacture, use, and
sale of infringing products; expend significant resources to develop
non-infringing technology; or obtain licenses under patents that it is
infringing. Although patent holders commonly offer licenses to alleged
infringers, no assurance can be given that licenses will be offered or that the
terms of any offered licenses will be acceptable to Actel. In the event of a
successful claim against the Company, Actel's failure to develop or license a
substitute technology on commercially reasonable terms would have a materially
adverse effect on the Company's business, financial condition, or results of
operations.
Protection of Intellectual Property
Actel has historically devoted significant resources to research and
development and believes that the intellectual property derived from such
research and development is a valuable asset that has been and will continue to
be important to the success of the Company's business. Actel relies primarily on
a combination of nondisclosure agreements, other contractual provisions, and
patent and copyright protection to protect its proprietary rights. No assurance
can be given that the steps taken by the Company will be adequate to protect its
proprietary rights. In addition, the laws of certain territories in which
Actel's products are or may be developed, manufactured, or sold, including Asia
and Europe, may not protect the Company's products and intellectual property
rights to the same extent as the laws of the United States. Failure of Actel to
enforce its patents or copyrights or to protect its trade secrets could have a
materially adverse effect on the Company's business, financial condition, or
results of operations.
Reliance on Distributors
In 1996, more than half of Actel's sales in the United States and virtually
all of the Company's sales outside the United States were made through
distributors. Three of Actel's distributors, Wyle, Arrow, and Pioneer, accounted
for approximately 14%, 14%, and 11%, respectively, of the Company's net revenues
in 1996. No assurance can be given that future sales by these or other
distributors will continue at current levels or that the Company will be able to
retain its current distributors on terms that are acceptable to Actel.
The Company's distributors generally offer products of several different
companies, including products that are competitive with Actel's products.
Accordingly, there is a risk that these distributors may give higher priority to
products of other suppliers, thus reducing their efforts to sell the Company's
products. In addition, Actel's agreements with its distributors are generally
terminable at the distributor's option. A reduction in sales efforts by one or
more of the Company's current distributors or a termination of any distributor's
relationship with Actel could have a materially adverse effect on the Company's
business, financial condition, or results of operations.
Actel generally defers recognition of revenue on shipments to distributors
until the product is resold by the distributor to the end user. The Company's
distributors have on occasion built inventories in anticipation of substantial
growth in sales and, when such growth did not occur as rapidly as anticipated,
substantially decreased the amount of product ordered from Actel in subsequent
quarters. Such a slowdown in orders would generally reduce the Company's profit
margins on future sales of higher cost products because Actel would be unable to
take advantage of any manufacturing cost reductions while the distributor
depleted its inventory at lower average selling prices. In addition, while the
Company believes that its major distributors are currently adequately
capitalized, no assurance can be given that one or more of Actel's distributors
will not experience financial difficulties. The failure of one or more of the
Company's distributors to pay for products ordered from Actel or to continue
operations because of financial difficulties or for other reasons could have a
materially adverse effect on the Company's business, financial condition, or
results of operations.
Reliance on International Sales
Sales to customers located outside the United States accounted for
approximately 33%, 38%, and 32%, of net revenues for 1996, 1995, and 1994,
respectively. Actel expects that revenues derived from international sales will
continue to represent a significant portion of its total revenues. International
sales are subject to a variety of risks, including those arising from currency
restrictions, tariffs, trade barriers, taxes, and export license requirements.
All of the Company's foreign sales are denominated in U.S. dollars, so Actel's
products become less price competitive in countries with currencies that are
declining in value against the dollar. In addition, since virtually all of the
Company's foreign sales are made through distributors, such sales are subject to
the risks described above in "Reliance on Distributors."
Dependence on Independent Assembly Subcontractors
Actel relies primarily on foreign subcontractors for the assembly and
packaging of its products and, to a lesser extent, for the testing of its
finished products. The Company generally relies on one or two subcontractors to
provide particular services and has from time to time experienced difficulties
with the timeliness and quality of product deliveries. Actel has no long-term
contracts with its subcontractors and certain of those subcontractors are
currently operating at or near full capacity. There can be no assurance that
these subcontractors will continue to be able and willing to meet the Company's
requirements for such components or services. Any significant disruption in
supplies from, or degradation in the quality of components or services supplied
by, these subcontractors could delay shipments and result in the loss of
customers or revenues or otherwise have a materially adverse effect on Actel's
business, financial condition, or results of operations.
Dependence on Key Personnel
The success of the Company is dependent in large part on the continued
service of its key management, engineering, marketing, sales, and support
employees. Competition for qualified personnel is intense in the semiconductor
industry, and the loss of Actel's current key employees, or the inability of the
Company to attract other qualified personnel, could have a materially adverse
effect on Actel. The Company does not have employment agreements with any of its
key employees.
Management of Growth
Actel has recently experienced and expects to continue to experience growth
in the number of its employees and the scope of its operations, resulting in
increased responsibilities for management personnel. To manage recent and
potential future growth effectively, the Company will need to continue to hire,
train, motivate, and manage a growing number of employees. The future success of
Actel will also depend on its ability to attract and retain qualified technical,
marketing, and management personnel. In particular, the current availability of
qualified design, process, and test engineers is limited, and competition among
companies for skilled and experienced engineering personnel is very strong. The
Company has been attempting to hire a number of engineering personnel and has
experienced delays in filling such positions. During strong business cycles,
Actel expects to experience continued difficulty in filling its needs for
qualified engineers and other personnel. No assurance can be given that the
Company will be able to achieve or manage effectively any such growth, and
failure to do so could delay product development and introductions or otherwise
have a materially adverse effect on Actel's business, financial condition, or
results of operations.
Volatility of Stock
The price of the Company's Common Stock can fluctuate substantially on the
basis of factors such as announcements of new products by Actel or its
competitors, quarterly fluctuations in the Company's financial results or the
financial results of other semiconductor companies, or general conditions in the
semiconductor industry or in the financial markets. In addition, stock markets
have recently experienced extreme price and volume volatility. This volatility
has had a substantial effect on the market prices of the securities issued by
high technology companies, at times for reasons unrelated to the operating
performance of the specific companies.
"Blank Check" Preferred Stock; Change in Control Arrangements
Actel's Articles of Incorporation authorize the issuance of up to 5,000,000
shares of "blank check" Preferred Stock (of which 4,000,000 shares remain
available for issuance), with such designations, rights, and preferences as may
be determined from time to time by the Board of Directors. Accordingly, the
Board is empowered, without approval by holders of the Company's Common Stock,
to issue Preferred Stock with dividend, liquidation, redemption, conversion,
voting, or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. Issuance of the Preferred Stock could
be used as a method of discouraging, delaying, or preventing a change in control
of Actel. In addition, such issuance could adversely affect the market price of
the Common Stock. Although the Company does not currently intend to issue any
additional shares of its Preferred Stock, there can be no assurance that Actel
will not do so in the future.
The Company has adopted an Employee Retention Plan that provides for
payment of stock to Actel's employees who hold unvested stock options in the
event of a change of control of the Company. Payment is contingent upon the
employee remaining with Actel for six months after the change of control. The
Company has also entered into Management Continuity Agreements with each of its
executive officers, which provide for the acceleration of unvested stock options
in the event an executive officer's employment is actually or constructively
terminated other than for cause following a change of control.
Dividend Policy
Actel has never declared or paid any cash dividends on its capital stock.
The Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends in the future.
Executive Officers of the Registrant
The following table identifies each executive officer of Actel as of March
12, 1997:
Name Age Position
- ----------------------------------------- ----- -----------------------------------------------------------
John C. East............................. 52 President and Chief Executive Officer
David M. Sugishita....................... 49 Senior Vice President of Finance & Administration and Chief
Financial Officer
Esmat Z. Hamdy........................... 47 Senior Vice President of Technology & Operations
Jeffrey M. Schlageter.................... 53 Senior Vice President of Engineering
Michelle A. Begun........................ 40 Vice President of Human Resources
Douglas D. Goodyear...................... 42 Vice President of Worldwide Sales
Dennis F. Nye............................ 44 Vice President of Marketing
David L. Van De Hey...................... 41 Vice President & General Counsel and Secretary
Mr. East has served as President and Chief Executive Officer of the Company
since December 1988. From April 1979 until joining Actel, Mr. East served in
various positions with Advanced Micro Devices, a semiconductor manufacturer,
including Senior Vice President of Logic Products from November 1986 to November
1988. From December 1976 to March 1979, he served as Operations Manager for
Raytheon Semiconductor. From September 1968 to December 1976, he served in
various marketing, manufacturing, and engineering positions for Fairchild Camera
and Instrument Corporation, a semiconductor manufacturer.
Mr. Sugishita has served as Senior Vice President of Finance &
Administration and Chief Financial Officer since August 1995. From April 1994 to
July 1995, he was Senior Vice President of Finance and Administration, Chief
Financial Officer, and Treasurer for Micro Component Technology, a semiconductor
automated test equipment company. From October 1991 to March 1994, Mr. Sugishita
was Vice President-Corporate Controller and Chief Accounting Officer for Applied
Materials, the world's largest semiconductor wafer fabrication equipment
company. From February 1982 to September 1991, he was Vice President of Finance,
Semiconductor Group, for National Semiconductor, a semiconductor manufacturing
company.
Dr. Hamdy, a founder of the Company, has been Vice President of Technology
of Actel since August 1991 and was promoted to Senior Vice President in March
1997 and to Senior Vice President of Operations in September 1997. From November
1985 to July 1991, he held a number of management positions with the Company's
technology and development group. From January 1981 to November 1985, Dr. Hamdy
held various positions at Intel Corporation, a semiconductor manufacturer,
lastly as project manager.
Mr. Schlageter joined the Company in February 1989 as Vice President of
Engineering and was promoted to Senior Vice President of Engineering in November
1992. From July 1985 to January 1989, he held various positions at Advanced
Micro Devices, a semiconductor manufacturer, where he last served as Managing
Director of Peripheral Products. From February 1981 to July 1985, he was Vice
President of Semicustom Products at Mostek Corporation, a semiconductor
manufacturer.
Ms. Begun joined Actel in May 1989 as Director of Human Resources, and has
been Vice President of Human Resources since August 1991. From May 1984 to May
1989, she held various human resources management positions at Intel
Corporation, a semiconductor manufacturer, her last position being Human
Resources Manager. From October 1977 to May 1984, she held various human
resources management positions at Synertek, Inc., a subsidiary of Honeywell, a
semiconductor manufacturer.
Mr. Goodyear joined the Company in February 1997 as Vice President of
Worldwide Sales. From November 1991 until joining the Company, he served as Vice
President of Sales for the components division of Sharp Electronics Corporation,
a semiconductor manufacturer. From January 1987 to November 1991, Mr. Goodyear
held various sales management positions at Hitachi America, a semiconductor
manufacturer, lastly as Western Area Sales Manager. From June 1983 to January
1987, he held various sales and sales management. positions at Advanced Micro
Devices, a semiconductor manufacturer.
Mr. Nye has been Vice President of Marketing since January 1994. From
October 1990 to December 1993, he served as European Business Manager with Actel
Europe Ltd., the Company's United Kingdom subsidiary. From January 1990 to
October 1990, Mr. Nye served as Director of Sales of Genrad Corporation, a
software company. From November 1986 to January 1990, he served as European
Sales Manager of Viewlogic Corporation, a software company.
Mr. Van De Hey joined Actel in July 1993 as Corporate Counsel, became
Secretary in May 1994, and has been Vice President & General Counsel since
August 1995. From November 1988 to September 1993, he was an associate with
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, a law firm in Palo
Alto, California, and the Company's outside legal counsel. From August 1985
until October 1988, he was an associate with the Cleveland office of Jones, Day,
Reavis & Pogue, a law firm. Mr. Van De Hey received his Juris Doctor degree from
the University of Pennsylvania in 1985.
Executive officers serve at the discretion of the Board of Directors.
ITEM 2. PROPERTIES
Actel's principal administrative, marketing, sales, customer support,
design, research and development, and testing facilities are located in
Sunnyvale, California, in three buildings that comprise approximately 138,000
square feet. These buildings are leased through June 1998, and the Company has
two renewal options for consecutive five-year terms. Actel also leases sales
offices in the metropolitan areas of Atlanta, Baltimore, Basingstoke (England),
Boston, Chicago, Dallas, Denver, Destin (Florida), Los Angeles, Munich
(Germany), Ottawa (Canada), and Paris (France). The Company believes its
facilities will be adequate for its needs in 1997.
ITEM 3. LEGAL
Actel commenced a patent infringement lawsuit against QuickLogic
Corporation ("QuickLogic") in the United States District Court for the Northern
District of California on January 20, 1994. The Complaint asserted four claims
for infringement of Actel patents nos. 4,758,745, 4,873,459, 5,055,718, and
5,198,705 (the "'705 Patent"), respectively, each relating to FPGA technology.
The Complaint sought injunctive relief, treble damages in an unspecified amount,
and attorneys' fees.
On February 10, 1994, QuickLogic filed an Answer and Counterclaim, denying
infringement, asserting invalidity defenses, and seeking declaratory relief.
On November 15, 1994, the Company moved for summary judgment of
infringement of its `705 Patent. On October 4, 1996, after extensive discovery
and briefing, the Special Master, to whom all pretrial matters have been
referred, filed a recommendation with the Court that Actel's motion be granted.
QuickLogic moved the Court to reject the Special Master's recommendation.
Hearings on that motion were held on January 27, 1997, and February 3, 1997. The
Court has not yet acted on that motion.
On March 15, 1995, the Company filed an Amended and Supplemental Complaint
against QuickLogic asserting, in addition to claims previously asserted, a claim
for infringement of Actel patent no. 5,367,208. The Company's Supplemental
Complaint sought injunctive relief, treble damages in an unspecified amount, and
attorneys' fees.
On April 14, 1995, QuickLogic filed an Answer and Counterclaim denying
infringement, asserting invalidity defenses, and asserting two claims against
Actel for alleged infringement of QuickLogic patents Nos. 5,220,213 and
5,396,127. QuickLogic's Counterclaim sought declaratory and injunctive relief,
and treble damages in an unspecified amount. On May 25, 1995, QuickLogic filed
an Amended Answer and Counterclaim, adding allegations of inequitable conduct.
In response to QuickLogic's counterclaims, on June 11, 1995, the Company
filed a Reply and Counterclaim, denying infringement, asserting invalidity
defenses, naming John Birkner as an individual defendant, and asserting causes
of action for trade secret misappropriation, breach of contract, breach of
confidential business relationship, and unfair competition. Actel's Counterclaim
sought declaratory and injunctive relief, damages in an unspecified amount, and
an assignment to the Company of QuickLogic's two patents-in-suit. In response,
both QuickLogic and Birkner denied all allegations.
On January 18, 1996, Actel filed a motion seeking summary judgment of
invalidity of the two QuickLogic patents-in-suit.
On February 5, 1996, QuickLogic filed a motion for summary judgment of
infringement of QuickLogic patent no. 5,520,213.
On February 26, 1996, QuickLogic filed a motion to disqualify the Company's
counsel, the law firm of Lyon & Lyon, on the ground that a Lyon & Lyon attorney,
in previous employment with QuickLogic counsel, Skjerven, Morrill, MacPherson,
Franklin & Friel, had access to confidential QuickLogic information and attorney
work product. The Special Master issued a recommendation in favor of
QuickLogic's motion, and on May 29, 1996, the Court entered an Order
disqualifying Lyon & Lyon. On June 19, 1996, O'Melveny & Myers was substituted
as counsel of record on behalf of Actel.
On March 7, 1996, the Company filed a Second Supplemental Complaint, adding
a claim against QuickLogic for infringement of Actel patent no. 5,479,113.
On November 25, 1996, QuickLogic moved for Summary Judgment of invalidity
with respect to Claim 1 of the `705 Patent.
On February 14, 1997, Actel filed a motion for separate trial of its claim
that QuickLogic's patents are invalid because the invention disclosed in those
patents was being sold by the Company more than one year prior to the date on
which QuickLogic first applied for patent rights. No decision has been made on
that motion.
On February 28, 1997, QuickLogic filed a motion with the Special Master in
which it seeks leave to amend its counterclaims in the action to assert that
Actel integrated circuits infringe newly-issued U.S. Patent No. 5,594,364. The
Company will oppose that motion. If the opposition is successful, it is probable
that QuickLogic will assert claims for infringement of Patent 5,594,364 in a
separate action. Actel believes that it has substantial defenses to these
claims.
In opposing QuickLogic's motion to add new patent claims, the Company will
advise the Court that it intends to assert additional claims of patent
infringement against QuickLogic, including claims on newly-issued U.S. Patent
No. 5,610,534. Actel will state that it recommends that such claims be filed as
a separate action, but that the Company should have the right to assert its own
new claims if QuickLogic is allowed to assert new claims.
By order entered March 19, 1997, the Court reserved September 8, 1997, for
trial of Actel's "on-sale" defense should its motion for separate trial be
granted. It has set September 8, 1998, for trial of all remaining issues.
After considering the facts currently known, management does not believe
that the ultimate outcome of the litigation will have a materially adverse
effect on the Company's business, financial condition, or operating results,
although no assurance can be given to that effect.
There are no other pending legal proceedings of a material nature to which
Actel is a party or of which any of its property is the subject. There are no
such legal proceedings known by the Company to be contemplated by any
governmental authority.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The information appearing under the caption "Stock Listing" in the
Registrant's annual report to security holders for the fiscal year ended
December 31, 1996 (the "1996 Annual Report"), is incorporated herein by this
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing under the caption "Selected Consolidated
Financial Data" in the 1996 Annual Report is incorporated herein by this
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information appearing under the caption "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" of the 1996 Annual
Report is incorporated herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information appearing under the captions "Consolidated Balance Sheets,"
"Consolidated Statements of Operations," "Consolidated Statements of
Shareholders' Equity," "Consolidated Statements of Cash Flows," "Notes to
Consolidated Financial Statements," and "Report of Ernst & Young LLP,
Independent Auditors" in the 1996 Annual Report is incorporated herein by this
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Except for the information specifically incorporated by reference from
Actel's definitive Proxy Statement for the Annual Meeting of Shareholders to be
held on May 2, 1997, as filed on or about April 2, 1997, with the Securities and
Exchange Commission (the "1997 Proxy Statement") in Part III of this Annual
Report on Form 10-K, the 1997 Proxy Statement shall not be deemed to be filed as
part of this Report. Without limiting the foregoing, the information under the
captions "Compensation Committee Report" and "Company Stock Performance" under
the main caption "OTHER INFORMATION" in the 1997 Proxy Statement are not
incorporated by reference in this Annual Report on Form 10-K.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the identification and business experience of
Actel's directors under the caption "Nominees" under the main caption "PROPOSAL
NO. 1 -- ELECTION OF DIRECTORS" in the 1997 Proxy Statement and the information
under the main caption "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE
ACT OF 1934" in the 1997 Proxy Statement are incorporated herein by this
reference. For information regarding the identification and business experience
of Actel's executive officers, see "Executive Officers of the Registrant" at the
end of Item 1 in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Director Compensation" under the main
caption "PROPOSAL NO. 1 -- ELECTION OF DIRECTORS" in the 1997 Proxy Statement
and the information under the caption "Executive Compensation" under the main
caption `OTHER INFORMATION" in the 1997 Proxy Statement are incorporated herein
by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Share Ownership" under the main caption
"INFORMATION CONCERNING SOLICITATION AND VOTING" in the 1997 Proxy Statement and
the information under the caption "Security Ownership of Management" under the
main caption "OTHER INFORMATION" in the 1997 Proxy Statement are incorporated
herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
(1) Financial Statements. The following consolidated financial
statements of Actel Corporation included in Actel's 1996 Annual Report to
Shareholders for the year ended December 31, 1996, are incorporated by
reference in Item 8 of this Annual Report on Form 10-K:
Consolidated balance sheets at December 31, 1996 and 1995
Consolidated statements of operations for each of the three years
in the period ended December 31, 1996
Consolidated statements of shareholders' equity for each of the
three years in the period ended December 31, 1996
Consolidated statements of cash flows for each of the three years
in the period ended December 31, 1996
Notes to consolidated financial statements
(2) Financial Statement Schedule. The financial statement schedule
listed under 14(d) hereof is filed with this Annual Report on Form 10-K.
(3) Exhibits. The exhibits listed under Item 14(c) hereof are filed
with, or incorporated by reference into, this Annual Report on Form 10-K.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by Actel during
the quarter ended December 31, 1996.
(c) Exhibits. The following exhibits are filed as part of, or incorporated
by reference into, this Report on Form 10-K:
Exhibit Number Description
- ------------------------ -------------------------------------------------------
2.1 (1) Asset Purchase Agreement dated as of February 12, 1995,
between the Registrant and Texas Instruments
Incorporated (filed as Exhibit 2.1 to the Registrant's
Current Report on Form 8-K (File No. 0-21970) filed
with the Securities and Exchange Commission on April
17, 1995).
2.2 Amendment No. 1 to the Asset Purchase Agreement dated
as of March 31, 1995, between the Registrant and Texas
Instruments Incorporated (filed as Exhibit 2.2 to the
Registrant's Current Report on Form 8-K (File No.
0-21970) filed with the Securities and Exchange
Commission on April 17, 1995).
3.1 Restated Articles of Incorporation (filed as Exhibit
3.2 to the Registrant's Registration Statement on Form
S-1 (File No. 33-64704), declared effective on August
2, 1993).
3.2 Restated Bylaws of the Registrant (filed as Exhibit 3.3
to the Registrant's Registration Statement on Form S-1
(File No. 33-64704), declared effective on August 2,
1993).
3.3 Certificate of Determination of Rights, Preferences and
Privileges of Series A Preferred Stock of the
Registrant (filed as Exhibit 3.3 to the Registrant's
Current Report on Form 8-K (File No. 0-21970) filed
with the Securities and Exchange Commission on April
17, 1995).
10.1 (2) Form of Indemnification Agreement for directors and
officers (filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-64704),
declared effective on August 2, 1993).
10.2 (2) 1986 Incentive Stock Option Plan, as amended and
restated.
10.3 (2) 1993 Directors' Stock Option Plan, as amended and
restated.
10.4 (2) 1993 Employee Stock Purchase Plan, as amended and
restated.
10.5 (2) 1995 Employee and Consultant Stock Plan, as amended and
restated.
10.6 Form of Distribution Agreement (filed as Exhibit 10.13
to the Registrant's Registration Statement on Form S-1
(File No. 33-64704), declared effective on August 2,
1993).
10.7 (1) Patent Cross License Agreement dated April 22, 1993
between the Registrant and Xilinx, Inc. (filed as
Exhibit 10.14 to the Registrant's Registration
Statement on Form S-1 (File No. 33-64704), declared
effective on August 2, 1993).
10.8 Subscription and Participation Agreement dated February
3, 1994 between the Registrant, Singapore Technologies
Ventures Pte Ltd and Chartered Semiconductor
Manufacturing Pte Ltd (filed as Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K (File No.
0-21970) for the fiscal year ended January 2, 1994).
10.9 Manufacturing Agreement dated February 3, 1994 between
the Registrant and Chartered Semiconductor
Manufacturing Pte Ltd (filed as Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K (File No.
0-21970) for the fiscal year ended January 2, 1994).
10.10 Distribution Agreement dated June 1, 1994, between the
Registrant and Arrow Electronics, Inc. (filed as
Exhibit 10.18 to the Registrant's Quarterly Report on
Form 10-Q (File No. 0-21970) for the quarterly period
ended July 3, 1994).
10.11 (1) Product Development and Marketing Agreement dated
August 1, 1994, between the Registrant and Loral
Federal Systems Company (filed as Exhibit 10.19 to the
Registrant's Quarterly Report on Form 10-Q (File No.
0-21970) for the quarterly period ended October 2,
1994).
10.12 (1) M2M Joint Development and Marketing Agreement dated
August 1, 1994, between the Registrant and Loral
Federal Systems Company (filed as Exhibit 10.20 to the
Registrant's Quarterly Report on Form 10-Q (File No.
0-21970) for the quarterly period ended October 2,
1994).
10.13 (1) Investor Agreement dated as of April 1, 1995, between
the Registrant and Texas Instruments Incorporated
(filed as Exhibit 10.21 to the Registrant's Current
Report on Form 8-K (File No. 0-21970) filed with the
Securities and Exchange Commission on April 17, 1995).
10.14 (1) License Agreement dated as of April 1, 1995, between
the Registrant and Texas Instruments Incorporated
(filed as Exhibit 10.22 to the Registrant's Current
Report on Form 8-K (File No. 0-21970) filed with the
Securities and Exchange Commission on April 17, 1995).
10.15 (1) Supply Agreement dated as of April 1, 1995, between the
Registrant and Texas Instruments Incorporated. (filed
as Exhibit 10.23 to Amendment No. 2 to the Registrant's
Current Report on Form 8-K (File No. 0-21970) filed
with the Securities and Exchange Commission on August
23, 1995).
10.16 (1) Development Agreement dated as of April 1, 1995,
between the Registrant and Texas Instruments
Incorporated (filed as Exhibit 10.24 to the
Registrant's Current Report on Form 8-K (File No.
0-21970) filed with the Securities and Exchange
Commission on April 17, 1995).
10.17 (1) Foundry Agreement dated as of June 29, 1995, between
the Registrant and Matsushita Electric Industrial Co.,
Ltd and Matsushita Electronics Corporation (filed as
Exhibit 10.25 to the Registrant's Quarterly Report on
Form 10-Q (File No. 0-21970) for the quarterly period
ended July 2, 1995).
10.18 (1) Distribution Agreement dated as of June 29, 1995,
between the Registrant and Matsushita Electric
Industrial Co., Ltd and Matsushita Electronics
Corporation (filed as Exhibit 10.26 to the Registrant's
Quarterly Report on Form 10-Q (File No. 0-21970) for
the quarterly period ended July 2, 1995).
10.19 Lease Agreement for the Registrant's offices in
Sunnyvale, California, dated May 10, 1995 (filed as
Exhibit 10.19 to the Registrant's Annual Report on Form
10-K (File No. 0-21970) for the fiscal year ended
December 31, 1995).
10.20 (1) License Agreement dated as of March 6, 1995, between
the Registrant and BTR, Inc.
11 Statement re computation of per share earnings (see
page 38).
13 Portions of Registrant's Annual Report to Shareholders
for the fiscal year ended December 31, 1996,
incorporated by reference into this Report on Form
10-K.
21 Subsidiaries of Registrant (filed as Exhibit 10.21 to
the Registrant's Annual Report on Form 10-K (File No.
0-21970) for the fiscal year ended December 31, 1995).
23 Consent of Ernst & Young LLP, Independent Auditors (see
page 36).
24 Power of Attorney (see page 35)
27 Financial Data Schedule.
- ---------------------------------------
(1) Confidential treatment requested as to a portion of
this Exhibit.
(2) This Exhibit is a management contract or compensatory
plan or arrangement.
Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to Exhibit 2.1
have been omitted. The Registrant hereby agrees to furnish supplementally a copy
of any omitted schedule to the Securities and Exchange Commission upon request.
The omitted schedules are listed below:
Schedule 1.1(a) Capital Equipment
Schedule 1.1(b) Expensed Assets
Schedule 1.1(d) Contracts
Schedule 1.1(f) Software
Schedule 1.1(h) Testing Hardware and Software
Schedule 1.1(i) Research and Development Projects
Schedule 2.2 Calculation of Net Revenues of the Business
Schedule 2.5 Inventory Transfer Pricing
Schedule 5.2(a) Seller Consents
Schedule 5.16 Seller's Knowledge
Schedule 6.2(a) Buyer Consents
Schedule 6.2(b) Buyer Violations
Schedule 6.4 Capitalization of Buyer
Schedule 6.7 Registration Rights
Schedule 12.3(d) Buyer's Knowledge
(d) Financial Statement Schedule. The following financial statement
schedule of Actel Corporation is filed as part of this Report on Form 10-K and
should be read in conjunction with the Consolidated Financial Statements of
Actel Corporation, including the notes thereto, and the Report of Independent
Auditors with respect thereto:
Schedule Description Page
- --------------- ----------------------------------------------------- ---------
II Valuation and qualifying accounts 37
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ACTEL CORPORATION
March 28, 1997 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.
Signature Title Date
- ------------------------------------------ ------------------------------------------------ ----------------------
/s/ John C. East President and Chief Executive Officer (Principal March 28, 1997
- ----------------------------------------- Executive Officer) and Director
(John C. East)
/s/ David M. Sugishita Senior Vice President of Finance & Administration March 28, 1997
- ----------------------------------------- and Chief Financial Officer (Principal Financial
(David M. Sugishita) and Accounting Officer)
/s/ Keith B. Geeslin Director March 28, 1997
- -----------------------------------------
(Keith B. Geeslin)
/s/ Jos C. Henkens Director March 28, 1997
- -----------------------------------------
(Jos C. Henkens)
/s/ Frederic N. Schwettmann Director March 28, 1997
- -----------------------------------------
(Frederic N. Schwettmann)
/s/ Robert G. Spencer Director March 28, 1997
- -----------------------------------------
(Robert G. Spencer)
SCHEDULE II
ACTEL CORPORATION
--------------------------------------
Valuation and Qualifying Accounts
(in thousands)
Balance at
beginning of Balance at end
period Provisions Write-Offs of period
---------------- ---------------- --------------- ----------------
Allowance for doubtful accounts:
Year ended December 31, 1994............. 600 -- 3 597
Year ended December 31, 1995............. 597 -- 30 567
Year ended December 31, 1996............. 567 81 15 633