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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 28, 1997
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. X
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, 1998, as reported by the National Market System of the
National Association of Securities Dealers Automated Quotation System, was
approximately $203,525,747. 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 27, 1998:
21,246,215.
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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 28, 1997 (Parts II
and IV), and (ii) portions of Registrant's proxy statement for its annual
meeting of shareholders to be held on May 22, 1998 (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 thousands of its development systems are in the hands of customers,
including Allen Bradley/Rockwell, AST Computer, Alcatel, Bay Networks,
Cabletron, DSC Communications, Hughes Aircraft, Lockheed-Martin, Lucent
Technologies, and Siemens. The Company has foundry relationships with Chartered
Semiconductor Manufacturing Pte Ltd ("Chartered Semiconductor") in Singapore,
Lockheed-Martin Federal Systems Company ("Lockheed-Martin FSC") in the United
States, Matsushita Electronics Company and Matsushita Electrical Industry
Company Ltd. (collectively, "Matsushita") in Japan, 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 currently 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 logic synthesis tools that are
increasingly employed to design higher capacity devices than existing
architectures using other types of switching elements.
Actel believes that the demand for higher capacity devices will increase
faster than that for programmable devices as a whole. Accordingly, the Company
is focusing its attention on the transition to higher capacity devices and the
associated high-level design methodologies. Actel's strategy is to provide the
best FPGA solutions by giving logic designers the capability and confidence to
successfully move up to higher level designs. The Company is implementing this
strategy by enhancing the functionality, usability, and accessibility of
high-level design tools for its antifuse-based architecture; by increasing its
support for high-level design methodologies; and by developing a new, SRAM-based
architecture that Actel believes will be better suited for use with high-level
design tools than existing non-antifuse architectures.
The Company's product line currently consists of seven families of FPGAs,
Designer Series Development System and CoreHDL software, Silicon Explorer
debugging and diagnostic tools, and Activator device programmers. 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 device programmers
(Activator). CoreHDL blocks or "cores" that can be used to reduce development
time by being "dropped into" designs, and Silicon Explorer can be used to reduce
design-verification time by enabling the user to monitor the functionality of a
programmed FPGA in "real time."
During 1997, Actel introduced a number of new silicon products. In January
1997, the Company announced the immediate availability of the world's highest
capacity antifuse-based FPGA, the 30,000-gate A32300DX. In April 1997, Actel
expanded its 3.3-volt product line to include additional members of its 1200XL
and 3200DX FPGA families. Most significantly, in October 1997, the Company
introduced its new MX family of antifuse FPGAs, which is expected to feature six
devices ranging from 2,000 to 36,000 logic gates. At introduction, the MX family
was believed to be the world's fastest FPGA family. The MX family is being
marketed as a single-chip alternative to ASICs and offered at pricing levels
that are intended to be attractive to high-volume users of FPGAs.
In April 1997, the Company introduced its Silicon Explorer desktop
debugging and diagnostic tool. Silicon Explorer permits designers to monitor and
hence debug the internal operation of an Actel FPGA while running within a real
system at system speeds, a capability that is unique to Actel.
During the course of 1997, the Company's Designer Series software products
were significantly enhanced in terms of both functionality and support for the
various new silicon products. In addition, notable improvements were made in the
packaging of the software to enhance both its usability and accessibility. For
example, the requirement for a licensing security block in order to run the
software was removed in June 1997. More significantly, certain software packages
were offered free of charge and made available for downloading from Actel's web
site.
Actel markets its products through a worldwide, multi-tiered sales and
distribution network. The North American network includes six sales management
offices, seven technical sales offices, 21 manufacturers' representative firms,
and three major industrial distributors. The European network includes sales
management offices in England, France, Italy, and Germany, as well as two
Pan-European distributors and five regional distributors. In Japan, the Company
has a sales management and technical office and markets its products through
three distributors. In Korea, the Company has a sales management and technical
office and markets its products through one distributor. Six 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 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 per usable logic gate,
and lower power consumption than TTLs and simple PLDs, and faster time to market
and lower development costs than conventional gate arrays. 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 define a device's
function and then a device programmer to change the state of the device's
programming elements (such as antifuses or memory cells) through the application
of an electrical signal. Most CPLDs currently are programmed with EPROM or other
"floating gate" technologies. Many FPGAs currently are programmed with SRAM
technology. FPGAs based on antifuse programming elements are one-time
programmable, meaning they will retain their circuit configurations permanently,
even in the absence of electrical power. FPGAs and CPLDs based on EPROM- or
SRAM-controlled programming elements are reprogrammable.
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. Programming elements based on existing
reprogrammable architectures 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, the size of programming elements based on existing
reprogrammable architectures tends to limit the number of interconnect points in
a circuit, which, in combination with the relatively high electrical resistance
of such programming elements, tends to limit to limit design flexibility and/or
circuit 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.
Actel Strategy
Actel believes that the demand for higher capacity devices will increase
faster than that for programmable devices as a whole. Accordingly, the Company
is focusing its attention on the transition to higher capacity devices and the
associated high-level design methodologies. Actel's strategy is to provide the
best FPGA solutions by giving logic designers the capability and confidence to
successfully move up to higher level designs. The Company is implementing this
strategy by enhancing the functionality, usability, and accessibility of
high-level design tools for its antifuse-based architecture; by increasing its
support for high-level design methodologies; and by developing a new, SRAM-based
architecture that Actel believes will be better suited for use with high-level
design tools than existing reprogrammable architectures.
Technology
Actel's FPGAs currently 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. Actel has continued to develop antifuse technology and
plans to introduce a family of FPGAs during 1998 based on a new "metal-to-metal"
fuse structure that further enhances the benefits of the antifuse, which the
Company believes include the following:
Small Size
Antifuses are smaller than alternative switching elements (such as
those utilizing SRAM and EPROM elements), 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. 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
enhance 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
capacity increases.
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 considerably 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, which generally facilitates 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 logic resources within a particular chip. A measure of
logic resources frequently used in the programmable logic industry is
ASIC-gate equivalents. Since this gate counting measure is interpreted
differently by the various suppliers and end-users of programmable logic,
however, it is not a reliable measure. A more accurate assessment of
utilization is the number of logic modules within the chip that are
actually accessible to the customer's real design. In the case of existing
SRAM-based FPGAs and EPROM-based CPLDs, logic module utilization can vary
substantially from design to design, so that a "400 logic module" chip may
in practice yield only a fraction of that number as true usable logic
resources. By contrast, Actel's circuit architecture permits its products
to have a more predictable capacity over a broad range of applications.
This enables Actel's customers to select with a relatively high degree of
confidence the product that is most economical for a desired application.
It is not uncommon for a design implemented within an Actel chip to use
100% of the potentially available logic modules and still be fully and
automatically placed and routed. Users of existing SRAM-based FPGAs, on the
other hand, often restrict their designs to 60% or less of the claimed
logic resources in order to give their "automatic" place and route tools an
improved chance of successful completion.
Products
Actel's product line currently consists of seven families of FPGAs,
Designer Series Development System and Core HDL software, Silicon Explorer
debugging and diagnostic tools, and Activator device programmers. In 1997, the
first members of the MX family of FPGAs were shipped for revenue and the Company
adopted a number of new software strategies intended to broaden market
acceptance of high-level design methodologies by mainstream FPGA designers.
FPGAs
Currently, all seven 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 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. In 1997, Actel began offering all three members of its 1200XL
family in 84-pin Plastic Leaded Chip Carriers ("PL84"). Designers using the
new packages will be able to migrate to higher density devices without
changing packages. In 1997, the Company also expanded its 3.3-volt offering
to include all members of the 1200XL family.
3200DX
The 3200DX family consists of the 6,500-gate A3265DX, which was first
shipped for revenue in 1995; the 14,000-gate A32140DX and the 20,000-gate
A32200DX, which were first shipped for revenue in 1996; and the 10,000-gate
A32100 and the 30,000-gate A32300, which were first shipped for revenue in
1997. The 3200DX family permits designers to integrate the
register-intensive datapath functions of FPGAs, the control and decode
modules commonly implemented in CPLDs, and the fast dual-port SRAM
typically used for high-speed buffering. Supported by the Company's
extensive selection of automated design tools, the 3200DX family is
optimized for synthesis design methodologies to yield predictable
performance for system logic integration. To further assist designers, most
members of the family offer JTAG boundary scan logic, which permits testing
of the design during manufacture. In 1997, Actel began offering A3265DX,
A32100DX, and A32140DX in PL84 packages, which will enable designers to
migrate easily from smaller PL84 devices. In 1997, the Company also
expanded its 3.3-volt offering to include all members of the 3200DX family.
The 3200DX family is based on 0.6 micron design rules.
MX
In 1997, the Company shipped for revenue the first two devices in its
new MX family of FPGAs: the 4,000-gate A40MX04 and the 16,000-gate A42MX16.
The third member of the family, the 9,000-gate A40MX09, was announced as
immediately available during first week of 1998. The MX family includes the
best features from Actel's earlier ACT 1, ACT2, 1200XL, and 3200DX families
and is based on 0.45 micron design rules, which will permit the MX family
to work in pure 5-volt, pure 3.3-volt, and mixed 5- and 3.3-volt systems.
It is anticipated that the larger MX devices will be PCI compliant. At the
time of introduction, the MX devices were believed to be the world's
fastest FPGAs. Like ASICs and all previous Actel FPGAs, MX devices are
nonvolatile and do not require any external configuration devices or
circuitry. The MX family was introduced with volume production pricing that
the Company believes, in combination with its performance and
functionality, should make it attractive as a single-chip ASIC alternative.
Over time, the MX family should replace all of Actel's earlier FPGA
families in new commercial designs.
RH
The RadHard family currently consists of the 8,000-gate RH1280, which
was first shipped for revenue in 1996, and the 2,000-gate RH1020, which was
first shipped in 1997. 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 a
high-reliability, radiation-hardened 0.8 micron process.
Software
A key element of the Company's strategy is to support users' electronic
design automation ("EDA") tools of choice by establishing and maintaining
relationships with leading synthesis software vendors for the purpose of
permitting such tools to be used as a "front end" to Actel's proprietary
Designer Series Development System. Rather than developing this capability
alone, the Company has established the Actel Industry Alliance, which Actel uses
to establish relationships with EDA vendors for the purpose of developing
interfaces between such vendors' EDA tools and Actel's proprietary software.
Under the Alliance program, Actel provides members with, among other things,
access to its proprietary software specifications, early access to software
revisions, verification services, and participation in joint marketing efforts.
The Alliance currently has more than 20 members, including all major EDA vendors
supporting high-level design for both VHDL and Verilog. The Company provides
comprehensive HDL solutions for the EDA environments of Cadence Design Systems,
Exemplar Logic, Mentor Graphics, Synopsys, Synplicity, and Viewlogic.
Designer Series Development System
In 1997, the Company introduced two significant updates to its
Designer Series software. The first of these releases, known as Designer
Series 3.1.1, provided support for many of the new silicon products,
including various new 3200DX family members and the RH1280. Designer Series
3.1.1 runs on both PC and UNIX platforms. On PCs, Designer Series 3.1.1
runs on Windows 3.1, Windows for Workgroups, Windows NT 4.01, and Windows
95 operating systems. On UNIX platforms, Designer Series 3.1.1 runs on Sun
SparcStation workstations running SunOS or Solaris operating systems and
Hewlett Packard HP 9000 workstations running HP-UX operating systems.
In July 1997, Actel announced a new approach to its Designer Series
software products, offering a series of integrated, high-level design FPGA
development tools suites and cutting prices in all packages. The Company
believes the aggressive pricing strategy will prove attractive to schematic
designers moving up to high level design methodologies as well as to
experienced synthesis designers. In total, the new Designer Series product
line consists of eight separate packages. The new suites integrate
high-level design tools from Viewlogic, including ViewSynthesis FPGA
Synthesis, SpeedWave VHDL Simulator, and WorkView Office, and Synopsys with
Actel Designer Series 3.1.1. The product line also includes Designer Lite,
the first no-cost FPGA development software downloadable from the worldwide
web. Designer Lite is a complete package of design tools for the PC with
device libraries initially up to 8,000 gates. In October 1997, an enhanced
version of Designer Series 3.1.1 was released to support the initial
members of the new MX family of FPGAs. The first family member was rated as
a 16,000-gate device and Designer Lite was extended to include this and the
smaller devices in the MX family. Between July 1997 and the end of the
year, more than 10,000 copies of Designer Lite were downloaded, thereby
greatly expanding the number of potential designers for Actel's silicon
products.
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 includes CorePCI, telecommunications
cores, and industrial cores. In 1997, the Company enhanced 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. Actel offers 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 include a Universal
Asynchronous Receiver/Transmitter (UART), a Controller Area Network (CAN)
Interface, and a Serial Control Bus Interface. The Company has terminated
its agreement with Inicore and currently does not have a contractual right
of access to cores developed by any third party.
Silicon Explorer
In April 1997, Actel introduced a powerful debugging and diagnostic tool
known as the Silicon Explorer. This tool can significantly reduce the FPGA
design verification time by enabling the user to monitor the internal operation
of a programmed FPGA as it performs its functions at speed within a real system.
The Silicon Explorer tool suite includes ProbePilot, a high-speed signal
acquisition hardware interface between the Actel FPGA, the board on which the
FPGA resides, and the designer's desktop computer; Explore, an easy-to-use
point-and-click software tool that is integrated with the Company's Designer
Series development software; and Analyze, a PC-hosted logic analyzer that
graphically displays the waveforms accessed through ProbePilot. The ProbePilot
signal acquisition control takes advantage of the Company's ActionProbe
circuitry, a patented architectural feature included in all Actel devices that
provides 100% observability of internal nodes from selected external pins.
ProbePilot supports 18 separate probing channels and features high-speed 100 MHz
asynchronous or 66 MHz synchronous sampling rates. ProbePilot connects directly
to any desktop or laptop computer or workstation through the series port and
operates off the test board's 5.0 volt or 3.3 volt power supply. The Explore
windows-based software drives the entire diagnostic and debug process and
resides on the designer's PC or workstation as part of Actel's Designer Series
FPGA development tools. The Analyze software tool essentially turns the
designer's PC or workstation into a full-featured 18 channel logic analyzer,
eliminating the need for a costly stand-alone logic analyzer.
Activator
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 imprint the user's circuit design on
the device permanently. 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 FPGA
at a time.
Actel also supports programmers that are manufactured by third parties,
including Data I/O and BP Microsystems Inc.
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 and manufacturing efficiencies increase in FPGAs, 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. With the introduction of the MX family, Actel believes that its FPGAs
will increasingly be used in high-volume production.
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 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, Texas
Instruments Incorporated ("TI"), and TRW.
Sales and Distribution
The Company maintains a worldwide, multi-tiered selling organization that
includes a direct sales force, independent manufacturers' representatives, and
electronics distributors.
Actel's domestic sales force currently consists of 77 sales and
administrative personnel and field application engineers ("FAEs") operating from
15 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 Electronics ("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 for 1997,
1996, and 1995 accounted for 31%, 33%, and 38% of net revenues, respectively. Of
these export sales, the largest portion was derived from European customers.
Export sales have declined as a percentage of net revenues principally because
the Company's radiation-hardened (RH) product family, which was introduced in
1996, is sold almost exclusively to customers within the United States. Actel's
European sales organization currently consists of 23 distributors (including
Arrow and Memec, which have 16 subsidiary companies in Europe) having
approximately 45 branch offices. The activities of these distributors are
supervised from sales management offices in Basingstoke (England), Paris
(France), Milano (Italy), and Munich (Germany), where a total of 17 people are
employed.
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: Innotech Corporation and Teksel Ltd.
Actel also has distributors in Australia, China, Egypt, Hong Kong, India, Korea,
Malaysia, Singapore, South Africa, and Taiwan. In 1997, the Company appointed
I&C Microsystems, Co., Ltd. as its new distribution partner for Korea. The
activities of these distributors are supervised from sales management offices in
Japan and Korea. Actel officially opened its Korean office in 1997, and
currently plans to open an office in Hong Kong in 1998.
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 1997, 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, 1997, Actel's backlog was approximately $28.0 million,
compared with approximately $27.0 million at December 31, 1996. 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, Japan, Korea 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.
In 1997, Actel moved to better address the design concerns of its customers
by establishing Actel Design Services, an international network of design
centers. With offices now in Basingstoke, Boston, Chicago, and Sunnyvale, Actel
has an enhanced capability to support the increasing technical needs of
customers developing with synthesis tools.
In November 1997, Actel further enhanced its worldwide technical support
capabilities with the introduction of a web-based technical support database
called "Guru." Actel users can access Guru from their familiar web browser
through a series of "push button" forms and key words. The Guru system will
return relevant information to the questioner in a matter of seconds.
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 Strategic Relationships
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, 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. During 1997, Actel phased
out wafer purchases from TI in favor of its other suppliers. The active foundry
relationships for Actel's production FPGAs are currently manufactured by
Chartered Semiconductor using 0.6 0.45 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; and by Winbond using 0.6 and 0.8 micron design rules.
Pre-production wafers have been received from Chartered Semiconductor for
products designed using 0.35 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.
In 1997, the Company and Lockheed-Martin FSC entered into an Amended and
Restated M2M Joint Development and Marketing Agreement. The Agreement calls for
the parties to establish production capability at Lockheed-Martin FSC for space
quality, radiation-hardened versions of Actel's first metal-to-metal antifuse
FPGAs (see "Research and Development -- SX Family"). After the production
capability is established, Lockheed-Martin FSC will manufacture, assemble, and
test the radiation-hardened FPGAs, and the Company will market and sell them.
In 1997, Actel announced the availability of two new sockets tooled
specifically for the Company by Yamaichi Electronics of Japan, one of the
leading suppliers of prototype and production sockets. Sockets permit designers
to replace a chip without damaging the board, which reduces some of the risk
commonly associated with using an antifuse FPGA in prototype board design. The
two new sockets increase the total number of Actel sockets offered by Yamaichi
to nine. The complete line of sockets accommodates all Actel FPGAs in TQFP,
PQFP, RQFP, and VQFP packages.
Research and Development
In 1997, 1996, and 1995, the Company spent $26.5 million, $23.9 million,
and $20.6 million, respectively, on research and development, which represented
approximately 17%, 16%, 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 and confidence to
successfully move up to higher level designs.
The research and development projects that the Company publicly discussed
in 1997 included the following:
SX Family
In the fourth calendar quarter of 1997, Actel won a number of significant
design wins with pre-production silicon and software of its new SX family of
FPGAs. It is currently anticipated that the SX family will be formally
introduced in April 1998. The SX family will be significantly faster than the
recently-launched MX family, which was believed to be the world's fastest FPGA
family at its introduction. This high level of performance in the SX family is
achieved through a combination of architectural features and a new, very low
impedance "metal to metal" antifuse structure. This new antifuse is the
culmination of more than six years of research and development activities to
produce a reliable, manufacturable, high-performance metal to metal antifuse.
ES Architecture and ES Reprogrammable Products
In 1996, Actel announced its intention to enter the reprogrammable FPGA
market. The Company's first reprogrammable FPGA offering will be an SRAM-based
"ES" product family utilizing Actel's new ES reprogrammable architecture.
The ES architecture combines a new, fine-grained cell structure with a
routing-centric architecture. The expected result is logic cells that are more
readily synthesized and more efficient than current programmable architectures.
The key to the architectural efficiencies is a technology in which separate
transistors are used to implement logic and to drive the interconnects. By
separating these functions, Actel believes that more efficient die utilization
is achievable, resulting in lower-cost designs. In addition, the interconnect
drivers are tailored to routing length, which should provide high performance
even for cross-chip routing. The ES architecture also makes greater use of
hierarchy than current programmable architectures. A constant, maximum routing
delay is associated with each level of hierarchy, which should provide the
device with fanout independent delays. This means that, regardless of the number
of logic elements being driven, the delay should always be constant, making the
chip's performance predictable. Many aspects of the ES architecture are
switch-technology independent, making it possible that future variants of the ES
architecture will employ antifuse, flash, or other basic programming elements.
The Company has experienced significant delays in matching the capabilities
of its software and the resources of its silicon. Actel currently is making a
set of changes to both the silicon and the software. While the result should be
a product as good as or better than the one originally planned, the Company does
not believe the product will be available until at least the second half of
1998. With the additional time required for ES development, the Company now
anticipates that the initial production ES devices will use a 0.25 micron,
five-layer metal process.
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.
The Company also competes with suppliers of CPLDs. Suppliers of these
devices include Altera Corporation ("Altera"), Advanced Micro Devices' Vantis
subsidiary, and Lattice Semiconductor. The circuit architecture of CPLDs gives
them a performance advantage in certain lower capacity applications, but Actel
believes that its products are better suited for higher capacity designs.
Altera, however, has a larger installed base of development systems than the
Company. In addition, many newer CPLDs are reprogrammable, which permits
customers to reuse a circuit multiple times during the design process (unlike
antifuse-based FPGAs, which permanently retain the programmed configuration). No
assurance can be given that Actel will be able to overcome these competitive
disadvantages.
The Company competes most directly with established FPGA suppliers, such as
Xilinx, Inc. ("Xilinx") and Lucent Technologies (which is a licensed second
source of some Xilinx products). While Actel believes its products and
technology are superior to those of Xilinx in many applications requiring
greater speed, lower cost, or nonvolatility, Xilinx came to market with its
FPGAs approximately three years before the Company, has a larger installed base
of development systems, and its SRAM-based products are reprogrammable. No
assurance can be given that Actel will be able to overcome these competitive
disadvantages.
Several companies have either already marketed antifuse-based FPGAs,
including QuickLogic Corporation ("QuickLogic"), or announced their intention to
do so. See "Legal." On March 31, 1995, the Company completed its acquisition of
the antifuse FPGA business of TI, which was the only second-source supplier of
the Company's products. Xilinx, which is a licensee of certain of the Company's
patents, introduced antifuse-based FPGAs in 1995 and terminated its antifuse
FPGA business in 1996. Cypress Semiconductor Corporation, which was a licensed
second source of QuickLogic, sold its antifuse FPGA business to QuickLogic in
the first quarter of 1997.
Actel expects significant additional competition from major domestic and
international semiconductor suppliers, such as Motorola, which has declared that
it is a participant in 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 programmable switch elements that might offer
certain advantages over Actel's antifuse technologies. The Company seeks to
monitor developments in existing and emerging technologies. No assurance can be
given that Actel will be able to compete successfully with suppliers offering
products based on new or emerging technologies.
Patents and Licenses
As of December 31, 1997, the Company had 117 United States patents and
applications pending for an additional 35 United States patents. Actel has ten
European patent and has applications pending for an additional 42 patents
outside the United States. The Company's patents cover, among other things,
Actel's basic circuit architecture, antifuse structure, and programming method.
The Company expects to continue filing patent applications when appropriate to
protect its proprietary technologies. Actel believes that patents, along with
such factors as innovation, technological expertise, and experienced personnel,
will become increasingly important.
The Company attempts to protect its circuit designs, software, trade
secrets, and other proprietary information through patent and copyright
protection, agreements with customers and suppliers, proprietary information
agreements with employees, and other security measures. No assurance can be
given that the steps taken by Actel will be adequate to protect its proprietary
rights.
In 1995, Actel and BTR, Inc. entered into a License Agreement pursuant to
which BTR licensed its proprietary technology to the Company for development and
use in FPGAs and certain multichip modules. As partial consideration for the
grant of the license, the Company is paying to BTR non-refundable advance
royalties. Actel has also employed the principals of BTR to assist the Company
in its development and implementation of the licensed technology.
As is typical in the semiconductor industry, the Company has been notified
of claims that it may be infringing patents owned by others. If it is necessary
or appropriate, Actel may seek to obtain licenses under patents that it is
alleged to infringe. Although the Company is unable to estimate with any degree
of confidence the cost of such licenses, no assurance can be given that they
would not, individually or in the aggregate, have a materially adverse effect on
Actel's financial condition or results of operations. In addition, there can be
no assurance that licenses will be available or that the terms of any offered
license will be acceptable to the Company. Failure to obtain a license for
technology used by Actel could result in litigation. In the event of an adverse
result in any litigation, the Company may be required to pay substantial
damages; discontinue the use of infringing processes; cease the manufacture,
use, and sale of infringing products; and/or expend significant resources to
develop non-infringing technology. All litigation, whether or not determined in
favor of Actel, can result in significant expense and divert the efforts of
technical and management personnel from the Company's operations. In addition,
the Company has agreed to defend its customers from and against any claims that
Actel products infringe the patent or other intellectual rights of any third
party, and to indemnify its customers up to the dollar amount of their purchases
of any Actel products found to infringe. Any successful third party claim
against the Company or its customers for patent or other intellectual property
infringement may have a materially adverse effect on Actel's business, financial
condition, or results of operations.
Employees
At the end of 1997, the Company had 380 full-time employees, including 117
in marketing, sales, and customer support; 137 in research and development; 94
in operations; and 32 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:
Acts of God
The performance of Actel and each of its suppliers, distributors,
subcontractors, and agents is subject to events or conditions beyond such
party's control, including labor disputes, acts of public enemies or terrorists,
war or other military conflicts, blockades, insurrections, riots, epidemics,
quarantine restrictions, landslides, lightning, earthquake, fires, storms,
floods, washouts, arrests, civil disturbances, restraints by or actions of
governmental bodies acting in a sovereign capacity (including export or security
restrictions on information, material, personnel, equipment, or otherwise),
breakdowns of plant or machinery, inability to obtain transport or supplies, and
the like. The occurrence of any of these circumstances could disrupt the
Company's operations and may have a materially adverse effect on the Company's
business, financial condition, or results of operations.
"Blank Check" Preferred Stock; Change in Control Arrangements
Actel's Articles of Incorporation authorize the issuance of up to 5,000,000
shares of "blank check" Preferred Stock (of which 4,000,000 shares remain
available for issuance), with such designations, rights, and preferences as may
be determined from time to time by the Board of Directors. Accordingly, the
Board is empowered, without approval by holders of the Company's Common Stock,
to issue Preferred Stock with dividend, liquidation, redemption, conversion,
voting, or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. Issuance of the Preferred Stock could
be used as a method of discouraging, delaying, or preventing a change in control
of Actel. In addition, such issuance could adversely affect the market price of
the Common Stock. Although the Company does not currently intend to issue any
additional shares of its Preferred Stock, there can be no assurance that Actel
will not do so in the future.
The Company has adopted an Employee Retention Plan that provides for
payment of stock to Actel's employees who hold unvested stock options in the
event of a change of control of the Company. Payment is contingent upon the
employee remaining with Actel for six months after the change of control. The
Company has also entered into Management Continuity Agreements with each of its
executive officers, which provide for the acceleration of unvested stock options
in the event an executive officer's employment is actually or constructively
terminated other than for cause following a change of control.
Competition
The semiconductor industry is intensely competitive and is characterized by
rapid rates of technological change, product obsolescence, and price erosion.
Actel's existing competitors include suppliers of conventional gate arrays,
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 not based
on antifuse technology and certain CPLDs are reprogrammable, a feature that
makes them more attractive to designers. The Company also believes that, if
there were a downturn in the market for CPLDs and FPGAs, companies 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.
Dependence on Customized Manufacturing Process
Actel's antifuse based 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 will be successful.
Dependence on Design Wins
In order for the Company to sell an FPGA to a customer, the customer must
incorporate the FPGA into the customer's product in the design phase. Actel
therefore devotes substantial resources, which it may not recover through
product sales, in support of potential customer design efforts (including, among
other things, providing development system software) and to persuade potential
customers to incorporate the Company's FPGAs into new or updated products. These
efforts usually precede by many months (and 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 Independent Assembly Subcontractors
Actel relies primarily on foreign subcontractors for the assembly and
packaging of its products and, to a lesser extent, for the testing of its
finished products. The Company generally relies on one or two subcontractors to
provide particular services and has from time to time experienced difficulties
with the timeliness and quality of product deliveries. Actel has no long-term
contracts with its subcontractors and certain of those subcontractors are
currently operating at or near full capacity. There can be no assurance that
these subcontractors will continue to be able and willing to meet the Company's
requirements for such components or services. Any significant disruption in
supplies from, or degradation in the quality of components or services supplied
by, these subcontractors could delay shipments and result in the loss of
customers or revenues or otherwise have a materially adverse effect on Actel's
business, financial condition, or results of operations.
Dependence on Independent Software 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. 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 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, and
Winbond in Taiwan. The Company's reliance on independent wafer manufacturers to
fabricate its wafers involves significant risks, including the risk of events
limiting production and reducing yields, such as technical difficulties or
damage to production facilities, lack of control over capacity allocation and
delivery schedules, and potential lack of adequate capacity. These risks are
particularly pronounced with respect to wafers intended for use in military and
aerospace applications.
Actel has from time to time experienced delays in obtaining wafers from its
foundries, and there can be no assurance that the Company will not experience
similar or more severe delays in the future. In addition, although Actel has
supply agreements with most of its wafer manufacturers, a shortage of raw
materials or production capacity could lead any of the Company's wafer suppliers
to allocate available capacity to customers other than Actel, or to internal
uses, which could interrupt the Company's capability to meet its product
delivery obligations. These risks are particularly pronounced with respect to
wafers intended for use in military and aerospace applications. Any inability or
unwillingness of Actel's wafer suppliers to provide adequate quantities of
finished wafers to satisfy the Company's needs in a timely manner would delay
production and product shipments and could have a materially adverse effect on
Actel's business, financial condition, or results of operations.
If the Company's current independent wafer manufacturers were unable or
unwilling to manufacture Actel's products as required, the Company would have to
identify and qualify additional foundries. The qualification process typically
takes one year or longer. No assurance can be given that any additional wafer
foundries would become available or be able to satisfy Actel's requirements on a
timely basis or that qualification would be successful. In addition, the
semiconductor industry has from time to time experienced shortages of
manufacturing capacity. To secure an adequate supply of wafers, the Company has
considered, and continues to consider, various possible transactions, including
the use of substantial nonrefundable deposits to secure commitments from
foundries for specified levels of manufacturing capacity over extended periods,
equity investments (such as Actel's investment in Chartered Semiconductor) in
exchange for guaranteed production, and the formation of joint ventures to own
foundries. No assurance can be given as to the effect of any such transaction on
the Company's business, financial condition, or results of operations.
Dependence on International Operations
Actel buys a majority of its wafers from foreign foundries and has most of
its commercial products assembled, packaged, and tested by subcontractors
located outside the United States. These activities are subject to the
uncertainties associated with international business operations, including trade
barriers and other restrictions, changes in trade policies, foreign governmental
regulations, currency exchange fluctuations, reduced protection for intellectual
property, war and other military activities, terrorism, changes in political or
economic conditions, and other disruptions or delays in production or shipments,
any of which could have a materially adverse effect on the Company's business,
financial condition, or results of operations.
In order to expand international sales and service, the Company will need
to maintain and expand existing foreign operations or establish new foreign
operations. This entails hiring additional personnel and maintaining or
expanding existing relationships with international distributors and sales
representatives. This will require significant management attention and
financial resources and could adversely affect Actel's financial condition and
operating results. No assurance can be given that the Company will be successful
in its maintenance or expansion of existing foreign operations, in its
establishment of new foreign operations, or in its efforts to maintain or expand
its relationships with international distributors or sales representatives.
Dependence on Key Personnel
The success of the Company is dependent in large part on the continued
service of its key management, engineering, marketing, sales, and support
employees. Competition for qualified personnel is intense in the semiconductor
industry, and the loss of Actel's 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.
Dependence on Military and Aerospace Customers
Although Actel is unable to determine with certainty the ultimate uses of
its products, the Company estimates that sales of its products to customers in
the military and aerospace industries, which sometimes carry higher profit
margins than sales of products to commercial customers, accounted for
approximately one-quarter of revenues in 1997. The Company believes that the
military and aerospace industries accounted for a significantly greater
percentage of the Company's net revenues following the introduction of RH1280 in
1996. No assurance can be given that future sales to customers in the military
and aerospace industries will continue at current volume or margin levels.
Orders from the military and aerospace customers tend to be large and irregular,
which creates operational challenges and contributes to fluctuations in Actel's
net revenues and gross margins. These sales are also subject to more extensive
governmental regulations, including greater import and export restrictions. In
addition, products for military and aerospace applications require processing
and testing that is more lengthy and stringent than for commercial applications,
increasing the risk of failure. It is often not possible to determine before the
end of processing and testing whether products intended for military or
aerospace applications will fail and, if they do fail, a significant period of
time is often required to process and test replacements, each of which makes it
difficult to accurately estimate quarterly revenues and could have a materially
adverse effect on Actel's business, financial condition, or results of
operations.
Dividend Policy
Actel has never declared or paid any cash dividends on its capital stock.
The Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends in the future.
Fluctuations in Operating Results
The Company's quarterly and annual operating results are subject to
fluctuations resulting from general economic conditions and a variety of risks
specific to Actel or characteristic of the semiconductor industry, including
booking and shipment uncertainties, supply problems, and price erosion.
Booking and Shipment Uncertainties
Actel typically generates a large percentage of its quarterly revenues
from orders received during the quarter and shipped in the final weeks of
the quarter, making it difficult to accurately estimate quarterly revenues.
The Company's backlog (which may be cancelled or deferred by customers on
short notice without significant penalty) at the beginning of a quarter
accounts for only a fraction of Actel's revenues during the quarter. This
means that the Company generates the rest of its quarterly revenues from
orders received during the quarter and "turned" for shipment within the
quarter, and that any shortfall in "turns" orders will have an immediate
and adverse impact on quarterly revenues. There are many factors that could
cause a shortfall in "turns" orders, including but not limited to a decline
in general economic conditions or the businesses of end users, excess
inventory in the channel, conversion to conventional (or non-programmable)
gate arrays, or the loss of business to other competitors for price or
other reasons.
Historically, Actel has shipped a disproportionately large percentage
of its quarterly revenues in the final weeks of the quarter. Any failure by
the Company to effect scheduled shipments by the end of the quarter,
therefore, could have a materially adverse effect on revenues for such
quarter. Since Actel generally does not recognize revenue on the sale of a
product to a distributor until the distributor resells the product, the
Company's quarterly revenues are also dependent on, and subject to
fluctuations in, shipments by Actel's distributors. When there is a
shortfall in revenues, operating results are likely to be adversely
affected because most of the Company's expenses do not vary with revenues.
Supply Problems
In a typical semiconductor manufacturing process, silicon wafers
produced by a foundry are sorted and cut into individual die, which are
then assembled into individual packages and tested for performance. The
manufacture, assembly, and testing of semiconductor products is highly
complex and subject to a wide variety of risks, including defects in masks,
impurities in the materials used, contaminants in the environment, and
performance failures by personnel and equipment. Semiconductor products
intended for military and aerospace applications are particularly
susceptible to these conditions, any of which could have a materially
adverse effect on Actel's business, financial condition, or results of
operations.
As is common in the semiconductor industry, Actel's independent wafer
suppliers from time to time experience lower than anticipated yields of
usable die. For example, the Company experienced a yield problem at one of
its foundries in the fourth quarter of 1993 that was severe enough to have
a materially adverse effect on Actel's operating results. To the extent
yields of usable die decrease, the average cost to the Company of each
usable die increases, which reduces gross margin. Wafer yields can decline
without warning and may take substantial time to analyze and correct,
particularly for a company such as Actel that does not operate its own
manufacturing facility, but instead utilizes independent facilities, most
of which are offshore. Yield problems may also increase the time to market
for the Company's products and create inventory shortages and dissatisfied
customers. In addition, Actel typically experiences difficulties and delays
in achieving satisfactory, sustainable yields on new processes or at new
foundries. Although the Company eventually has been able to overcome these
difficulties in the past, no assurance can be given that it will be able to
do so with respect to its current or future new processes and/or new
foundries. Nor can any assurance be given that the Company will not
experience wafer supply problems in the future, or that any such problem
would not have a materially adverse effect on Actel's business, financial
condition, or results of operations.
Price Erosion
The semiconductor industry is characterized by intense competition.
Historically, average selling prices in the semiconductor industry
generally, and for the Company's products in particular, have declined
significantly over the life of each product. While Actel expects to reduce
the average selling prices of its products over time as the Company
achieves manufacturing cost reductions, Actel is sometimes required by
competitive pressures to reduce the prices of its products more quickly
than such cost reductions can be achieved. In addition, the Company
sometimes approves price reductions on specific sales to meet competition.
If not offset by reductions in manufacturing costs or by a shift in the mix
of products sold toward higher-margin products, declines in the average
selling prices of Actel's products will reduce gross margins and could have
a materially adverse effect on the Company's business, financial condition,
or results of operations.
Forward-Looking Statements
All forward-looking statements contained in this Annual Report on Form
10-K, including all forward-looking statements contained in any document
incorporated herein by reference, are made pursuant to the safe harbor
provisions of the Public Securities Litigation Reform Act of 1995. Words such as
"anticipates," "believes," "estimates," "expects," intends," "plans," "seeks,"
and variations of such words and similar expressions are intended to identify
the forward-looking statements. The forward-looking statements include
projections relating to trends in markets, revenues, average selling prices,
gross margin, wafer yields, research and development expenditures, selling,
general, and administrative expenditures, and the Year 2000 compliance issue.
All forward-looking statements are based on current expectations and projections
about the semiconductor industry and programmable logic market, and assumptions
made by the Company's management that reflect its best judgment based on other
factors currently known by management, but they are not guarantees of future
performance. Accordingly, actual events and results may differ materially from
those expressed or forecast in the forward-looking statements due to the risk
factors identified herein or for other reasons. Actel undertakes no obligation
to update any forward-looking statement contained or incorporated by reference
in this Annual Report on Form 10-K.
Future Capital Needs
The Company must continue to make significant investments in research and
development as well as capital equipment and expansion of facilities. Actel's
future capital requirements will depend on many factors, including, among
others, product development, investments in working capital, and acquisitions of
complementary businesses, products, or technologies. To the extent that existing
resources and future earnings are insufficient to fund the Company's operations,
Actel may need to raise additional funds through public or private debt or
equity financings. If additional funds are raised through the issuance of equity
securities, the percentage ownership of current shareholders will be reduced and
such equity securities may have rights, preferences, or privileges senior to
those of the holders of the Company's Common Stock. No assurance can be given
that additional financing will be available or that, if available, it can be
obtained on terms favorable to Actel and its shareholders. If adequate funds are
not available, the Company may be required to delay, limit, or eliminate some or
all of its proposed operations.
Gross Margin
The Company's gross margin is the difference between the revenues it
receives from the sale of its products and the cost of those products. The price
Actel can charge for a product is constrained principally by its competitors.
While competition has always been intense, the Company believes price
competition is becoming more acute. This may be due in part to the transition
toward high-level design methodologies, which permit designers to wait until
later in the design process before selecting a programmable logic device and
make it easier to convert from one programmable logic device to another. These
competitive pressures may cause Actel to reduce the prices of its products more
quickly than it can achieve cost reductions, which would reduce the Company's
gross margin and may have a materially adverse effect on its operating results.
One of the most important variables affecting the cost of the Company's
products is manufacturing yields. With its customized antifuse manufacturing
process requirements, Actel almost invariably experiences difficulties and
delays in achieving satisfactory, sustainable yields on new processes or at new
foundries. The Company introduced the first members of the MX family in the
fourth quarter of 1997 and is currently scheduled to introduce new members of
the MX family and the first members of the SX family in 1998. Until satisfactory
yields are achieved on these new product families, they generally will be sold
at lower gross margins than Actel's mature product families. Depending upon the
rate at which sales of these new products ramp (and the MX family is directed at
high-volume users) and the extent to which they displace mature products, the
lower gross margins could have a materially adverse effect on the Company's
operating results.
Management of Growth
Actel has recently experienced and expects to continue to experience growth
in the number of its employees and the scope of its operations, resulting in
increased responsibilities for management personnel. To manage recent and
potential future growth effectively, the Company will need to continue to hire,
train, motivate, and manage a growing number of employees. The future success of
Actel will also depend on its ability to attract and retain qualified technical,
marketing, and management personnel. In particular, the current availability of
qualified silicon design, software design, process, and test engineers is
limited, and competition among companies for skilled and experienced engineering
personnel is very strong. The Company has been attempting to hire a number of
engineering personnel and has experienced delays in filling such positions.
During strong business cycles, Actel expects to experience continued difficulty
in filling its needs for qualified engineers and other personnel. No assurance
can be given that the Company will be able to achieve or manage effectively any
such growth, and failure to do so could delay product development and
introductions or otherwise have a materially adverse effect on Actel's business,
financial condition, or results of operations.
Manufacturing Yields
Actel depends upon its independent wafer suppliers to produce wafers with
acceptable yields and to deliver them to the Company in a timely manner.
Currently, substantially all of the Company's revenues are derived from products
based on Actel's proprietary antifuse process technologies. Successful
implementation of antifuse process technology requires a high degree of
coordination between the Company and its foundry. Therefore, significant lead
time is required to reach volume production on new processes and at a new wafer
supply locations. Accordingly, no assurance can be given that volume production
on Actel's new MX and SX families will be achieved in the near term or at all.
The manufacture of high-performance antifuse wafers is a complex process
that requires a high degree of technical skill, state-of-the-art equipment, and
effective cooperation between the wafer supplier and the circuit designer to
produce acceptable yields. Minute impurities, errors in any step of the
fabrication process, defects in the masks used to print circuits on a wafer, and
other factors can cause a substantial percentage of wafers to be rejected or
numerous die on each wafer to be non-functional. As is common in the
semiconductor industry, the Company has from time to time experienced in the
past, and expects that it will experience in the future, production yield
problems and delivery delays. Any prolonged inability to obtain adequate yields
or deliveries could adversely affect the Actel's business and operating results.
One-Time Programmability
While the nonvolatility of Actel's antifuse FPGAs is necessary or desirable
in some applications, logic designers generally would prefer to prototype with a
reprogrammable logic device, all other things being equal. This is because the
designer can reuse the device if he or she makes an error. The visibility
associated with discarding a one-time programmable device often causes designers
to select a reprogrammable device even when the alternative one-time
programmable device offers significant advantages. This bias in favor of
designing with reprogrammable logic devices appears to increase as the size of
the design increases, and is a major reason the Company has decided to enter the
reprogrammable FPGA market.
Patent Infringement
As is typical in the semiconductor industry, the Company has been and
expects to be from time to time notified of claims that it may be infringing
patents owned by others. No assurance can be given that such claims against
Actel will not result in litigation. 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. In January 1998, the
Company brought a second patent infringement lawsuit against QuickLogic.
Management of the Company believes that Actel has meritorious claims and
defenses in these matters, and that their 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 cases or any other litigation involving intellectual
property, the Company could suffer significant (and possibly treble) monetary
damages, which might have a materially adverse effect on Actel's business,
financial condition, or results of operations. The Company may also be required
to discontinue the use of infringing processes; cease the manufacture, use, and
sale of infringing products; expend significant resources to develop
non-infringing technology; or obtain licenses under patents that it is
infringing. Although patent holders commonly offer licenses to alleged
infringers, no assurance can be given that licenses will be offered or that the
terms of any offered licenses will be acceptable to Actel. In the event of a
successful claim against the Company, Actel's failure to develop or license a
substitute technology on commercially reasonable terms would have a materially
adverse effect on the Company's business, financial condition, and results of
operations.
Potential Acquisitions
In pursuing its business strategy, Actel may acquire products,
technologies, or businesses from third parties. Identifying and negotiating
these acquisitions may divert substantial management time away from the
Company's operations. An acquisition could absorb substantial cash resources,
require Actel to incur or assume debt obligations, and/or involve the issuance
of additional equity securities of the Company. The issuance of additional
equity securities may dilute, and could represent an interest senior to the
rights of, the holders of Actel's Common Stock. An acquisition accounted for as
a purchase, such as the Company's acquisition of TI's antifuse FPGA business in
1995, could involve significant one-time write-offs, possibility resulting in a
loss for the fiscal year in which it is taken, and would require the
amortization of any goodwill over a number of years, which would adversely
affect earnings in those years. Any acquisition would require attention from the
Company's management to integrate the acquired entity into Actel's operations,
may require the Company to develop expertise outside its existing business, and
could result in departures of management from either Actel or the acquired
entity. An acquired entity may have unknown liabilities, and its business may
not achieve the results anticipated at the time it is acquired by the Company.
Protection of Intellectual Property
Actel has historically devoted significant resources to research and
development and believes that the intellectual property derived from such
research and development is a valuable asset that has been and will continue to
be important to the success of the Company's business. Actel relies primarily on
a combination of nondisclosure agreements, other contractual provisions, and
patent and copyright laws to protect its proprietary rights. No assurance can be
given that the steps taken by the Company will be adequate to protect its
proprietary rights. In addition, the laws of certain territories in which
Actel's products are or may be developed, manufactured, or sold, including Asia
and Europe, may not protect the Company's products and intellectual property
rights to the same extent as the laws of the United States. Failure of Actel to
enforce its patents or copyrights or to protect its trade secrets could have a
materially adverse effect on the Company's business, financial condition, or
results of operations.
Reliance on Distributors
In 1997, 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 17%, 17%, and 12%, respectively, of the Company's net revenues
in 1997. 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 31%, 33%, and 38% of net revenues for 1997, 1996, and 1995,
respectively. Actel expects that revenues derived from international sales will
continue to represent a significant portion of its total revenues. International
sales are subject to a variety of risks, including longer payment cycles,
greater difficulty in accounts receivable collection, currency restrictions,
tariffs, trade barriers, taxes, export license requirements, and the impact of
recessionary environments in economies outside the United States. All of the
Company's foreign sales are denominated in U.S. dollars, so Actel's products
become less price competitive in countries with currencies that are declining in
value against the dollar. In addition, since virtually all of the Company's
foreign sales are made through distributors, such sales are subject to the risks
described above in "Reliance on Distributors."
Semiconductor Industry Risks
The semiconductor industry has historically been cyclical and periodically
subject to significant economic downturns, which are characterized by diminished
product demand, accelerated price erosion, and overcapacity. The Company may in
the future experience substantial period-to-period fluctuations in business and
results of operations due to general semiconductor industry conditions, overall
economic conditions, or other factors, including legislation and regulations
governing the import or export of semiconductor products.
Software Development Challenges
The computational complexities are not yet well understood for the software
tools required to support the largest members of the ES family of products. It
is anticipated that both the computational memory capacities and tool runtimes
will be several times greater than those presently required for Actel's current
antifuse products, which are significantly smaller. It is expected that the
Company will need to develop and deploy tools incorporating significantly more
compact, memory-resident data structures, which must be combined with algorithms
capable of dealing very efficiently with the large circuit sizes.
Technological Change and Dependence on New Product Development
The market for Actel's products is characterized by rapidly changing
technology, frequent new product introductions, and declining average selling
prices over product life cycles, each of which makes the timely introduction of
new products a critical objective of the Company. Actel's future success is
highly dependent upon the timely completion and introduction of new products at
competitive price and performance levels. In evaluating new product decisions,
Actel must anticipate well in advance both the future demand and the technology
that will be available to supply such demand. Failure to anticipate customer
demand, delays in developing new products with anticipated technological
advances, and failure to coordinate the design and development of silicon and
associated software products each could have a materially adverse effect on
Actel's business, financial condition, or results of operation.
In addition, there are greater technological and operational risks
associated with new products. The inability of the Company's wafer suppliers to
produce advanced products; delays in commencing or maintaining volume shipments
of new products; the discovery of product, process, software, or programming
failures; and any related product returns could each have a materially adverse
effect on Actel's business, financial condition, or results of operation.
Actel is currently scheduled to introduce new members of the MX, SX, and ES
families in 1998. 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.
Volatility of Stock
The price of the Company's Common Stock can fluctuate substantially on the
basis of factors such as announcements of new products by Actel or its
competitors, quarterly fluctuations in the Company's financial results or the
financial results of other semiconductor companies, or general conditions in the
semiconductor industry or in the financial markets. In addition, stock markets
have recently experienced extreme price and volume volatility. This volatility
has had a substantial effect on the market prices of the securities issued by
high technology companies, at times for reasons unrelated to the operating
performance of the specific companies.
Year 2000 Compliance
The Year 2000 issue arises because most computer hardware and software were
developed without considering the impact of the upcoming change in the century.
The hardware and software were originally designed to accept two-digit entries
rather than four-digit entries in the date code field. As a result, certain
computer systems and software packages will not be able to interpret dates
beyond December 31, 1999; they will, for example, interpret January 1, 2000, as
January 1, 1900. This could potentially result in computer failure or
miscalculations, causing operating disruptions, including among other things an
inability to process transactions, send invoices, or engage in other ordinary
activities.
The Company has initiated a comprehensive project to prepare its computer
systems for the Year 2000 and plans to have changes to critical systems
completed by the first quarter of 1999 to permit time for testing. A task force
is identifying all areas of application software, operating system software,
hardware, and external interfaces that require Year 2000 compliance. While the
Company currently expects that the Year 2000 will not pose significant internal
operational problems, delays in the implementation of new information systems,
or a failure to fully identify all Year 2000 dependencies in the Company's
systems, could have a materially adverse effect on the Company's operating
results.
The Company is also assessing the capability of its products sold to
customers over a period of years to handle the Year 2000. The ongoing assessment
has not revealed any significant compliance issues. However, the inability of
these products to properly manage and manipulate data in the Year 2000 could
result in a material adverse impact on the Company, including increased warranty
costs, customer satisfaction issues, and potential lawsuits.
Based on its current understanding, the Company believes that the
likelihood of a material adverse impact due to problems with internal systems or
products sold to customers is remote and expects that the cost of its Year 2000
compliance program over the next two years will not have a material effect on
the Company's financial position or overall trends in results of operations. The
cost of the program and the date on which the Company believes it will become
Year 2000 compliant are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, cooperation of vendors, and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. If Year 2000
modifications and conversions are not properly made, or are not completed in
timely manner, the Year 2000 issue could have a materially adverse impact on the
Company's future business operations and, in turn, on its financial position and
results of operations. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in the area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
Ultimately, the potential impact of the Year 2000 issue will depend not
only on the corrective measures the Company undertakes, but also on the way in
which the Year 2000 issue is addressed by businesses and other entities who
provide data to, or receive data from the Company, or whose financial condition
or operational capability is important to the Company as suppliers or customers.
Therefore, the Company is also developing a plan to contact critical suppliers
of products and services to determine that the suppliers' operations and the
products and services they provide are Year 2000 capable or to monitor their
progress toward Year 2000 capability. The Company's suppliers and customers are
generally much larger organizations than the Company with a greater number of
suppliers and customers of their own. The Company believes that many of its
suppliers and customers have not completed their own systems modification to be
Year 2000 compliant. The failure of significant suppliers or customers of the
Company to become Year 2000 compliant could have materially adverse consequences
to the Company. Those consequences could include the inability to receive
product in a timely manner or lost sales opportunities, either of which could
result in a material decline in the Company's revenues and profits. In addition,
there can be no guarantee that a conversion by a third party's system on which
the Company's systems rely would be compatible with the Company's systems. It is
not possible at this time to quantify the potential impact of such situations,
but no assurance can be given that another company's failure to ensure Year 2000
capability will not have an adverse effect on the Company.
Executive Officers of the Registrant
The following table identifies each executive officer of Actel as of March
27, 1998:
Name Age Position
- ---------------------------------------- ------- ---------------------------------------------------------
John C. East......................... 53 President and Chief Executive Officer
Henry L. Perret...................... 52 Vice President of Finance and Chief Financial Officer
Esmat Z. Hamdy....................... 48 Senior Vice President of Technology & Operations
Jeffrey M. Schlageter................ 54 Senior Vice President of Engineering & Corporate Programs
Michelle A. Begun.................... 41 Vice President of Human Resources
Carl N. Burrow....................... 37 Vice President of Marketing
Douglas D. Goodyear.................. 43 Vice President of Worldwide Sales
Fares N. Mubarak..................... 36 Vice President of Engineering
Dennis F. Nye........................ 45 Vice President of Strategic Accounts
Robert J. Smith, II.................. 53 Vice President of Software
David L. Van De Hey.................. 42 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. Perret joined Actel in January 1996 as Controller and has been Vice
President of Finance and Chief Financial Officer since June 1997. From April
1992 until joining the Company, he was the Site Controller for the manufacturing
division of Applied Materials, a maker of semiconductor manufacturing equipment,
in Austin, Texas. From 1978 to 1991, Mr. Perret held various financial
positions, including divisional controllerships with National Semiconductor, a
semiconductor manufacturer.
Dr. Hamdy is a founder of the Company, was Vice President of Technology
from August 1991 to March 1996 and Senior Vice President of Technology from
March 1996 to September 1996, and has been Senior Vice President of Technology
and Operations since September 1996. From November 1985 to July 1991, he held a
number of management positions with the Company's technology and development
group. From January 1981 to November 1985, Dr. Hamdy held various positions at
Intel Corporation, a semiconductor manufacturer, lastly as project manager.
Mr. Schlageter joined the Company in February 1989 as Vice President of
Engineering, was Senior Vice President of Engineering from November 1992 to
October 1997, and has been Senior Vice President of Engineering and Corporate
Programs since October 1997. 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, Mr. Schlageter 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. Burrow joined the Company in January 1992 as Southwest Regional Sales
Manager, was Director of Western Area Sales from February 1996 to October 1997,
and has been Vice President of Marketing since October 1997. From June 1983
until January 1992, he held various sales and marketing positions at Texas
Instruments, a semiconductor manufacturer.
Mr. Goodyear joined the Company in February 1996 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. Mubarak joined the Company in November 1992, was Director of Product
and Test Engineering until October 1997, and has been Vice President of
Engineering since October 1997. From 1989 until joining Actel, he held various
engineering and engineering management positions with Samsung Semiconductor
Inc., a semiconductor manufacturer, and its spin-off, Integrated Circuit Works,
Inc. From 1984 to 1989, Mr. Mubarak held various engineering, product planning,
and engineering management positions with Advanced Micro Devices, a
semiconductor manufacturer.
Mr. Nye joined Actel in October 1990 as European Business Manager with
Actel Europe Ltd., the Company's United Kingdom subsidiary, was Vice President
of Marketing from January 1994 until October 1997, and has been Vice President
of Strategic Accounts since October 1997. 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.
Dr. Smith joined Actel in March 1997 as Vice President of Software. Prior
to joining the Company, he was an independent consultant specializing in product
development and positioning, software team building, pragmatic software
engineering practices, and small company trouble shooting. From September 1985
to March 1995, Dr Smith held various positions with Microelectronics and
Computer Technology Corporation (MCC), a consortial systems and software R&D
company, where he last served as Vice President of Advanced Systems and
Networks.
Mr. Van De Hey joined Actel in July 1993 as Corporate Counsel, became
Secretary in May 1994, and has been Vice President & General Counsel since
August 1995. From November 1988 to September 1993, he was an associate with
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, a law firm in Palo
Alto, California, and the Company's outside legal counsel. From August 1985
until October 1988, he was an associate with the Cleveland office of Jones, Day,
Reavis & Pogue, a law firm.
Executive officers serve at the discretion of the Board of Directors.
ITEM 2. PROPERTIES
Actel's principal administrative, marketing, sales, customer support,
design, research and development, and testing facilities are located in
Sunnyvale, California, in three buildings that comprise approximately 138,000
square feet. These buildings are leased through June 2003, and the Company has a
renewal option for an additional five-year term. Actel also leases sales offices
in the metropolitan areas of Atlanta, Baltimore, Basingstoke (England), Boston,
Chicago, Dallas, Denver, Destin (Florida), Los Angeles, Milano (Italy),
Minneapolis, Munich (Germany), Ottawa (Canada), and Paris (France),
Philadelphia, Raleigh, Seoul (Korea), and Tokyo (Japan). The Company believes
its facilities will be adequate for its needs in 1998, but is investigating
options for continued expansion beyond that time.
ITEM 3. LEGAL
Except as described below, there are no pending legal proceedings of a
material nature to which Actel is a party or of which any of its property is the
subject. There are no such legal proceedings known by the Company to be
contemplated by any governmental authority.
Actel v. QuickLogic (CV C-94 20050 JW (PVT))
Claims Asserted
Actel commenced the above-referenced action against QuickLogic in the
United States District Court for the Northern District of California (the
"Court") on January 20, 1994. The Complaint asserted claims for
infringement of U. S. Patents Nos. 4,758,745, 4,873,459, 5,055,718, and
5,198,705, respectively, each relating to field programmable gate array
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 March 15, 1995, Actel filed an Amended and Supplemental Complaint
against QuickLogic asserting, in addition to claims previously asserted, a
claim for infringement of U.S. Patent No. 5,367,208. Actel'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 U.S. Patents Nos. 5,220,213 and
5,396,127 relating to logic modules. 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, Actel
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 Actel of QuickLogic's two
patents-in-suit. In response, both QuickLogic and Mr. Birkner denied all
allegations.
On March 7, 1996, Actel filed a Second Supplemental Complaint, adding
a claim against QuickLogic for infringement of U.S. Patent No. 5,479,113.
As of June 13, 1997, QuickLogic amended its complaint to assert that
Actel's ACT 3 products infringe U.S. Patent No. 5,594,364.
On August 1, 1997, Actel answered QuickLogic's amended complaint
denying liability and restating Actel's trade secret and related
counterclaims.
On August 15, 1997, Actel filed an amended and supplemental complaint.
This complaint reasserted the patent claims described above and added a
claim under U.S. Patent No. 5,610,534, issued March 11, 1997.
On September 3, 1997, QuickLogic and Birkner filed an answer to
Actel's Second Amended and Supplemental Complaint, and alleged amended
counterclaims asserting invalidity and other customary affirmative defenses
in patent cases and demanding jury. On September 9, 1997, QuickLogic and
Birkner filed an answer to Actel's Amended Counterclaims.
On March 3, 1998, QuickLogic advised that it will seek leave to amend
its answer to assert additional defenses of invalidity and
unenforceability.
In summary, Actel has asserted claims of patent infringement as
against all QuickLogic products under U.S. Patents Nos. 4,758,745,
4,873,459, 5,055,718, 5,198,705, 5,357,208, 5,479,113 and 5,610,534. Actel
has also asserted various counterclaims against QuickLogic and Mr. Birkner
based on misappropriation of Actel trade secrets. QuickLogic denies
infringement and asserts invalidity and unenforceability of all Actel
patents-in-suit. As explained below, the Court has granted a summary
judgment finding that QuickLogic's products infringe the `705 patent.
QuickLogic has asserted claims of patent infringement against Actel's
ACT 2 and ACT 3 product lines under U.S. Patents Nos. 5,220,213 and
5,396,127 and against ACT 3 products under U.S. Patent No. 5,594,364. Actel
denies infringement and asserts invalidity and unenforceability of the
QuickLogic patents. Actel further asserts that it is entitled to impose a
constructive trust on the QuickLogic patents because those patents were
obtained using Actel trade secrets.
Motions
On November 15, 1994 Actel 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. After further hearings, on August 8, 1997, the Court adopted the
Special Master's recommendation.
On January 18, 1996, Actel filed a motion seeking summary judgment of
invalidity of the two QuickLogic patents-in-suit based on the sale of
Actel's ACT 2 product line more than one year prior to the filing of the
application which is the parent of the applications from which QuickLogic
obtained Patents Nos. 5,220,213 and 5,396,127. This motion was argued to
the Special Master on December 12, 1997, and is awaiting his action.
On February 5, 1996, QuickLogic filed a motion for summary judgment of
infringement of QuickLogic patent no. 5,520,213. This motion has been
withdrawn without prejudice to refiling of a similar motion.
On February 26, 1996, QuickLogic filed a motion to disqualify Actel
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 November 25, 1996, QuickLogic moved for Summary Judgment of
invalidity with respect to Claim 1 of Actel patent no. 5,198,705. This
motion is being held in abeyance pending further pretrial planning.
On June 27, 1997, Actel moved for a summary judgment that QuickLogic's
products infringe Claim 11 of U.S. Patent No. 4,873,459. This motion is
being held in abeyance pending further pretrial planning.
On July 3, 1997, QuickLogic and Mr. Birkner moved for summary judgment
that all of the Actel counterclaims based on misappropriation of trade
secrets are barred by applicable statutes of limitation. This motion was
argued to the Special Master on December 12, 1997. In Recommendations dated
February 13, 1998 and March 3, 1998, the Special Master recommended that
this motion be granted in its entirety. Actel has filed objections to the
Special Master's recommendations. This matter awaits further briefing and
argument before the district judge.
On September 9, 1997, Actel moved for leave to file an amended and
supplemental complaint joining two individuals as additional defendants on
Actel's counterclaims. One objective of this motion was to establish that
Actel's trade secret counterclaims against QuickLogic relate back to the
date of Actel's original complaint. If the relation-back doctrine applies,
this would obviate QuickLogic's summary judgment defense. On December 5,
1997, pursuant to recommendation of the Special Master, the district court
denied Actel's motion to join the two additional defendants. On March 13,
1998, the Special Master recommended that the district judge hold that
Actel's counterclaims do not relate back. Actel has filed objections to
this recommendation, and the matter awaits further proceedings before the
district judge.
Each side has advised the Special Master that additional motions for
summary judgment will be made after completion of discovery.
Trial Schedule
By order of the Court entered March 19, 1997, the Court established a
deadline for completion of fact discovery of January 31, 1998. This
deadline has passed, but limited specific fact discovery that could not be
completed by the deadline remains to be conducted. Expert disclosures will
be required in advance of trial, but no specific date for such disclosures
is currently in effect.
The parties are discussing a process for simplification of the issues
to be tried and expect to enter into a stipulation to bifurcate damage
issues from liability and infringement issues and to try a limited subset
of issues in phases. A process for selecting claims has commenced, but it
is too early to predict what claims will be selected for trial.
No trial date has been set. The parties have stipulated that purely
equitable will be tried to the judge prior to jury trial of selected
claims. Trial of the equitable issues is currently expected to take place
in the fourth quarter of 1998.
Actel v. QuickLogic (CV C-97 21107 JW (EAI))
Claims Asserted
On December 15, 1997, Actel commenced the above-referenced action
against QuickLogic in the Court. The Complaint asserts claims for
infringement of U. S. Patents Nos. 5,132,571 and 5,191,214, respectively,
each relating to field programmable gate array technology. The Complaint
seeks injunctive relief, treble damages in an unspecified amount, and
attorneys' fees.
On January 13, 1998, QuickLogic filed an Answer and Counterclaim,
denying infringement, asserting invalidity defenses and seeking declaratory
relief.
Motions
No motions have been filed in this action.
Trial
The parties have begun to disclose relevant information as required
under the Local Rules of the United States District Court for the Northern
District of California. There have been no communications from the Court
concerning a trial date.
After considering the facts currently known, management does not believe
that the ultimate outcome of the either case 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.
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 28, 1997 (the "1997 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 1997 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 1997 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 1997 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 22, 1998, as filed on or about April 7, 1998, 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
The information under the caption "Certain Transactions" under the main
caption "OTHER INFORMATION" in the 1997 Proxy Statement is incorporated herein
by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
(1) Financial Statements. The following consolidated financial
statements of Actel Corporation included in the 1997 Annual Report are
incorporated by reference in Item 8 of this Annual Report on Form 10-K:
Consolidated balance sheets at December 31, 1997 and 1996
Consolidated statements of operations for each of the three years in
the period ended December 31, 1997
Consolidated statements of shareholders' equity for each of the three
years in the period ended December 31, 1997
Consolidated statements of cash flows for each of the three years in
the period ended December 31, 1997
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 28, 1997.
(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 (filed as Exhibit 10.2
to the Registrant's Annual Report on Form 10-K (File
No. 0-21970) for the fiscal year ended December 28,
1997).
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 (filed as Exhibit 10.5 to the Registrant's
Annual Report on Form 10-K (File No. 0-21970) for the
fiscal year ended December 28, 1997).
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) 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).
10.14 (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).
10.15 (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).
10.16 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).
10.17 (1) License Agreement dated as of March 6, 1995, between
the Registrant and BTR, Inc. (filed as Exhibit 10.20 to
the Registrant's Annual Report on Form 10-K (File No.
0-21970) for the fiscal year ended December 28, 1997).
13 Portions of Registrant's Annual Report to Shareholders
for the fiscal year ended December 28, 1997,
incorporated by reference into this Report on Form
10-K.
21 Subsidiaries of Registrant (see page 47).
23 Consent of Ernst & Young LLP, Independent Auditors (see
page 45).
24 Power of Attorney (see page 44).
27.1 Financial Data Schedule - 1997.
27.2 Financial Data Schedule - 1996.
- ---------------------------------------
(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 46
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 27, 1998 By: /s/ John C. East
-------------------------------------------
John C. East
President and Chief Executive Officer
SCHEDULE II
ACTEL CORPORATION
--------------------------------------
Valuation and Qualifying Accounts
(in thousands)
Balance at Balance at
beginning end of
of period Provisions Write-Offs period
------------ ------------ ------------ ------------
Allowance for doubtful accounts:
Year ended December 31, 1995........................... $ 597 $ -- $ 30 $ 567
Year ended December 31, 1996........................... 567 81 15 633
Year ended December 31, 1997........................... 633 1,611 612 1,632