ACTEL CORP - FORM 10-Q - August 13, 2010

Attached files

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EX-32 - EX-32 - ACTEL CORP	actel0704201010qex32.htm
EX-31.2 - EX-31.2 - ACTEL CORP	actel0704201010qex312.htm
EX-31.1 - EX-31.1 - ACTEL CORP	actel0704201010qex311.htm

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


[x]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 4, 2010


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

Commission file number 000-21970

ACTEL CORPORATION

(Exact name of Registrant as specified in its charter)


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

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

(650) 318-4200

(Registrant's telephone number, including area code)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


[ ] Large accelerated filer	[x] Accelerated filer	[ ] Non-accelerated filer	[ ] Smaller reporting company
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

Number of shares of Common Stock outstanding as of August 11, 2010: 26,246,919

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PART I — FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3. Quantitative and Qualitative Disclosures About Market Risk		19
Item 4. Controls and Procedures		20
PART II — OTHER INFORMATION		20
Item 1. Legal Proceedings		20
Item 1A. Risk Factors		20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 6. Exhibits		34
SIGNATURE		35
Exhibit Index		36

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PART 1 — FINANCIAL INFORMATION

Item 1. Financial Statements

ACTEL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)


	Three Months Ended					Six Months Ended
	Jul. 4, 2010		Jul. 5, 2009			Jul. 4, 2010		Jul. 5, 2009
Net revenues	$	57,776	$	45,227		$	110,039	$	93,686
Costs and expenses:
Cost of revenues	21,515		32,595			41,256		53,380
Research and development	15,244		15,326			29,971		31,719
Selling, general, and administrative	15,041		13,659			30,054		27,149
Restructuring and asset impairment charges	1,314		5,594			1,328		6,713
Amortization of acquisition related intangibles	193		192			386		385
Total costs and expenses	53,307		67,366			102,995		119,346
Income (loss) from operations	4,469		(22,139		)	7,044		(25,660		)
Interest income and other, net of expense	432		776			1,029		2,528
Income (loss) before tax provision	4,901		(21,363		)	8,073		(23,132		)
Tax provision	95		23,778			329		24,965
Net income (loss)	$	4,806	$	(45,141	)	$	7,744	$	(48,097	)
Net income (loss) per share:
Basic	$	0.18	$	(1.73	)	$	0.29	$	(1.84	)
Diluted	$	0.18	$	(1.73	)	$	0.29	$	(1.84	)
Shares used in computing net income (loss) per share:
Basic	26,218		26,146			26,265		26,087
Diluted	26,528		26,146			26,528		26,087

See Notes to Unaudited Condensed Consolidated Financial Statements

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ACTEL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


	Jul. 4, 2010			Jan. 3, 2010 (1)
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	35,558		$	45,994
Short-term investments	124,454			106,007
Accounts receivable, net	44,121			19,112
Inventories	36,417			37,324
Deferred income taxes	1,729			1,729
Prepaid expenses and other current assets	6,237			8,166
Total current assets	248,516			218,332
Long-term investments	2,812			663
Property and equipment, net	20,651			22,969
Goodwill and other intangible assets, net	34,553			34,939
Other assets, net	28,960			30,099
Total assets	$	335,492		$	307,002
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	16,334		$	10,262
Accrued compensation and employee benefits	8,826			8,206
Accrued licenses	4,298			4,996
Other accrued liabilities	4,859			5,422
Deferred income on shipments to distributors	39,917			22,867
Total current liabilities	74,234			51,753
Deferred compensation plan liability	5,428			5,470
Deferred rent liability	1,274			1,590
Accrued sabbatical compensation	2,844			2,805
Other long-term liabilities, net	10,897			11,921
Total liabilities	94,677			73,539
Commitments and contingencies (Notes 9 and 10)
Shareholders' equity:
Common stock	26			26
Additional paid-in capital	244,838			242,109
Accumulated deficit	(4,390		)	(9,250		)
Accumulated other comprehensive income	341			578
Total shareholders' equity	240,815			233,463
Total liabilities and shareholders' equity	$	335,492		$	307,002

____________

(1) Derived from audited financial statements included in the Form 10-K filed with the Securities and Exchange Commission for the year ended January 3, 2010 (“2009 Form 10-K”).

See Notes to Unaudited Condensed Consolidated Financial Statements

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ACTEL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Six Months Ended
	Jul. 4, 2010			Jul. 5, 2009
Operating activities:
Net income (loss)	$	7,744		$	(48,097	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	6,474			12,253
Stock compensation expenses	4,422			3,565
Deferred income taxes	—			24,665
Changes in operating assets and liabilities:
Accounts receivable, net	(25,009		)	(14,321		)
Inventories	887			20,127
Prepaid expenses and other current assets	1,929			(287		)
Other assets, net	1,149			(5,939		)
Accounts payable, accrued compensation and employee benefits, and other accrued liabilities	4,118			(5,214		)
Deferred income on shipments to distributors	17,050			5,954
Net cash provided by (used in) operating activities	18,764			(7,294		)
Investing activities:
Purchases of property and equipment	(3,652		)	(3,527		)
Purchases of available-for-sale securities	(49,462		)	(30,762		)
Sales of available-for-sale securities	4,738			5,963
Maturities of available-for-sale securities	23,744			27,465
Changes in other long term assets	(11		)	123
Net cash used in investing activities	(24,643		)	(738		)
Financing activities:
Issuance of common stock under employee stock plans	2,446			2,358
Tax withholding on restricted stock	(504		)	(313		)
Repurchase of common stock	(6,499		)	—
Net cash (used in) provided by financing activities	(4,557		)	2,045
Net decrease in cash and cash equivalents	(10,436		)	(5,987		)
Cash and cash equivalents, beginning of period	45,994			49,639
Cash and cash equivalents, end of period	$	35,558		$	43,652
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes, net	$	269		$	240
Accrual for obligations under long-term license agreement	$	2,791		$	9,489

See Notes to Unaudited Condensed Consolidated Financial Statements

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ACTEL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Actel Corporation have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form10-Q and Article 10 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make judgments, estimates, and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.

Actel Corporation and its consolidated subsidiaries are referred to as “we,” “us,” or “our.” Our fiscal year ends the first Sunday on or after December 31, and our fiscal quarters end the first Sunday on or after March 31, June 30, and September 30.

These unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in our 2009 Form10-K filed with the Securities and Exchange Commission. The results of operations for the six months ended July 4, 2010, are not necessarily indicative of future operating results.

Impact of Recently Issued Accounting Standards

In October 2009, the FASB issued new accounting guidance for revenue arrangements with multiple deliverables. The new guidance requires an entity to allocate arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. In addition, the new guidance eliminates the use of the residual method of allocation and requires the relative-selling-price method in all circumstances in which an entity recognizes revenue for an arrangement with multiple deliverables. The new accounting guidance is effective in the fiscal year beginning on or after June 15, 2010. Early adoption is permitted. This guidance is applicable to the Company beginning in the first quarter of fiscal 2011. We are currently evaluating the impact this adoption will have on our consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06 relating to Fair Value Measurements and Disclosures. This update provides amendments that require new disclosures regarding transfers in and out of Levels 1 and 2 and give guidance regarding disclosure of activity in Level 3 fair value measurements using significant unobservable inputs. The guidance also clarifies existing disclosures regarding level of disaggregation and disclosures relating to inputs and valuation techniques. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures relating to activity in Level 3, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Our adoption of the guidance that is effective from the first quarter of fiscal 2010 did not affect our consolidated financial position, results of operations or cash flows.

2. Fair Value Measurement of Financial Instruments

In accordance with Fair Value Measurements and Disclosures, the objective of the fair-value measurement of our financial instruments is to reflect the hypothetical amounts at which we could sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Fair Value Measurements and Disclosures describes three levels of inputs that may be used to measure fair value, as follows:

•

Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

•

Level 3 inputs are unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability.

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Our available-for-sale securities are classified within Level 1 or Level 2 of the fair-value hierarchy. The types of securities valued based on Level 1 inputs include money market securities. The types of securities valued based on Level 2 inputs include U.S. government agency notes, corporate and municipal bonds, and asset-backed obligations. The Company uses observable pricing inputs, including reported trades and broker/dealer quotes, for valuing Level 2 securities.

The following table summarizes our financial instruments measured at fair value on a recurring basis in accordance with Fair Value Measurements and Disclosures as of July 4, 2010, and January 3, 2010 (in thousands):


July 4, 2010	Fair Value Measurements at Reporting Date Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities
Money market mutual funds	$	10,291	$	10,291	$	—	$	—
Asset backed obligations	10,027		—		10,027		—
Commercial paper	9,644		—		9,644		—
Corporate bonds	24,550		—		24,550		—
U.S. Treasury obligations	7,222		7,222				—
U.S. government agency securities	37,308		—		37,308		—
Bonds issued by foreign countries	19,140		—		19,140		—
Municipal bonds	5,582		—		5,582		—
Certificate of Deposit	1,052		—		1,052		—
Floating rate notes	18,039		—		18,039		—
Total available-for-sale securities	$	142,855	$	17,513	$	125,342	—


January 3, 2010	Fair Value Measurements at Reporting Date Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities
Money market mutual funds	$	17,147	$	17,147	—		—
Asset backed obligations	11,208		—		11,208		—
Commercial paper	9,583		—		9,583		—
Corporate bonds	27,662		—		27,662		—
U.S. Treasury obligations	7,210		7,210				—
U.S. government agency securities	25,781		—		25,781		—
Bonds issued by foreign countries	10,483		—		10,483		—
Municipal bonds	7,090		—		7,090		—
Certificate of Deposit	1,000		—		1,000		—
Floating rate notes	15,838		—		15,838		—
Total available-for-sale securities	$	133,002	$	24,357	$	108,645	—

We periodically evaluate instruments in our investment portfolio for indicators of impairment. In determining whether an impairment is other than temporary, our evaluation includes a review of:

•

The length of time and extent to which the market value of the investment has been less than cost.

•

The financial condition and near-term prospects of the issuer, including any specific events that may influence the operations of the issuer.

•

Our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated

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recovery in market value.

Although the current credit environment continues to be volatile and uncertain, we do not believe that sufficient evidence exists at this point in time to conclude that any of our investments have experienced an other-than-temporary impairment in the six months ended July 4, 2010. We continue to monitor our investments closely to determine if additional information becomes available that may have an adverse effect on the fair value and ultimate realizability of our investments.

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

Realized gains and losses from sales of available-for-sale securities included in net income (loss) for the periods presented are reported in interest income and other, net of expense, on the condensed consolidated statements of operations, as follows:


	Three Months Ended					Six Months Ended
	Jul. 4, 2010			Jul. 5, 2009		Jul. 4, 2010			Jul. 5, 2009
	(unaudited, in thousands)
Gross realized gains	$	19		$	3	$	41		$	8
Gross realized losses	(126		)	—		(126		)	—

The following is a summary of available-for-sale securities at July 4, 2010, and January 3, 2010:


	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Values
	(In thousands)
July 4, 2010
Money market mutual funds	$	10,291	—		—			$	10,291
Asset backed obligations	10,323		151		(447		)	10,027
Commercial paper	9,645		—		(1		)	9,644
Corporate bonds	24,244		325		(19		)	24,550
U.S. Treasury obligations	7,155		67		—			7,222
U.S. government agency securities	36,882		437		(11		)	37,308
Bonds issued by foreign countries	19,098		80		(38		)	19,140
Municipal bonds	5,544		39		(1		)	5,582
Certificate of Deposit	1,052		—		—			1,052
Floating rate notes	18,038		32		(31		)	18,039
Total available-for-sale securities	$	142,272	$	1,131	$	(548	)	$	142,855
Included in cash and cash equivalents								$	15,589
Included in short term investments								124,454
Included in long term investments								2,812
Total available-for-sale securities								$	142,855

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	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Values
	(In thousands)
January 3, 2010
Money market mutual funds	$	17,147	—		—			$	17,147
Asset backed obligations	11,437		214		(443		)	11,208
Commercial paper	9,582		1		—			9,583
Corporate bonds	27,184		512		(34		)	27,662
U.S. Treasury obligations	7,140		73		(3		)	7,210
U.S. government agency securities	25,285		516		(20		)	25,781
Bonds issued by foreign countries	10,418		77		(12		)	10,483
Municipal bonds	7,062		31		(3		)	7,090
Certificate of Deposit	1,000		—		—			1,000
Floating rate notes	15,779		63		(4		)	15,838
Total available-for-sale securities	$	132,034	$	1,487	$	(519	)	$	133,002
Included in cash and cash equivalents								$	26,332
Included in short term investments								106,007
Included in long term investments								663
Total available-for-sale securities								$	133,002

The following is a summary of available-for-sale securities that were in an unrealized loss position as of July 4, 2010:


	Aggregate Value of Unrealized Loss			Aggregate Fair Value of Investments
	(In thousands)
Unrealized loss position for less than twelve months	$	(108	)	$	28,684
Unrealized loss position for greater than or equal to twelve months	$	(440	)	$	560

It is our intention to hold securities in an unrealized loss position for a period of time sufficient to allow for an anticipated recovery of fair value up to (or greater than) the cost of the investment. In addition, we have assessed the creditworthiness of the issuers of the securities and concluded that an other-than-temporary impairment of these securities did not exist at July 4, 2010. At July 4, 2010 and January 3, 2010, we classified $2.8 million and $0.7 million, respectively, of the investments we intend to hold to recovery as long-term because these investment securities have been in an unrealized loss position for more than six months and carry maturity dates more than twelve months from the balance sheet date.

The expected maturities of our investments in debt securities at July 4, 2010, are shown below. Expected maturities can differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.


	(In thousands)
Available-for-sale debt securities:
Due in less than one year	$	103,601
Due in one to five years	28,403
Due in five to ten years	—
Due greater than ten years	560
	$	132,564

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3. Stock Based Compensation

The Employee Stock Purchase Plan (“ESPP”) gives employees the opportunity to purchase shares of common stock through payroll deductions. The Company recorded $1.0 million and $1.2 million of stock-based compensation expense related to the ESPP for the three and six months ended July 4, 2010, respectively, and $0.4 million and $0.9 million for the three and six months ended July 5, 2009, respectively.

The Company granted 691,811 stock options and awards in the second quarter of 2010. A majority of these were annual grants awarded to employees. The balance was routine new hire and promotion grants.

The Company recorded $2.7 million and $4.4 million of stock-based compensation expense for the three and six months ended July 4, 2010, respectively, and $1.9 million and $3.6 million for the three and six months ended July 5, 2009, respectively.

4. Credits to Distributors

We sell our products to original equipment manufacturers (OEMs) and to distributors who resell our products to OEMs or their contract manufacturers. We recognize revenue on products sold to our OEMs upon shipment. Sales to our distributors are generally made under agreements allowing for price adjustments, credits, and right of return under certain circumstances, so we generally defer recognition of revenue on products sold to distributors until the products are resold by the distributor and price adjustments are determined, at which time our final net sales price is fixed. Deferred revenue net of the corresponding deferred cost of sales is recorded in “Deferred income on shipments to distributors” in the liability section of the condensed consolidated balance sheet. Deferred income effectively represents the gross margin on the sale to the distributor; however, the amount of gross margin we recognize in future periods will be less than the originally recorded deferred income as a result of negotiated price concessions. Distributors resell our products to end customers at negotiated prices that vary based on the end customer, product, quantity, geography, and competition. When a distributor's resale is priced at a discount from list price, we often credit back to the distributor a portion of the original purchase price after the resale transaction is complete. Thus, a portion of the deferred income on shipments to distributors carried on our balance sheet will be credited back to the distributor in the future. Based upon historical trends and inventory levels on hand at each of our distributors as of July 4, 2010, we currently estimate that $15.2 million of the deferred income on shipments to distributors on the Company's consolidated balance sheet as of July 4, 2010, will be credited back to the distributors in the future. These amounts will not be recognized as revenue or gross margin in our consolidated statement of operations. As of July 4, 2010, we had $47.1 million of deferred revenue and $7.2 million of deferred cost of goods sold recorded as $39.9 million of net deferred income on shipments to distributors. As of January 3, 2010, we had $28.1 million of deferred revenue and $5.2 million of deferred cost of goods sold recorded as $22.9 million of net deferred income on shipments to distributors.

Our payment terms generally require the distributor to settle amounts owed to us based on list price, which generally are in excess of the distributor's actual cost due to price adjustments and credits. Accordingly, we credit back to the distributor a portion of the original purchase price, usually within 30 days after the resale transaction has been reported to the Company. This practice has an adverse effect on the working capital of our distributors since they are required to pay the full list price to Actel and receive a discount only after the product has been sold. As a consequence, beginning in the third quarter of fiscal 2007, we entered into written business arrangements with certain distributors under which we issue advance credits to the distributors to minimize the adverse effect on the distributor's working capital. The advance credits amount to a month of estimated credits based on the average of actual historical credits over the prior quarter. The advance credits are updated and settled on a quarterly basis. The advance credits do not affect our revenue recognition because revenue from distributors is not recognized until they resell our products, but the advance credits reduce our accounts receivable and deferred income on shipments to distributors as reflected in our condensed consolidated balance sheets. The amount of the advance credits were $7.9 million as of July 4, 2010, which was already netted against deferred income on shipments to distributors of $39.9 million, and $6.7 million as of January 3, 2010, which was already netted against deferred income on shipments to distributors of $22.9 million.

5. Goodwill and Other Intangible Assets

Goodwill is recorded when consideration paid in an acquisition exceeds the fair value of the net tangible and intangible assets acquired. We do not amortize goodwill, but instead test for impairment annually or more frequently if certain triggering events or changes in circumstances indicate that the carrying value may not be recoverable. We completed our annual goodwill impairment tests during the fourth quarter of 2009 and noted no indicators of impairment. There were no triggering events that would lead us to believe our goodwill has been impaired during the first or second quarters of 2010.

Our goodwill and other intangible assets, net, were $34.6 million at the end of the second quarter of 2010 and $34.9 million at the end of the fourth quarter of 2009. As a result of the Pigeon Point Systems acquisition during the third quarter of 2008, we recorded $0.2 million and $0.4 million in amortization of identified intangible assets for the six month periods ended July 4, 2010,

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and July 5, 2009, respectively.

6. Inventories

Inventories consist of the following:


	Jul. 4, 2010		Jan. 3, 2010
	(In thousands)
Inventories:	$	7,703	$	8,948
Purchased parts and raw materials	21,545		16,743
Work-in-process	7,169		11,633
Finished goods	$	36,417	$	37,324

Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). We believe that a certain level of inventory must be carried to maintain an adequate supply of product for customers. This inventory level may vary based upon orders received from customers or internal forecasts of demand for these products. Other considerations in determining inventory levels include the stage of a product in the product life cycle, design win activity, manufacturing lead times, customer demand, strategic relationships with foundries, and competitive situations in the marketplace.

We write down our inventory for estimated obsolescence or lack of sales activity in an amount equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future demand and market conditions. To address this difficult, subjective, and complex area of judgment, we apply a methodology that includes assumptions and estimates to arrive at the net realizable value. First, we identify any inventory that has been previously written down in prior periods. Second, we examine inventory line items that may not conform with electrical and mechanical standards. Third, we assess the inventory not otherwise identified to be written down against product history and forecasted demand. Finally, we analyze the result of this methodology in light of the product life cycle, design win activity, and competitive situation in the marketplace to derive an outlook for consumption of the inventory and the appropriateness of the resulting inventory levels. If actual future demand or market conditions are less favorable than those we have projected, additional inventory write-downs may be required. The write-down of any inventory will adversely, and perhaps materially, affect our operating results for the quarter in which the write-down is taken.

Inventory at July 4, 2010, and January 3, 2010, included $8.2 million and $4.8 million of net inventory purchased in last-time buys, respectively.

7. Net Income (Loss) per Share

The following table sets forth the computation of basic and diluted net income (loss) per share:


	Three Months Ended					Six Months Ended
	Jul. 4, 2010		Jul. 5, 2009			Jul. 4, 2010		Jul. 5, 2009
	(Unaudited, in thousands except per share amounts)
Basic:
Weighted-average common shares outstanding	26,218		26,146			26,265		26,087
Net income (loss)	$	4,806	$	(45,141	)	$	7,744	$	(48,097	)
Net income (loss) per share	$	0.18	$	(1.73	)	$	0.29	$	(1.84	)
Diluted:
Weighted-average common shares outstanding	26,218		26,146			26,265		26,087
Net effect of dilutive employee stock options, unvested restricted stock and ESPP shares - based on the treasury stock method	310		—			263		—
Shares used in computing net income (loss) per share	26,528		26,146			26,528		26,087
Net income (loss)	$	4,806	$	(45,141	)	$	7,744	$	(48,097	)
Net income (loss) per share	$	0.18	$	(1.73	)	$	0.29	$	(1.84	)

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Basic earnings per share is calculated using net earnings and the weighted-average number of shares of common stock outstanding during the period reported. Diluted earnings per share are calculated similarly, except that the weighted-average number of common shares outstanding during the period is increased by the number of additional shares of common stock that would have been outstanding if dilutive potential shares of common stock had been issued. The dilutive effect of potential common stock (including outstanding stock options, unvested restricted stock, ESPP shares, and non-employee director stock options) is reflected in diluted earnings per share by application of the treasury stock method, which includes consideration of share-based compensation. The following table sets forth the weighted average number of potentially dilutive shares that were excluded from diluted net income per share because their inclusion would have had an anti-dilutive effect on net income per share:


	Three Months Ended		Six Months Ended
	Jul. 4, 2010	Jul. 5, 2009	Jul. 4, 2010	Jul. 5, 2009
Potentially dilutive shares related to:
Stock options, SARs, unvested restricted stock and ESPP	4,522,081	6,540,774	5,406,498	6,406,241

8. Comprehensive Income (Loss)

The components of comprehensive income (loss), net of tax, are as follows:


	Three Months Ended						Six Months Ended
	Jul. 4, 2010			Jul. 5, 2009			Jul. 4, 2010			Jul. 5, 2009
	(In thousands)
Net income (loss)	$	4,806		$	(45,141	)	$	7,744		$	(48,097	)
Change in gain (loss) on available-for-sale securities, net of tax amounts of ($200), $700, ($180) and $619, respectively	(318		)	1,116			(289		)	987
Reclassification adjustment for gains (losses) included in net income (loss), net of tax amounts of $41, ($1), $33, and ($3), respectively	65			(2		)	52			(5		)
Other comprehensive income (loss), net of tax amounts of ($159), $699, ($147), and $616, respectively	(253		)	1,114			(237		)	982
Total comprehensive income (loss)	$	4,553		$	(44,027	)	$	7,507		$	(47,115	)

Accumulated other comprehensive income (loss) is presented on the accompanying condensed consolidated balance sheets and consists of the accumulated net unrealized gain (loss) on available-for-sale securities.

9. Legal Matters and Loss Contingencies

From time to time we are notified of claims (including claims asserted against us or our customers) that our products may infringe patents or other intellectual property rights owned by others, or we otherwise become aware of conditions, situations, or circumstances involving uncertainty as to the existence of a liability or the amount of a loss. We have been named in a lawsuit filed in the United States District Court in Delaware by Commonwealth Research Group ("CRG"), which alleges that certain of our products infringe a patent owned by CRG. We have not yet been required to file an answer to the complaint in this case. When probable and reasonably estimable, we make provisions for estimated liabilities. As we sometimes have in the past, we may settle disputes and/or obtain licenses under patents that we are alleged to infringe. We can offer no assurance that any pending or threatened claim or other loss contingency will be resolved or that the resolution of any such claim or contingency will not have a materially adverse effect on our business, financial condition, and/or results of operations. Our failure to resolve a claim could result in litigation or arbitration, which can result in significant expense and divert the efforts of our technical and management personnel, whether or not determined in our favor. Our evaluation of the effect of these claims and contingencies could change based upon new information. Subject to the foregoing, we do not believe that the resolution of any pending or threatened legal claim or loss contingency is likely to have a materially adverse effect on our financial position as of July 4, 2010, or results of operations or cash flows for the quarter then ended.

10. Commitments

As of July 4, 2010, the Company had $13.3 million of remaining non-cancelable payment obligations expiring at various dates through 2012. The current portion of these obligations is recorded in “Accrued licenses” and the long-term portion of these

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obligations is recorded at net present value in “Other long-term liabilities, net” on the accompanying balance sheets. As of July 4, 2010, we had $0.5 million of license fees recorded in “Prepaid expenses and other current assets” and $22.5 million of license fees recorded in “Other assets, net.” In addition, we have a non-cancelable purchase commitment of $2.3 million for last-time-buy wafers from one of our suppliers over the next 12 months.

11. Shareholders' Equity

Our Board of Directors authorized a stock repurchase program in September 1998 for the purpose of replenishing some or all of the shares of Common Stock issued upon exercise of stock options and in connection with other stock compensation plans. Repurchases may be made in the open market or in privately negotiated transactions. In the three and six months ending July 4, 2010, we repurchased 233,724 shares for $3.1 million and 488,461 shares for $6.5 million, respectively. To date, Actel's Board of Directors has authorized the repurchase of 7,000,000 shares, 5,814,719 shares of Common Stock have been repurchased, and the Company has remaining authority to repurchase 1,185,281 shares. To facilitate repurchases under the Company's stock repurchase program, Actel's Board of Directors has adopted a plan under Rule 10b5-1 of the Securities and Exchange Commission. Under the Rule 10b5-1 plan, the Company repurchases shares of Actel Common Stock whenever the price and other criteria set forth in the plan are met, including times when the Company would not otherwise be in the market due to the Company's trading policies or the possession of material non-public information.

12. Restructuring and Asset Impairment

Reductions in Force

During the fourth quarter of fiscal 2008, we initiated a restructuring program to reduce our operating costs and focus our resources on key strategic priorities. A total of 157 full-time positions have been eliminated globally as of July 4, 2010. In connection with this restructuring plan, we recorded restructuring charges totaling $1.3 million and $1.2 million related to termination benefits in the first six months of both 2010 and 2009, respectively. Restructuring charges consisted primarily of employee compensation and related charges, including stock-based compensation expenses. Restructuring charges of $0.5 million remain on our condensed consolidated balance sheet as of July 4, 2010 and are included in “Accounts payable” and “Accrued compensation and employee benefits”. The remaining accrual associated with these termination benefits is expected to be substantially paid during the third quarter of 2010.

The following summarizes our restructuring activity:


	Restructuring Liabilities (In thousands)
Restructuring charges for 2008	$	2,424
Payments	(1,224		)
Balance at January 4, 2009	1,200
Restructuring charges	2,593
Payments	(3,150		)
Balance at January 3, 2010	643
Restructuring charges	14
Payments	(560		)
Balance at April 4, 2010	97
Restructuring charges	1,314
Payments	(871		)
Balance at July 4, 2010	$	540

Impairment of Long-Lived Assets

During the first quarter of 2008, we began to experience significant increases in bookings for our commercial flash products, which include the Fusion, Igloo, and ProASIC3 product families. To support the expected ramp-up in manufacturing, we ordered additional testing and sorting equipment. However, the commercial accounts ordering these products were sufficiently impacted by the worldwide economic crisis beginning in the second half of 2008, that a significant number of these product orders were canceled and product sales did not materialize in the volumes originally forecasted. As a result, we recorded a non-cash impairment

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charge of $5.5 million during the second quarter of 2009 for certain manufacturing fixed assets that were determined to be excess to current and expected future manufacturing requirements and were taken out of service. Todate, the demand for these products has not increased sufficiently to require utilization of this equipment.

13. Income Taxes

The tax provision recorded for the three and six month periods ended July 4, 2010 was lower than the U.S. statutory tax rate of 35% due primarily to the benefit received from the utilization of net operating losses. The tax provision recorded for the three and six month periods ended July 5, 2009 was higher than the U.S. statutory tax rate of 35% due primarily to the creation of a full valuation allowance on the Company's deferred tax assets.

The Company's condensed consolidated balance sheets include deferred tax assets that consist of net operating loss carryovers, tax credit carryovers, depreciation and amortization, employee stock-based compensation expenses and deferred revenue that have a full valuation allowance recorded on these deferred tax assets. Management periodically evaluates the realizability of the Company's net deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is principally dependent on the Company's ability to generate sufficient future taxable income to fully utilize these assets before they expire. The Company will maintain the full valuation allowance unless and until sufficient positive evidence exists to support reversal of the valuation allowance.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with our Consolidated Financial Statements and the related “Notes to Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including “Management's Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are based on current expectations, estimates, forecasts, and projections about the industry in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are made in reliance upon the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to a multitude of risks and uncertainties that could cause actual results to differ materially (and perhaps adversely) from those expressed in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report under the caption “Risk Factors” in Item 1A of Part II. We undertake no obligation to revise or update any forward-looking statements.

Overview

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

We design, develop, and market FPGAs and supporting products and services. FPGAs are programmable logic devices (PLDs) that adapt the processing and memory capabilities of electronic systems to specific applications. We are the leading supplier of FPGAs based on antifuse and flash technologies. Both of these technologies are non-volatile, which means that (unlike FPGAs based on SRAM technology), they retain their programmed configuration after power is removed. While our flash-based FPGAs can be reprogrammed, our antifuse-based FPGAs can be programmed only once. While the one-time programmability of our antifuse based FPGAs is desirable in certain system-critical military and aerospace applications, commercial customers generally prefer reprogrammable PLDs. Our newest offering, called SmartFusion, is a flash-based mixed signal PLD that integrates microcontroller and analog circuitry with an FPGA. This product was announced in March of 2010 and, along with our existing Fusion, IGLOO, and ProASIC3 products, it is manufactured on 130nm flash process technology. We are also currently developing future FPGA products using 65nm flash process technology.

•

Strategy

Our strategy is to offer FPGAs to markets in which our nonvolatile flash and antifuse-based technologies have an inherent competitive advantage. Our strategy involves considerable risk as unique technologies and products can take years to develop, if at all, and markets that we target may fail to emerge. However, in addition to single-chip, live-at-power-up, security, and neutron-immunity benefits, we believe that our nonvolatile FPGA solutions offer substantial low-power advantages over volatile devices based on SRAM technology and we plan to exploit those advantages.

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•

Key Indicators

Although we measure the condition and performance of our business in numerous ways, the key quantitative indicators that we generally use to manage the business are bookings, design wins, margins, yields and backlog. We also carefully monitor the progress of our product development efforts. Of these, we think that bookings, backlog and margins are the best indicators of short-term performance and that design wins and product development progress are the best indicators of long-term performance.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosure of contingent assets and liabilities. The U.S. Securities and Exchange Commission has defined critical accounting policies as those that are most important to the portrayal of our financial condition and results and also require us to make the most difficult, complex, and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Based upon this definition, our most critical policies include revenue recognition, inventory valuation, stock-based compensation, legal matters, goodwill and long-lived asset impairments, and income taxes. (We also have other key accounting policies that do not generally require us to make estimates and judgments, are as difficult or as subjective, or are less likely to have a material effect on our reported results of operations for a given period.) We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates. In addition, if these estimates or their related assumptions change, material expenses may be recognized on the condensed consolidated statements of operations for the periods in which we revise our estimates or assumptions. There were no significant changes in our critical accounting policies or estimates during the three and six months ended July 4, 2010, compared with the critical accounting policies and estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended January 3, 2010.

Results of Operations


	Three Months Ended													Six Months Ended
	(a)			(b)			% Change		(c)			% Change		(d)			(e)			% Change
	Jul. 4, 2010			Apr. 4, 2010			(a-b)/b		Jul. 5, 2009			(a-c)/c		Jul. 4, 2010			Jul. 5, 2009			(d-e)/e
Net revenues	$	57,776		$	52,263		11	%	$	45,227		28	%	$	110,039		$	93,686		17	%
Gross margin	$	36,261		$	32,522		11	%	$	12,632		187	%	$	68,783		$	40,306		71	%
% of net revenues	63		%	62		%			28		%			63		%	43		%
Research and development	$	15,244		$	14,727		4	%	$	15,326		(1	)%	$	29,971		$	31,719		(6	)%
% of net revenues	26		%	28		%			34		%			27		%	34		%
Selling, general, and administrative	$	15,041		$	15,013		—	%	$	13,659		10	%	$	30,054		$	27,149		11	%
% of net revenues	26		%	29		%			30		%			27		%	29		%
Restructuring and asset impairment charges	$	1,314		$	14		9,286	%	$	5,594		(77	)%	$	1,328		$	6,713		(80	)%
% of net revenues	2		%	—		%			12		%			1		%	7		%
Tax provision (benefit)	$	95		$	234		(59	)%	$	23,778		(100	)%	$	329		$	24,965		(99	)%
% of net revenues	—		%	—		%			53		%			—		%	27		%

Net Revenues

We derive our revenues primarily from the sale of FPGAs, which accounted for over 93% of net revenues in the second quarter of 2010, 94% in the first quarter of 2010, and 94% in the second quarter of 2009. FPGAs accounted for more than 94% and 93% of net revenues for the six months ended July 4, 2010, and July 5, 2009, respectively. Non-FPGA revenues are derived primarily

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from our Protocol Design Services organization, royalties, and the licensing of software and sale of hardware used to design and program our FPGAs.

The following table sets forth our revenues by technology:


	Three Months Ended
	Jul. 4, 2010		Apr. 4, 2010		% Change		Jul. 5, 2009		% Change
Flash	$	16,406	$	12,634	30	%	$	13,009	26	%
Antifuse	37,502		36,559		3	%	29,327		28	%
Non-Silicon and royalties	3,868		3,070		26	%	2,891		34	%
Total	$	57,776	$	52,263	11	%	$	45,227	28	%


	Six Months Ended
	Jul. 4, 2010		Jul. 5, 2009		% Change
Flash	$	29,040	$	24,792	17	%
Antifuse	74,061		62,440		19	%
Non-Silicon and royalties	6,938		6,454		7	%
Total	$	110,039	$	93,686	17	%

Our antifuse-based FPGAs consist of radiation-tolerant products for the space market and non-radiation tolerant products that are sold primarily to industrial and avionics customers. Sales of antifuse products comprised 65% of net revenues for the second quarter of 2010, 70% for the first quarter of 2010, and 65% for the second quarter of 2009. For the six months ended July 4, 2010 and July 5, 2009, sales of antifuse products accounted for 67% of net revenues. Our flash products are sold into military, avionics, industrial, communications, and consumer market segments. Sales of flash products comprised 28% of net revenues in second quarter of 2010, 24% for the first quarter of 2010, and 29% for the second quarter of 2009, respectively. Sales of flash products comprised 26% of net revenues for the six months ended July 4, 2010, and July 5, 2009. $2.4 million of the revenue in the second quarter of 2010 was a direct result of sales of last time buy inventory relating to earlier antifuse products. Our non silicon products are made up of royalties, systems and services.

Net revenues were $57.8 million for the second quarter of 2010, an increase of 11% from the first quarter of 2010. The increase resulted primarily from increases of $3.8 million in sales of flash products and $0.9 million in sales of radiation-tolerant antifuse and sales of other antifuse products. Sales of non-silicon products increased sequentially by $0.8 million. Growth in net revenues in the second quarter of 2010 was driven by the Industrial and Communications market segments.

Net revenues increased from the second quarter of 2009 to the second quarter of 2010 by 28%. The increase resulted primarily from $8.2 million in increased sales of radiation-tolerant and other antifuse products Sales of flash and non-silicon products increased by $3.4 million and $1 million respectively. Growth in net revenues in the second quarter of 2010 compared with second quarter of 2009 was driven by Military, Communication, and Industrial market segments. The increase in the Military market segment was due to increased sales of radiation-tolerant antifuse products.

Net revenues were $110.0 million for the six months of 2010, a 17% increase from the first six months of 2009. The increase resulted primarily from an $11.6 million increases in sales of radiation-tolerant antifuse products to satellite customers and sales of other antifuse products. Sales of flash and non-silicon products increased by $4.2 million and $0.5 million, respectively. The growth in net revenues in the first six months of 2010 compared to the first six months of 2009 was primarily due to the Military market segment with small increases in Automotive and Communications market segments.

We recognized 75% of our net revenues through the distribution sales channel in the second quarter of 2010 compared with 63% in the first quarter of 2010 and 71% in the second quarter of 2009. We generally do not recognize revenue on product shipped to a distributor until the distributor resells the product to its customer. The increase in net revenues through the distribution sales channel in the second quarter of 2010 was due to higher sales in all products and, particularly, radiation tolerant products sold in Europe.

Gross Margin

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	Three Months Ended
	Jul. 4, 2010			Apr. 4, 2010			Change			Jul. 5, 2009			Change
	(a)			(b)			(a-b)			(c)			(a-c)
Revenue	$	57,776		$	52,263		$	5,513		$	45,227		$	12,549
Cost of revenues	21,515			19,741			1,774			32,595			(11,080		)
Gross profit	36,261			32,522			3,739			12,632			23,629
Gross margin	62.8		%	62.2		%	0.6		%	27.9		%	34.9		%


	Six Months Ended
	Jul. 4, 2010			Jul. 5, 2009			Change
	(a)			(b)			(a-b)
Revenue	$	110,039		$	93,686		$	16,353
Cost of revenues	41,256			53,380			(12,124		)
Gross profit	68,783			40,306			28,477
Gross margin	62.5		%	43.0		%	19.5		%

Gross profit dollars increased $3.7 million in the second quarter of 2010 compared with first quarter of 2010. Gross profit dollars increased due to improvements in volume, ASPs and costs. The margin percentage was impacted by the higher proportion of flash sales which generally carry a lower margin offset by lower charges for obsolete product. Second quarter 2009 gross profit dollars and gross margin was negatively affected by a $13.3 million write down of excess flash inventory and lower revenue.

Gross margin for the first six months of 2010 increased to 62.5% of net revenues compared with 43.0% for the first six months of 2009 due primarily to the $13.3 million write down of excess flash inventory in Q2 2009.

Research & Development (R&D)

R&D expenditures were $15.2 million, or 26% of net revenues, for the second quarter of 2010 compared with $14.7 million, or 28% of net revenues, for the first quarter of 2010 and $15.3 million, or 34% of net revenues, for the second quarter of 2009. R&D spending increased by $0.5 million in the second quarter of 2010 compared with the first quarter of 2010 due primarily to an increase of $0.5 million in outside services and materials associated with the development of 65 nanometer technology, an increase of $0.4 million in employee bonuses as result of the higher revenue and increased stock compensation offset by $0.7 million lower employee costs resulting from reductions in force. Recognition of R&D related stock-based compensation expense was $1.2 million for the second quarter of 2010 compared with $0.8 million for the first quarter of 2010 and $0.9 million for the second quarter of 2009.

R&D expenditures declined by $0.1 million in the second quarter of 2010 compared with the second quarter of 2009 primarily due to $0.8 million in lower employee cost resulting from reductions in force offset by employee bonuses as result of the higher revenue.

R&D expenditures were $30.0 million, or 27% of net revenues, for the six months ended July 4, 2010 compared with $31.7 million, or 34% of net revenues, for the six months ended July 5, 2009. R&D spending declined in the first six months of 2010 compared with the first six months of 2009 primarily due to $1.6 million in lower employee costs resulting from reductions in force and a decrease of $0.6 million in R&D project development related expenses offset by $0.8 million in employee bonuses as a result of the higher revenue.

Selling, General and Administrative (SG&A)

SG&A expenses were $15.0 million, or 26% of net revenues, for the second quarter of 2010 compared with $15.0 million, or 29% of net revenues, for the first quarter of 2010 and $13.7 million, or 30% of net revenues, for the second quarter of 2009.

SG&A expenses for the second quarter of 2010 were essentially flat with the first quarter of 2010. Bad debt expense declined by $0.5 million in the second quarter, offset by increased stock compensation expense and employee bonuses. Recognition of SG&A related stock-based compensation expense was $1.4 million for the second quarter of 2010 compared with $0.9 million for the first quarter of 2010 and $0.9 million for the second quarter of 2009.

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SG&A expenses were $1.3 million higher in the second quarter of 2010 than in the second quarter of 2009. The increase was due primarily to increases of $0.7 million in employee bonuses as result of the higher revenue and $0.5 million in stock compensation expenses.

SG&A expenses were $30.1 million, or 27% of net revenues, for the six months ended July 4, 2010 compared with $27.1 million, or 29% of net revenues, for the six months ended July 5, 2009. The increase was due in part to increases of $1.0 million in employee bonuses as a result of increased revenue, $0.6 million in travel expenses related to a worldwide sales conference in connection with the rollout of our SmartFusion product line, $0.4 million in outside services primarily related to the implementation of a new customer relationship management system and $0.7 million in stock compensation.

Restructuring

During the first quarter of 2009, we announced a Company-wide restructuring plan that, in conjunction with cost-reduction initiatives taken in the fourth quarter of 2008, is expected to result in a quarterly reduction in expenses of $6.5 million in the third quarter of 2010 compared with the third quarter of 2008. From the fourth quarter of 2008 through the second quarter of 2010, we have incurred $6.3 million for severance and other costs related to reductions in force. In addition, the Company has recorded $5.5 million in restructuring costs related to asset impairments.

Restructuring and asset impairment charges were $1.3 million, or 2% of net revenues, for the second quarter of 2010 compared with $14,000, or 0% of net revenues, for the first quarter of 2010. We recorded non-cash asset impairment charges totaling $5.5 million during the second quarter of 2009 for certain manufacturing fixed assets that were determined to be excess to current and expected future manufacturing requirements. Restructuring charges related to termination benefits were $1.3 million for the first six months of 2010 compared with $1.2 million for the first six months of 2009.

Tax Provision

The Company's condensed consolidated balance sheets include deferred tax assets that consist of net operating loss carryovers, tax credit carryovers, depreciation and amortization, employee stock-based compensation expenses, deferred revenue, and certain liabilities that have a full valuation allowance recorded on these deferred tax assets. Management periodically evaluates the realizability of the Company's net deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is principally dependent on the Company's ability to generate sufficient future taxable income to fully utilize these assets before they expire. The Company will maintain the full valuation allowance unless and until sufficient positive evidence exists to support reversal of the valuation allowance.

Financial Condition

Our total assets were $335.5 million at the end of the second quarter of 2010 compared with $307.0 million at the end of the fourth quarter of 2009. The following table sets forth certain financial data from the condensed consolidated balance sheets.


	As of		As of
In thousands	Jul. 4, 2010		Jan. 3, 2010		$ Change			% Change
Cash and cash equivalents, short and long term investments	$	162,824	$	152,664	$	10,160		7	%
Accounts receivable, net	$	44,121	$	19,112	$	25,009		131	%
Inventories, net	$	36,417	$	37,324	$	(907	)	(2	)%

Accounts receivable at July 4, 2010, increased 131% compared with January 3, 2010. Days sales outstanding were 70 days at the end of second quarter of 2010 compared with 35 days at the end of the fourth quarter 2009. The increase in accounts receivable and DSO was due to a holiday shutdown in December 2009 combined with higher sales in Q2 2010. This resulted in shipments being higher by 119% in June 2010 compared to December 2009. Additionally, distributors have increased their inventory levels to support increased sales volumes. Shipments to support these increase inventory levels, while included in accounts receivable and deferred revenue are not recognized as revenue until sold by the distributor.

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Net inventory was $36.4 million at July 4, 2010, which was a decline of $0.9 million from the end of 2009. We had 154 days of net inventory at the end of the second quarter compared with 181 days at the end of 2009.

Liquidity and Capital Resources

We currently meet all of our funding needs for ongoing operations with cash flows generated from operations and with existing cash and short- and long-term investments. A portion of available cash may be used for investment in or the acquisition of complementary businesses, products, or technologies. Wafer manufacturers have at times asked for financial support from customers in the form of equity investments and advance purchase deposits, which in some cases have been substantial. If we require additional capacity, we may be required to incur significant expenditures to secure such capacity. The Company expects to record expenses of $1.7 million in 2010 to relocate employees and inventory to other facilities and sublease excess capacity and expects capital expenditures of $1.4 million for leasehold improvements to facilitate the relocation. The Company has recorded $1.0 million relating to these restructuring expenses that are included in “Prepaid expenses and other current assets”.

Cash generated from operations was $18.8 million for the first six months of 2010, an increase of $26.1 million from the first six months of 2009. The increase was due primarily to an increase in net income. Our cash, cash equivalents, and short- and long-term investments were $162.8 million as of July 4, 2010.

Investing activities used cash of $24.6 million in the first six months of 2010 compared with $0.7 million in the first six months of 2009. Short-term investments increased by $19.0 million in the first six months of 2010 compared with a reduction of $2.7 million in the first six months of 2009.

Net cash used in financing activities was $4.6 million in the first six months of 2010 compared with net cash provided by financing activities of $2.0 million in the first six months of 2009. We used $6.5 million in cash to repurchase 488,461 shares of our common stock in the first six months of 2010. There was no repurchase in 2009.

We believe that existing cash, cash equivalents, and short- and long-term investments, together with cash generated from operations, will be sufficient to meet our cash requirements for the next four quarters.

Impact of Recently Issued Accounting Standards

See Note 1 to the Financial Statements for detailed information concerning new accounting standards.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As of July 4, 2010, our investment portfolio consisted primarily of asset backed obligations, corporate bonds, floating rate notes, and federal and municipal obligations. The principal objectives of our investment activities are to preserve principal, meet liquidity needs, and maximize yields. To meet these objectives, we invest excess liquidity in high credit quality debt securities generally with average maturities of less than two years. We also limit the percentage of total investments that may be invested in any one issuer. Corporate investments as a group are also limited to a maximum percentage of our investment portfolio.

Our investments in debt securities, which totaled $132.6 million at July 4, 2010, are subject to interest rate risk. An increase in interest rates could subject us to a decline in the market value of our investments. These risks are mitigated by our ability to hold these investments for a period of time sufficient to recover the carrying value of the investment, which may not be until maturity. A hypothetical 100 basis point increase in interest rates compared with interest rates at July 4, 2010, and January 3, 2010, would result in a reduction of $1.3 million and $0.8 million in the fair value of our available-for-sale debt securities held at July 4, 2010, and January 3, 2010, respectively.

In addition to interest rate risk, we are subject to market risk on our investments. We monitor all of our investments for impairment on a periodic basis. In the event that the carrying value of the investment exceeds its fair value and the decline in value is determined to be other than temporary, the carrying value is reduced to its current fair market value. In the absence of other overriding factors, we consider a decline in market value to be a potential indicator of an-other-than temporary impairment when a publicly traded stock or a debt security has traded below amortized cost for a consecutive six-month period. If an investment continues to trade below amortized cost for more than six months, and mitigating factors (such as general economic and industry specific trends, including the creditworthiness of the issuer) are not present, this investment would be evaluated for impairment and written down to a balance equal to the estimated fair value at the time of impairment, with the amount of the write-down recorded in Interest income and other, net of expense, on the condensed consolidated statements of operations. If management concludes it does not intend to sell an impaired debt security before recovery of its amortized cost basis, and the issuers of the securities are creditworthy, no other-than-temporary impairment is deemed to exist.

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Item 4. Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

In addition, there were no changes to our internal controls during the six months ended July 4, 2010, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Information with respect to this Item may be found in Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements in this Form 10-Q, which information is incorporated into this Item 1 by reference.

ITEM 1A. RISK FACTORS

This Quarterly Report on Form 10-Q, including any information incorporated by reference herein, contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify forward looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or the negative of these terms or other comparable terminology. The forward looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties, and situations that may cause our or our industry's actual results, level of activity, performance, or achievements to be materially different from any results, levels of activity, performance, or achievements expressed or implied by these statements. These factors include those listed below in this Item 1A and those discussed elsewhere in this Form 10-Q. We encourage investors to review these factors carefully. We may from time to time make additional written and oral forward looking statements, including statements contained in our filings with the SEC. We do not undertake to update any forward looking statement that may be made from time to time by or on behalf of us, whether as a result of new information, future events, or otherwise, except as required by law.

Before deciding to purchase, hold, or sell our securities, you should be aware that our business faces numerous financial and market risks, including those described below, as well as general economic and business risks. The following discussion provides information concerning the material risks and uncertainties that we have identified and believe may adversely affect our business, our financial condition, and our results of operations. Before deciding to purchase, hold, or sell our securities, you should carefully consider these risks and uncertainties, together with all of the other information included in this Quarterly Report on Form 10-Q.

Risks Related to Our Failure to Meet Expectations

Our quarterly revenues and operating results fluctuate due to general economic conditions and a variety of risks specific to Actel or characteristic of the semiconductor industry, including booking and shipment uncertainties, supply problems, and price erosion. These and other factors make it difficult for us to accurately predict quarterly revenues and operating results, which may fail to meet our expectations. When we fall short of our quarterly revenue expectations, our operating results will probably also be adversely affected because the majority of our expenses are fixed and therefore do not vary with revenues. Any failure to meet expectations could cause our stock price to decline, perhaps significantly.

The current economic environment makes quarterly revenues difficult to predict.

Our quarterly revenues and operating results are affected, both positively and negatively, by fluctuations in general economic conditions and in the specific economic conditions affecting the semiconductor industry. Overall conditions in the worldwide economy and financial markets in general, and in the semiconductor industry in particular, have improved since the second half of 2008, but visibility continues to be limited and forecasting remains extremely difficult. Our failure, or the failure of our distributors, to accurately forecast customer demand for our products could adversely (and perhaps materially) affect our operating efficiencies and quarterly financial results.

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

We generate a significant percentage of our quarterly revenues from orders received during the quarter and “turned” for shipment within the quarter. Any shortfall in expected “turns” orders will adversely affect quarterly revenues. There are many factors that can cause a shortfall in turns orders, including declines in general economic conditions or the businesses of our customers, excess inventory in the channel, and conversion of our products to ASICs or other competing products for price or other reasons. In addition, we sometimes book a disproportionately large percentage of turns orders during the final weeks of the quarter. Any failure to receive, or delay in receiving, expected turns orders would adversely (and perhaps materially) affect quarterly revenues.

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

We sometimes ship a disproportionately large percentage of our quarterly revenues during the final weeks of the quarter, and any delays in making those shipments are more likely to cause them to slip into the following quarter. Any failure to effect scheduled shipments by the end of a quarter would adversely (and perhaps materially) affect quarterly revenues.

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

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

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

We generate the majority of our quarterly revenues from sales made through distributors. Since we generally do not recognize revenue on the sale of a product to a distributor until the distributor resells the product, our quarterly revenues are dependent on, and subject to fluctuations in, shipments by our distributors. We are therefore highly dependent on the accuracy of shipment forecasts from our distributors in setting our quarterly revenue expectations. Any failure by our distributors to effect scheduled shipments by the end of a quarter would adversely (and perhaps materially) affect our quarterly revenues. We are also highly dependent on the timeliness and accuracy of resale reports from our distributors. Late or inaccurate resale reports, particularly in the last month of a quarter, contribute to our difficulty in predicting and reporting our quarterly revenues and/or operating results.

An unanticipated shortage of products available for sale may cause our quarterly revenues and/or operating results to fall short of expectations.

In a typical semiconductor manufacturing process, silicon wafers produced by a foundry are sorted and cut into individual die, which are then assembled into individual packages and tested. The manufacture, assembly, and testing of semiconductor products is highly complex and subject to a wide variety of risks, including defects in photomasks, impurities in the materials used, contaminants in the environment, and performance failures by personnel and equipment. In addition, we may not discover defects or other errors in new products until after we have commenced volume production. Semiconductor products intended for military and aerospace applications and new products, such as our SmartFusion, ProASIC 3, and Igloo FPGAs, are often more complex and more difficult to produce, increasing the risk of manufacturing- and design-related defects. Our failure to effect scheduled shipments by the end of a quarter due to production difficulties or other unexpected supply constraints would adversely (and perhaps materially) affect our quarterly revenues.

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

As is also common in the semiconductor industry, our independent wafer suppliers from time to time experience lower than anticipated yields of usable die. Wafer yields can decline without warning and may take substantial time to analyze and correct,

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particularly for a company like Actel that utilizes independent foundries, almost all of which are offshore. Yield problems are most common at new foundries (particularly when new technologies are involved) or on new processes or new products (particularly when new products and new processes are both involved). Our FPGAs are also manufactured using customized processing steps, which may increase the incidence of production yield problems as well as the amount of time needed to achieve satisfactory, sustainable wafer yields on new processes and new products. Lower than expected yields of usable die or other unanticipated increases in the cost of our products could reduce our gross margin, which would adversely affect (and perhaps materially) our quarterly operating results. In addition, in order to win designs, we generally must price new products on the assumption that manufacturing cost reductions will be achieved, which often do not occur as soon as expected. We also seek to reduce costs by negotiating price reductions with suppliers, increasing the level and efficiency of our testing and packaging operations, achieving economies of scale by means of higher production levels, and shrinking the die size of our products. The failure to achieve expected manufacturing or other cost reductions during a quarter could reduce our gross margin, which would adversely (and perhaps materially) affect our quarterly operating results. Also, if we discover defects or other errors in a new product that require us to “re-spin” some or all of the product's photomask set, we must write-off the photomasks that are replaced. This type of expense is becoming more significant as the cost of photomasks continues to increase. The write-off of any photomasks will adversely, and perhaps materially, affect our operating results for the quarter in which the write-off is taken. The same is true of any other property and equipment write-offs. During the second quarter of 2009, for example, we recorded non-cash asset impairment charges totaling $5.5 million for certain manufacturing fixed assets that were determined to be excess of current and expected future manufacturing requirements and, as a result, were taken out of service and held for sale.

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

The semiconductor industry is characterized by intense price competition. The average selling price of a product typically declines significantly between introduction and maturity. We sometimes are required by competitive pressures to reduce the prices of our new products more quickly than cost reductions can be achieved. We also sometimes approve price reductions on specific direct sales for strategic or other reasons, and provide price concessions to our distributors for a portion of their original purchase price in order to permit them to address individual negotiations involving high-volume or competitive situations. Typically, a customer purchasing a small quantity of product for prototyping or development from a distributor will pay list price. However, a customer using our products in volume production will often negotiate a substantial price discount from the distributor. Under such circumstances, the distributor will in turn often negotiate and receive a price concession from Actel. This is a standard practice in the semiconductor industry and we provide some level of price concession to every distributor. We have also sometimes offered price reductions on certain products to reduce inventory levels. Unanticipated declines in the average selling prices of our products could cause our quarterly revenues and/or gross margin to fall short of expectations, which would adversely (and perhaps materially) affect our quarterly financial results.

Unanticipated changes in the mix of products that we sell during a quarter may cause our overall gross margin and operating results to fall short of expectations.

Our gross margin is the difference between the amount it costs us to make a product and the revenue that we receive from the sale of the product. In general, our older products have higher gross margins than our newer products and the products that we sell into the aerospace, industrial, military, and satellite markets have higher gross margins than the products that we sell into other market segments. As a consequence, our overall gross margin depends on the mix of products that we sell. In forecasting our overall gross margin for a quarter, we estimate the mix of products that we will sell during the quarter. If the mix of products that we sell during the quarter is different than we expect, our overall gross margin may fall short of our expectations, which could adversely (and perhaps materially) affect our quarterly results.

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

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

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Our net inventories were $36.4 million as of July 4, 2010, compared with $37.3 million as of January 3, 2010. We determined (as part of our normal quarterly inventory review) that additional reserves for excess inventory of $13.3 million, $0.6 million, and $1.2 million were required as of the end of the second, third, and fourth quarters of 2009, respectively. If we conclude in the future that additional inventory write-downs are required, our operating results for the periods in which the write-downs occur would also be adversely (and perhaps materially) affected.

Risks Related to Our Business Strategies

Our short- and long-term revenues and operating results are dependent in large part upon the success of our business strategies, which include developing and offering FPGAs to markets in which we believe our technologies have a competitive advantage, such as the radiation-tolerant mixed-signal and value-based FPGA markets, and conducting more of our operations offshore (i.e., overseas) in order to reduce costs. Our failure to execute any of our business strategies, or the failure of any of our business strategies to achieve the desired results, could (and probably would) have an adverse (and perhaps material) effect on our business, financial condition, and/or operating results.

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

The products that we develop may fail to adequately address the markets at which they are targeted, or the markets that we target may fail to emerge or grow as much as we project, which might prevent us from winning sufficient customer designs to maintain or expand our business.

The market for our products is characterized by rapid technological change, product obsolescence, and price erosion, making the timely introduction of new or improved products critical to our success. Our product development and marketing strategy is to define, develop, and offer FPGAs to markets in which we believe that our nonvolatile flash- and antifuse-based technologies have a competitive advantage. Our strategy involves considerable risk because our unique technologies and products can take years to develop and markets that we target may fail to develop as we predict. Our failure to design, develop, market, and sell new or improved products that satisfy customer needs, compete effectively, and generate acceptable margins may adversely (and perhaps materially) affect our business, financial condition, and/or operating results.

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

The price we can charge for our products is constrained principally by our competition. While it has always been intense, we believe that price competition for new designs is increasing. This may be due in part to the transition toward high-level design methodologies. Designers can now wait until later in the design process before selecting a PLD or ASIC and it is easier to convert between competing PLDs or between a PLD and an ASIC. The increased price competition may also be due in part to the increasing penetration of PLDs into price-sensitive markets previously dominated by ASICs. We have strategically targeted many of our products at the value-based market, which is defined primarily by low prices. If our strategy is successful, we will generate an increasingly greater percentage of our net revenues from low-price products, which may make it more difficult to maintain gross margin at our historic levels. In addition, gross margins on new products are generally lower than on mature products. Thus, if we generate a greater percentage of our net revenues from new products, our overall gross margin could be adversely affected. We have also sometimes offered price reductions on certain products to reduce inventory levels. Any long-term decline in our overall gross margin may have an adverse effect on our operating results.

Our restructuring plan may not properly realign our cost structure and our increased reliance on offshore and outsourced operations may adversely affect our business, financial condition, and/or operating results.

During the first quarter of 2009, we announced a Company-wide restructuring plan that, in conjunction with cost-reduction initiatives taken in the fourth quarter of 2008, is expected to result in a quarterly reduction in expenses of $6.5 million in the third quarter of 2010 compared with the third quarter of 2008. From the fourth quarter of 2008 through second quarter of 2010, we have incurred $6.3 million for severance and other costs related to reductions in force. In conjunction with the restructuring activities, the Company also recorded $5.5 million in restructuring costs related to asset impairments. In addition, the Company expects to record expenses of $1.7 million in 2010 to relocate employees and inventory to other facilities and sublease excess capacity and

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expects capital expenditures of $1.4 million for leasehold improvements to facilitate the relocation. We may not be successful in achieving the expected cost reductions.

In addition, part of our restructuring plan involves increased offshoring and outsourcing, which involves numerous risks, including operational business issues such as productivity, efficiency, and quality; geographic, cultural, and communication issues; and information security, intellectual property protection, and other legal issues. The increased offshoring and outsourcing activities will also be subject to the general uncertainties associated with international business operations, including trade barriers and other restrictions; governmental regulations (including taxation) and changes in governmental regulations (including trade policies); currency exchange fluctuations; war and other military activities; terrorism; changes in social, political, or economic conditions; and other disruptions or delays in production or shipments. Any of these risks could render our offshoring and outsourcing plans ineffective, which could have an adverse (and perhaps material) effect on our business, financial condition, and/or operating results.

Risks Related to Defective Products

Our products are complex and may contain errors, manufacturing defects, design defects, or otherwise fail to comply with our specifications, particularly when first introduced or as new versions are released. Our new products are being designed to use ever more advanced manufacturing processes, adding cost, complexity, and elements of experimentation to the development, particularly in the areas of mixed-voltage and mixed-signal design. We rely primarily on our in-house personnel to design test operations and procedures to detect any errors prior to delivery of our products to customers.

Any error or defect in our products could have a material adverse effect on our business, financial condition, and operating results.

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

Any product liability claim could pose a significant risk to our business, financial condition, and operating results.

Product liability claims may be asserted with respect to our products. Our products are typically sold at prices that are significantly lower than the cost of the end-products into which they are incorporated. A defect or failure in our product could cause failure in our customer's end-product, so we could face claims for damages that are much higher than the revenues and profits we receive from the products involved. In addition, product liability risks are particularly significant with respect to aerospace, automotive, and medical applications because of the risk of serious harm to users of those products. Any product liability claim, whether or not determined in our favor, can result in significant expense, divert the efforts of our technical and management personnel, and harm our business. In the event of an adverse settlement of any product liability claim or an adverse ruling in any product liability litigation, we could incur significant monetary liabilities, which may not be covered by any insurance that we carry and might have a materially adverse effect on our financial condition and/or operating results.

Risks Related to New Products

The market for our products is characterized by rapid technological change, product obsolescence, and price erosion, making the timely introduction of new or improved products critical to our success. Our failure to design, develop, market, and sell new or improved products that satisfy customer needs, compete effectively, and generate acceptable margins may adversely affect our business, financial condition, and/or operating results.

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

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

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

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

•

obtain access to advanced manufacturing process technologies;

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•

design and verify the silicon;

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develop and release evaluation software;

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layout the FPGA and other functional blocks along with the circuitry required for programming;

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integrate the FPGA block with the other functional blocks;

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simulate (i.e., test) the design of the product;

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tapeout the product (i.e., compile a database containing the design information about the product for use in the preparation of photomasks);

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generate photomasks for use in manufacturing the product and evaluate the software;

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manufacture the product at the foundry;

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verify the product; and

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

Each of these steps is difficult and subject to failure or delay, and the failure or delay of any step can cause the failure or delay of the entire development and introduction. In addition to failing to meet our development and introduction schedules for new products or the supporting software or hardware, our new products may not gain market acceptance, and we may not respond effectively to new technological changes or new product announcements by others. Any failure to successfully define, develop, market, manufacture, assemble, test, or program competitive new products could have a materially adverse effect on our business, financial condition, and/or operating results.

New products are subject to greater design and operational risks.

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

New products are subject to greater technology risks.

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

New products generally have lower gross margins.

We must generally sell new products at low gross margins in order to win designs, establish a market for the products, and create demand for volume production, which is an important variable affecting the cost of our products. Another important variable affecting the cost of our products is manufacturing yields. With our customized manufacturing process requirements, we almost invariably experience difficulties and delays in achieving satisfactory, sustainable yields on new products. The lower gross margins typically associated with new products could have a materially adverse effect on our operating results.

The Actel Fusion and SmartFusion mixed-signal FPGAs present numerous significant challenges.

Our experience generally suggests that the development and market risks related to new products are greatest when we attempt

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to develop products based in whole or in part on technologies with which we have limited experience. During 2005, we introduced our Actel Fusion mixed-signal technology, which integrates analog capabilities, flash memory, and FPGA fabric into a single mixed-signal FPGA that may be used with soft processor cores. Before the development of Actel Fusion mixed-signal FPGAs, we had limited experience with analog circuitry and soft processor cores and no experience with mixed-signal FPGAs. As our experience also suggests, the development and market risks related to the second-generation product, SmartFusion, ought to be significantly lower. Unlike Fusion, which relies primarily on soft 8-bit cores to provide processing functionality, SmartFusion integrates a hard 32-bit microcontroller from ARM, which we believe will mitigate both the development and market risks related to SmartFusion.

To realize the advantages of being the initial entrant in the mixed-signal FPGA market, we needed to understand the market, the competition, and the value proposition; identify the early adopters and understand their buying process, decision criteria, and support requirements; and select the appropriate sales channels and provide the appropriate customer service, logistical, and technical support, including training. Meeting these challenges has been a priority for Actel generally and for our sales and marketing organizations in particular. While Actel Fusion has achieved limited success, a great deal of understanding and experience has been gained, which we are applying to SmartFusion. Nonetheless, the risks associated with the market acceptance of SmartFusion are still substantial. When entering a new market, the first-mover typically faces the greatest technological and market challenges, and that remains true of the mixed-signal FPGA market. Our failure to meet these challenges could have a materially adverse effect on our business, financial condition, and/or operating results.

Risks Related to Competitive Disadvantages

The semiconductor industry is intensely competitive. Our competitors include suppliers of ASICs, CPLDs, and FPGAs. Our biggest direct competitors are Xilinx, Altera, and Lattice, all of which are suppliers of CPLDs and SRAM-based FPGAs. Altera and Lattice have announced the development of FPGAs manufactured on embedded flash processes. We also directly compete with QuickLogic, a supplier of antifuse-based FPGAs. In addition, we face competition from suppliers of logic products based on new or emerging technologies. While we seek to monitor developments in existing and emerging technologies, our technologies may not remain competitive. We also face competition from companies that specialize in converting our products into ASICs.

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

We are much smaller than Xilinx and Altera, which have broader product lines, more extensive customer bases, and substantially greater financial and other resources. Additional competition is also possible from major domestic and international semiconductor suppliers, all of which are larger and have broader product lines, more extensive customer bases, and substantially greater financial and other resources than Actel, including the capability to manufacture their own wafers. We may not be able to overcome these competitive disadvantages.

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

All existing FPGAs not based on antifuse technology and certain CPLDs are reprogrammable. The one-time programmability of our antifuse FPGAs is necessary or desirable in some applications, but logic designers generally prefer to develop using a reprogrammable logic device. This is because the designer can reuse the device if an error is made. The visibility associated with discarding a one-time programmable device often causes designers to select a reprogrammable device even when an alternative one-time programmable device offers significant advantages. This bias in favor of designing with reprogrammable logic devices appears to increase as the size of logic devices increases. We have attempted to overcome this competitive disadvantage by offering reprogrammable flash devices, but antifuse FPGAs account for the bulk of our revenues and will continue to do so for some time.

Our technologies are not manufactured on standard processes, which is a competitive disadvantage.

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

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Risks Related to Events Beyond Our Control

Our performance is subject to events or conditions beyond our control, and the performance of each of our foundries, suppliers, subcontractors, distributors, agents, and customers is subject to events or conditions beyond their control. These events or conditions include labor disputes, acts of terrorists, war or other military conflicts, blockades, insurrections, riots, epidemics, quarantine restrictions, landslides, lightning, earthquakes, fires, storms, floods, washouts, arrests, civil disturbances, restraints by or actions of governmental bodies (including export, import, and security restrictions on information, material, personnel, equipment, software, and the like), breakdowns of plant or machinery, and inability to obtain transport or supplies. These events or conditions could impair our operations, which may have a materially adverse effect on our business, financial condition, and/or operating results.

Our operations and those of our partners are located in areas subject to volatile natural, economic, social, and political conditions.

Our corporate offices are located in California, which has been subject to power outages and shortages. More extensive power shortages in the state could disrupt our operations and interrupt our research and development activities. Our foundry partners in Asia as well as our operations in California are located in areas that have been seismically active in the recent past. In addition, many of the countries outside of the United States in which our foundry partners and assembly and other subcontractors are located have unpredictable and potentially volatile economic, social, and/or political conditions. The occurrence of these or similar events or circumstances could disrupt our operations and may have a materially adverse effect on our business, financial condition, and/or operating results.

We have only limited insurance coverage.

Our insurance policies provide coverage for only certain types of losses and may not be adequate to fully offset even covered losses. If we were to incur substantial liabilities not adequately covered by insurance, our business, financial condition, and/or operating results could be adversely (and perhaps materially) affected.

Risks Related to Dependence on Third Parties

We rely heavily on, but generally have little control over, our independent foundries, suppliers, subcontractors, and distributors, whose interests may diverge from our interests.

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

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

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

The semiconductor industry has from time to time experienced shortages in manufacturing capacity. When production capacity is tight, the relatively small number of wafers that we purchase from any foundry and the customized process steps that are necessary for our technologies put us at a disadvantage to foundry customers who purchase more wafers manufactured on standard processes. Our capability to shrink the die size of our FPGAs is dependent on the availability of more advanced manufacturing processes. Due to the customized steps involved in manufacturing our FPGAs, we typically obtain access to new manufacturing processes later than our competitors using standard manufacturing processes. No assurance can be given that our efforts to reduce costs by improving wafer yields will be successful. To secure an adequate supply of wafers, we may consider various transactions, including the use of substantial nonrefundable deposits, contractual purchase commitments, equity investments, or the formation of joint ventures. Any of these transactions could have a materially adverse effect on our business, financial condition, and/or operating results.

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

If our current independent wafer manufacturers were unable or unwilling to manufacture our products as required, we would need to identify and qualify additional foundries. No additional wafer foundries may be able or willing to satisfy our requirements on a timely basis. Even if we were able to identify a new third-party manufacturer, the costs associated with manufacturing our products may increase. In any event, the qualification process typically takes one year or longer, which could cause product shipment delays, and qualification may not be successful. Any of these developments could have a materially adverse effect on our business, financial condition, and/or operating results.

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

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

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

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

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

We recognized 75% of our net revenues through the distribution sales channel in the second quarter of 2010 compared with 63% in the first quarter of 2010 and 71% in the second quarter of 2009. Our distributors offer products of several different companies, so they may reduce their efforts to win new designs or sell our products or give higher priority to other products. This is particularly a concern with respect to any distributor that also sells products of our direct competitors. A reduction in design wins or sales effort, termination of relationship, failure to pay for products, or discontinuance of operations because of financial difficulties or for other reasons by one or more of our current distributors could have a materially adverse effect on our business, financial condition, and/or operating results.

Distributor contracts generally can be terminated on short notice.

Although we have contracts with our distributors, the agreements are terminable by either party on short notice. Avnet accounted for 35% of our net revenues in 2009 compared with 36% in 2008 and 40% in 2007. The loss of Avnet as a distributor, or a significant reduction in the level of design wins or sales generated by Avnet, could have a materially adverse effect on our business, financial condition, and/or operating results.

We extend to our distributors a substantial amount of credit and are therefore subject to collection risk.

We derive most of our revenue from sales made by our distributors. As is typical in the semiconductor industry, we sell products to almost all of our distributors on credit. As a result, we extend a substantial amount of credit to our distributors, which exposes us to the risk that we may not get paid for our products. While we attempt to ensure that our distributors are credit worthy, the amount of our accounts receivable from distributors is significant, as is the potential risk related to the collection of those receivables.

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Any failure by our distributors to pay us for our products (whether due to the discontinuance of operations, financial difficulties, or otherwise) could have a materially adverse effect on our business, financial condition, and/or operating results.

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

Our distributors occasionally build inventories in anticipation of significant growth in sales and, when such growth does not occur as rapidly as anticipated, substantially reduce the amount of product ordered from us in subsequent quarters. Such a slowdown in orders generally reduces our gross margin because we are unable to take advantage of any manufacturing cost reductions while the distributor depletes its inventory.

Risk Related to the Conduct of International Business

Substantially all of our operations, an increasing proportion of our internal functions, and a significant portion of our sales are subject to the uncertainties associated with international business operations.

We depend on international operations for almost all of our products and will become increasingly dependent on international employees and contractors for many of our functions.

We purchase all of our wafers from foreign foundries and have almost all of our commercial products assembled, packaged, and tested by subcontractors located outside of the United States. In addition, beginning in the fourth quarter of fiscal 2008, we initiated a restructuring program in order to reduce our operating costs and focus our resources on key strategic priorities. A part of our restructuring plan involves (i) increased offshoring, as a result of which many of our internal engineering, marketing, sales, and support functions will be conducted by employees located outside of the United States, and (ii) increased outsourcing, as a result of which many of our operational functions will be conducted by contractors located outside of the United States. These activities are subject to the uncertainties associated with international business operations, including trade barriers and other restrictions, changes in trade policies, governmental regulations, currency exchange fluctuations, reduced protection for intellectual property, war and other military activities, terrorism, changes in social, political, or economic conditions, and other disruptions or delays in production or shipments, any of which could have a materially adverse effect on our business, financial condition, and/or operating results. Our employees and facilities located outside of the United States are also subject to local regulation.

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

Sales to customers outside North America accounted for 54%, 46% and 48% of net revenues for the three months ended July 4, 2010, April 4, 2010, and July 5, 2009, respectively, and we expect that international sales will continue to represent a significant portion of our total revenues. International sales are subject to the risks described above as well as generally longer payment cycles, greater difficulty collecting accounts receivable, and currency restrictions. We also maintain foreign sales offices to support our international customers, distributors, and sales representatives, which are subject to local regulation.

In addition, international sales are subject to the export, import, and other security laws and regulations of the United States and other countries. Unlike our older RTSX-S space-grade FPGAs, our newer RTAX-S space-grade FPGAs are subject to the International Traffic in Arms Regulations (ITAR), which are administered by the U.S. Department of State. ITAR controls not only the export of products, but also the export of related technical data and defense services as well as foreign production. While we believe that we have obtained and will continue to obtain all required licenses for RTAX-S FPGA exports, we have undertaken corrective actions with respect to the other ITAR controls and are implementing improvements in our internal compliance program. If the corrective actions and improvements were to fail or be ineffective for a prolonged period of time, it could have a materially adverse effect on our business, financial condition, and/or operating results. Changes in United States export laws or regulations (or in the administration of such laws and regulations) that require us to obtain additional export licenses can cause significant shipment delays, as was the case in connection with a recent determination by the U.S. Department of State that our RTSX-SU space-grade FPGAs (a slightly modified version of our RTSX-S FPGAs manufactured for Actel by UMC in Taiwan) are subject to the ITAR. In addition, the fact that our RTAX-S and RTAX-SU space-grade FPGAs are ITAR-controlled makes them less attractive to foreign customers, which could have a materially adverse effect on our business, financial condition, and/or operating results. Any future restrictions or assessments imposed by the United States or any other country on our international sales or sales offices could have a materially adverse effect on our business, financial condition, and/or operating results.

Risk Related to Economic and Market Fluctuations

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

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Our business has been, and may in the future be, adversely affected by economic downturns.

During the second half of 2008, the global economy experienced a downturn due to the subprime lending crisis, general credit market crisis, collateral effects on the finance and banking industries, concerns about liquidity, slower economic activity, increased unemployment rates, decreased consumer confidence, reduced corporate profits and capital spending, and generally adverse business conditions. The worldwide economic downturn caused many of our customers to curtail their spending, which in turn caused sharp declines in our revenues and operating results. Any future downturns in the global economy may have similar adverse effects on our business, financial condition, and/or operating results.

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

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

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

We estimate that sales of our products to customers in the military and aerospace industries, which carry higher overall gross margins than sales of products to other customers, accounted for 41% of our net revenues in 2009 compared with 38% in 2008 and 32% in 2007. Any future downturn in the military and aerospace market could have a materially adverse effect on our revenues and/or operating results.

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

A relatively small number of customers are responsible for a significant portion our net revenues. We have experienced periods in which sales to one or more of our major customers declined significantly as a percentage of our net revenues. We believe that sales to a limited number of customers will continue to account for a substantial portion of net revenues in future periods. The loss of a major customer, or decreases or delays in shipments to major customers, could have a materially adverse effect on our business, financial condition, and/or operating results.

We are exposed to fluctuations in the market values of our investment portfolio.

Our investments are subject to interest rate and other risks. Our investment portfolio consists primarily of asset-backed obligations, corporate bonds, floating-rate notes, and federal and municipal obligations. An increase in interest rates could subject us to a decline in the market value of our investments. This risk is mitigated by our ability to hold these investments for a period of time sufficient to recover the carrying value of the investment, which may not be until maturity. In addition, if the issuers of our investment securities default on their obligations, or their credit ratings are negatively affected by liquidity, credit deterioration or losses, financial results, or other factors, the value of our investments could decline and result in a material impairment. To mitigate these risks, we invest only in high credit quality debt securities with average maturities (when purchased) of less than two years. We also limit, as a percentage of total investments, our investment in any one issuer and in corporate issuers as a group.

In the event that the carrying value of the investment exceeds its fair value and the decline in value is determined to be other than temporary, the carrying value is reduced to its current fair market value. We continue to monitor our investments closely to determine if additional information becomes available that may have an adverse impact on the fair value and ultimate realizability of our investments. If we concluded that any of our remaining investments were other-than-temporarily impaired, our financial results for the periods in which the write-downs occurred would be adversely (and perhaps materially) affected.

Other Risks

We may be materially and adversely affected by changing rules and practices.

Pending or new accounting pronouncements, corporate governance or public disclosure requirements, or tax laws or regulatory rulings, environmental or safety regulations, or rulings, or other federal, state, local, or foreign laws, regulations, rulings, or practices could have an effect, possibly material and adverse, on our business, financial condition, and/or operating results. Any

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change in accounting pronouncements, corporate governance or public disclosure requirements, taxation or other rules or practices, as well as any change in the interpretation of existing pronouncements, requirements, or rules or practices, may call into question our SEC or tax filings or other compliance efforts and could affect our treatment and reporting of transactions completed before the change.

We may be unable to comply with the requirements of evolving corporate governance and public disclosure requirements.

We are committed to maintaining high standards of corporate governance and public disclosure, and therefore have invested the resources necessary to comply with the evolving laws, regulations, and standards. This investment has resulted in increased general and administrative expenses as well as a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies, we might be subject to lawsuits or sanctions or investigation by regulatory authorities, such as the SEC or The Nasdaq Global Market, and our reputation may be harmed.

We evaluated our internal controls systems in order to allow management to report on, and our independent public accountants to attest to, our internal controls as required by Section 404 of the Sarbanes-Oxley Act. In performing the system and process evaluation and testing required to comply with the management certification and auditor attestation requirements of Section 404, we incurred significant additional expenses, which adversely affected our operating results and financial condition and diverted a significant amount of management's time. While we believe that our internal control procedures are adequate, we may not be able to continue complying with the requirements relating to internal controls or other aspects of Section 404 in a timely fashion. If we were not able to comply with the requirements of Section 404 in a timely manner in the future, we may be subject to lawsuits or sanctions or investigation by regulatory authorities. Any such action could adversely affect our financial results and the market price of our Common Stock. In any event, we expect that we will continue to incur significant expenses and diversion of management's time to comply with the management certification and auditor attestation requirements of Section 404.

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

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

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

As is typical in the semiconductor industry, we are notified from time to time of claims that we may be infringing patents or other intellectual property rights owned by others. As we sometimes have in the past, we may obtain licenses under patents or other intellectual property rights that we are alleged to infringe. Although holders of patents or other intellectual property rights commonly offer licenses to alleged infringers, we may not be offered a license for patents or other intellectual property rights that we are alleged to infringe or we may not find the terms of any offered licenses acceptable. We may not be able to resolve any claim of infringement, and the ultimate resolution of any claim may have a materially adverse effect on our business, financial condition, and/or operating results.

Our failure to resolve any claim of infringement could result in litigation or arbitration. We are currently involved in a litigation with Commonwealth Research Group. In addition, we have agreed to defend our customers from and indemnify them against claims that our products infringe the patent or other intellectual rights of third parties. All litigation and arbitration proceedings, whether or not determined in our favor, can result in significant expense and divert the efforts of our technical and management personnel. In the event of an adverse ruling in any litigation or arbitration involving intellectual property, we could suffer significant (and possibly treble) monetary damages, which could have a materially adverse effect on our business, financial condition, and/or operating results. We may also be required to discontinue the use of infringing processes; cease the manufacture, use, and sale or licensing of infringing products; expend significant resources to develop non-infringing technology; or obtain licenses under

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patents or other intellectual property rights that we are infringing. In the event of a successful claim against us, our failure to develop or license a substitute technology on commercially reasonable terms could also have a materially adverse effect on our business, financial condition, and/or operating results.

We have devoted significant resources to research and development and believe that the intellectual property derived from such research and development is a valuable asset important to the success of our business. We rely primarily on patent and trade secret laws to protect the intellectual property developed as a result of our research and development efforts. As part of the Company's cost-reduction efforts, we reduced the rate at which we file patent applications. In addition, every year we abandon some of our existing U.S. and foreign patents and pending applications that we perceive to have lesser value. As part of the Company's cost-reduction efforts, we increased the number of existing patents and pending patent applications that we abandon. These cost-reduction measures may reduce our ability to protect our products by enforcing, or defend the Company by asserting, our intellectual property rights against others.

In addition to patent and trade secret laws, we rely on trademark and copyright laws in combination with nondisclosure agreements and other contractual provisions to protect our proprietary rights. The steps we have taken may not be adequate to protect our proprietary rights. In addition, the laws of certain territories in which our products are developed, manufactured, or sold, including Asia and Europe, may not protect our products and intellectual property rights to the same extent as the laws of the United States. Our failure to enforce our patents, trademarks, or copyrights or to protect our trade secrets could have a materially adverse effect on our business, financial condition, and/or operating results.

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

Our success is dependent in large part on our ability to attract and retain key managerial, engineering, marketing, sales, and support employees. Particularly important are highly skilled design, process, software, and test engineers involved in the manufacture of existing products and the development of new products and processes. Our failure to recruit employees with the necessary technical or other skills or the loss of key employees could have a materially adverse effect on our business, financial condition, and/or operating results.

From time to time we have experienced growth in the number of our employees and the scope of our operations, resulting in increased responsibilities for management personnel. To manage future growth effectively, we will need to attract, hire, train, motivate, manage, and retain a growing number of employees. During strong business cycles, we expect to experience difficulty in filling our needs for qualified engineers and other personnel. In addition, part of our restructuring plan involves increased offshoring, which will require us to attract and retain key managerial, engineering, marketing, sales, and support employees outside of the United States. Any failure to attract and retain qualified employees, or to manage our growth effectively, could delay product development and introductions or otherwise have a materially adverse effect on our business, financial condition, and/or operating results.

In February 2010, we announced that John C. East will retire as President and Chief Executive Officer of the Company and as a member of the Board of Directors. He will remain in his current role until a new Chief Executive Officer is in place, and will then serve as a consultant until August 2, 2011. Our Board of Directors has retained an executive search firm and formed a committee to conduct a search for a new President and Chief Executive Officer. Mr. East is participating in the search, which includes both internal and external candidates. Our Board may not be able to identify and hire a suitable successor in the anticipated time period and the succession process may cause disruptions to our business.

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

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

Our Articles of Incorporation authorize the issuance of up to 5,000,000 shares of “blank check” Preferred Stock with designations, rights, and preferences determined by our Board of Directors. Accordingly, our Board is empowered, without approval

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by holders of our Common Stock, to issue Preferred Stock with dividend, liquidation, redemption, conversion, voting, or other rights that could adversely affect the voting power or other rights of the holders of our Common Stock. Issuance of Preferred Stock could be used to discourage, delay, or prevent a change in control. In addition, issuance of Preferred Stock could adversely affect the market price of our Common Stock.

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

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

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

•

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

•

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

•

announcements of new products or technical innovations by Actel or by our competitors; or

•

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

Like many other stocks, the price of our Common Stock was adversely affected by the global economic crisis that began in 2008 and our stock price may similarly be subject to future declines.

If our stock price declines sufficiently, we may write down our goodwill, which could have a materially adverse affect on our operating results.

We account for goodwill and other intangible assets under Goodwill and Other Intangible Assets. Under this standard, goodwill is tested for impairment annually or more frequently if certain events or changes in circumstances indicate that the carrying amount of goodwill exceeds its implied fair value. The two-step impairment test identifies potential goodwill impairment and measures the amount of a goodwill impairment loss to be recognized (if any). The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. We are a single reporting unit under Goodwill and Other Intangible Assets, so we use an enterprise approach to determine our total fair value. Since the best evidence of fair value is quoted market prices in active markets, we start with our market capitalization as the initial basis for the analysis. We also consider other factors including control premiums from observable transactions involving controlling interests in comparable companies as well as overall market conditions. As long as we determine our total enterprise fair value is greater than our book value and we remain a single reporting unit, our goodwill will be considered not impaired, and the second step of the impairment test under Goodwill and Other Intangible Assets will be unnecessary. If our total enterprise fair value were to fall below our book value, we would proceed to the second step of the goodwill impairment test, which measures the amount of impairment loss by comparing the implied fair value of our goodwill with the carrying amount of our goodwill. As a result of this analysis, we may be required to write down our goodwill, and recognize a goodwill impairment loss, equal to the difference between the book value of goodwill and its implied fair value.

If our long-lived assets become impaired, our operating results will be adversely affected.

Goodwill and Other Intangible Assets also requires that intangible assets with definite lives be amortized over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate an asset's carrying value may not be recoverable in accordance with Impairment or Disposal of Long Live Assets. During the second quarter of 2009, we recorded non-cash asset impairment charges totaling $5.5 million for certain manufacturing fixed assets that were determined to be in excess of current and expected future manufacturing requirements. Circumstances may arise in the future, such as a sustained decline in our forecasted cash flows, indicating that the carrying value of other long-lived assets may be impaired. If we are required to record a charge to earnings because an impairment of our long-lived assets is determined, our operating results will be adversely effected for the periods in which the charge is recorded.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds


ISSUER PRUCHASES OF EQUITY SECURITIES
Period	(a) Total Number of Shares (or Units) Purchases	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Month #1 (identify beginning and ending dates)	0	0	5,580,995	1,419,005
Month #2 (identify beginning and ending dates)	25,757 5/3/10 to 5/28/10	$13.91	5,606,752	1,393,248
Month #3 (identify beginning and ending dates)	207,967 5/31/10 to 7/1/10	$13.14	5,814,719	1,185,281
Total	233,724	$13.22	5,814,719	1,185,281

Item 6. Exhibits


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

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

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

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		ACTEL CORPORATION

Date:	August 13, 2010	/s/ Maurice E. Carson
		Maurice E. Carson
		Executive Vice President and
		Chief Financial Officer
		(on behalf of Registrant)
		(as Principal Financial and Accounting Officer)

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Exhibit Index


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

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

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

ACTEL CORP - FORM 10-Q - August 13, 2010

Attached files

ACTEL CORP Reports