**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 December 31,
      2007




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




**or**
  For
        the transition period from _________ to
        _________
  Commission
        File Number:
        000-30364
  **NDS
          Group plc**
 (Exact
          name of registrant as specified in its charter)
  **England
                    and
                    Wales**
                **Not
                    applicable**(State
                    or other jurisdiction of incorporation or
                    organization)
                (I.R.S.
                    Employer Identification
                    No.)**One
                    Heathrow Boulevard, 286 Bath Road,
                    West Drayton,Middlesex, United Kingdom**
                **UB7
                    0DQ**(Address
                    of principal executive offices)
                (ZIP
                    Code)
  +44
            20
            8476 8000


(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
xNo
o**
  Indicate
            by check mark whether the registrant is a large accelerated filer, an
            accelerated filer or a non-accelerated filer. See definition of “accelerated
            filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
            one):
  **Large
              accelerated filer xAccelerated
              filer oNon-accelerated
              filer o**
  Indicate
            by check mark whether the registrant is a shell company (as defined in
            Rule
            12b-2 of the Exchange Act).
 Yes
oNo
              x
 As
                of
                January 25, 2008, the following shares were outstanding: 16,120,931
                Series A
                ordinary shares, par value $0.01 per share; 42,001,000 Series B ordinary
                shares,
                par value $0.01 per share; and 42,000,002 deferred shares, par value
£1 per
                share.


**NDS
      GROUP PLC**




**Table
      of Contents**




**PART I - Financial
              Information**Item 1.
            Financial StatementsUnaudited
                Consolidated Statements of Operations for the three and
                six months ended
                December 31, 2007 and 2006
            
            1Consolidated
                Balance Sheets as of December 31, 2007 (unaudited) and
                June 30, 2007
            
            2Unaudited
                Consolidated Statements of Cash Flows for the six
                months ended
                December 31, 2007 and 2006
            
            3Notes
                to the Unaudited Consolidated Financial
                Statements
            
            4Item 2.
            Management’s Discussion and
              Analysis of Financial Condition and Results of Operations
            
            14Item 3.
            Quantitative and Qualitative
              Disclosures about Market Risk
            
            23Item 4.
            Controls and Procedures
            
            24**PART II - Other
              Information**Item 1.
            Legal Proceedings
            
            25Item 1A.
            Risk Factors
            
            25Item 2.
            Unregistered Sales of Equity
              Securities and Use of Proceeds
            
            30Item 3.
            Defaults upon Senior
              Securities
            
            30Item 4.
            Submission of Matters to
              a Vote of
              Security Holders
            
            30Item 5.
            Other Information
            
            31Item 6.
            Exhibits
            
            31Signatures
            
            32







**PART
      I - Financial Information**




**Item
      1.**  **Financial
      Statements**




**NDS
      Group plc**


**Unaudited
      Consolidated Statements of Operations**




**For
                the three months endedDecember 31,**
            
            **For
                the six months ended**
              **December
                31,**(in
                thousands, except per-share amounts)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006****Revenue:**Conditional
                access
            
            $
            119,411
            
            $
            98,184
            
            $
            240,994
            
            $
            191,031Integration,
                development & support
            
            
            12,844
            
            
            12,683
            
            
            23,753
            
            
            31,095License
                fees & royalties
            
            
            29,061
            
            
            23,450
            
            
            58,005
            
            
            47,800New
                technologies
            
            
            51,382
            
            
            28,922
            
            
            93,840
            
            
            56,421Other
            
            
            2,250
            
            
            1,823
            
            
            3,232
            
            
            2,877Total
                revenue
            
            
            214,948
            
            
            165,062
            
            
            419,824
            
            
            329,224Cost
                of goods and services sold
            
            
            (81,486
            )
            
            (61,118
            )
            
            (149,942
            )
            
            (123,353
            )**Gross
                margin**
            
            
            133,462
            
            
            103,944
            
            
            269,882
            
            
            205,871**Operating
                expenses:**Research
                & development
            
            
            (48,040
            )
            
            (43,309
            )
            
            (99,051
            )
            
            (77,975
            )Sales
                & marketing
            
            
            (14,042
            )
            
            (9,314
            )
            
            (23,662
            )
            
            (17,291
            )General
                & administration
            
            
            (18,538
            )
            
            (11,411
            )
            
            (32,758
            )
            
            (23,688
            )Amortization
                of other intangibles
            
            
            (3,332
            )
            
            (2,510
            )
            
            (6,615
            )
            
            (4,927
            )Total
                operating expenses
            
            
            (83,952
            )
            
            (66,544
            )
            
            (162,086
            )
            
            (123,881
            )**Operating
                income**
            
            
            49,510
            
            
            37,400
            
            
            107,796
            
            
            81,990Interest
                income
            
            
            7,584
            
            
            6,500
            
            
            14,956
            
            
            12,512Income
                before income tax expense
            
            
            57,094
            
            
            43,900
            
            
            122,752
            
            
            94,502Income
                tax expense
            
            
            (16,725
            )
            
            (13,609
            )
            
            (36,089
            )
            
            (29,123
            )**Net
                income**
            
            $
            40,369
            
            $
            30,291
            
            $
            86,663
            
            $
            65,379**Net
                income per share:**Basic
                net income per share
            
            $
            0.70
            
            $
            0.53
            
            $
            1.50
            
            $
            1.15Diluted
                net income per share
            
            $
            0.68
            
            $
            0.52
            
            $
            1.48
            
            $
            1.13




The
        accompanying notes form an integral part of these unaudited consolidated
        financial statements.




Page
          1


**NDS
      Group plc**


**Consolidated
      Balance Sheets**




(in
                thousands, except share amounts)
            
            **As
                of**
              **December
                31,2007**
              **(Unaudited)**
            
            **As
                of**
              **June
                30,**
              **2007**
              **(See
                Note 2)****ASSETS****Current
                assets:**Cash
                and cash equivalents
            
            $
            663,545
            
            $
            592,750Accounts
                receivable, net (inclusive of $94,675 and $89,711 due from related
                parties)
            
            
            139,845
            
            
            134,624Accrued
                income
            
            
            47,725
            
            
            40,605Inventories,
                net
            
            
            67,944
            
            
            54,133Prepaid
                expenses
            
            
            21,541
            
            
            19,415Other
                current assets
            
            
            4,264
            
            
            3,926Total
                current assets
            
            
            944,864
            
            
            845,453Property,
                plant & equipment, net
            
            
            50,806
            
            
            54,801Goodwill
            
            
            132,257
            
            
            124,614Other
                intangibles, net
            
            
            61,548
            
            
            63,080Other
                non-current assets
            
            
            72,076
            
            
            56,905**Total
                assets**
            
            $
            1,261,551
            
            $
            1,144,853**LIABILITIES
              AND SHAREHOLDERS’
              EQUITY****Current
                liabilities:**Accounts
                payable (inclusive of $3,049 and $2,165 due to related
                parties)
            
            $
            25,672
            
            $
            22,110Deferred
                income
            
            
            83,649
            
            
            75,777Accrued
                payroll costs
            
            
            30,611
            
            
            31,186Accrued
                expenses
            
            
            37,749
            
            
            37,473Income
                tax liabilities
            
            
            29,432
            
            
            17,693Other
                current liabilities
            
            
            21,336
            
            
            18,287Total
                current liabilities
            
            
            228,449
            
            
            202,526Deferred
                income
            
            
            133,629
            
            
            157,517Other
                non-current liabilities
            
            
            56,821
            
            
            46,537**Total
                liabilities**
            
            
            418,899
            
            
            406,580Commitments
                and contingencies**Shareholders’
                equity:**Series
                A ordinary shares, par value $0.01 per share: 48,000,000 shares
                authorized; 16,110,056 and 15,718,904 shares outstanding as of December
                31, and June 30, 2007, respectively
            
            
            161
            
            
            157Series
                B ordinary shares, par value $0.01 per share: 52,000,000 shares
                authorized; 42,001,000 shares outstanding as of December 31, and
                June 30,
                2007, respectively
            
            
            420
            
            
            420Deferred
                shares, par value £1 per share: 42,000,002 shares authorized and
                outstanding as of December 31, and June 30, 2007
            
            
            64,103
            
            
            64,103Additional
                paid-in capital
            
            
            578,652
            
            
            563,388Retained
                earnings
            
            
            142,769
            
            
            56,106Other
                comprehensive income
            
            
            56,547
            
            
            54,099**Total
                shareholders’ equity**
            
            
            842,652
            
            
            738,273**Total
                liabilities and shareholders’ equity**
            
            $
            1,261,551
            
            $
            1,144,853




The
      accompanying notes form an integral part of these unaudited consolidated
      financial statements.




Page
          2


**NDS
      Group plc**


**Unaudited
      Consolidated Statements of Cash Flows**





**For
                the six months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006****Operating
                activities:**Net
                income
            
            $
            86,663
            
            $
            65,379Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
            
            
            11,360
            
            
            9,120Amortization
                of other intangibles
            
            
            6,615
            
            
            4,927Equity-based
                compensation
            
            
            8,492
            
            
            4,378Other
            
            
            390
            
            
            399Change
                in operating assets and liabilities, net of acquisitions:Inventories
            
            
            (13,811
            )
            
            (11,371
            )Receivables
                and other assets
            
            
            (29,020
            )
            
            (38,168
            )Deferred
                income
            
            
            (16,016
            )
            
            31,465Accounts
                payable and other liabilities
            
            
            20,396
            
            
            (6,730
            )Net
                cash provided by operating activities
            
            
            75,069
            
            
            59,399**Investing
                activities:**Capital
                expenditure
            
            
            (6,700
            )
            
            (10,120
            )Short-term
                investments, net
            
            
            ─
            
            
            (18,986
            )Business
                acquisitions, net of cash acquired
            
            
            (10,537
            )
            
            (82,456
            )Net
                cash used in investing activities
            
            
            (17,237
            )
            
            (111,562
            )**Financing
                activities:**Issuance
                of shares (inclusive of realized excess tax benefits of $848 and
                $1,790)
            
            
            6,736
            
            
            7,035**Net
                increase (decrease) in cash and cash equivalents**
            
            
            64,568
            
            
            (45,128
            )Cash
                and cash equivalents, beginning of period
            
            
            592,750
            
            
            320,636Currency
                exchange movements
            
            
            6,227
            
            
            4,550**Cash
                and cash equivalents, end of period**
            
            $
            663,545
            
            $
            280,058




The
        accompanying notes form an integral part of these unaudited consolidated
        financial statements.




Page
          3


**NDS
      Group plc**


**Notes
      to the Unaudited Consolidated Financial Statements**




**Note
      1.**  **Description
      of business**




NDS
      Group
      plc (the “Company”) is domiciled in the United Kingdom, incorporated in Great
      Britain and registered in England and Wales. The Company is engaged in the
      business of supplying open end-to-end digital technology and services to digital
      pay-television platform operators and content providers. The Company has
      customers throughout the world and has research and development facilities,
      customer support operations and administrative offices in the United Kingdom,
      Israel, France, Denmark, India, China, Hong Kong, South Korea, Australia and
      the
      United States. All the revenue, expenses, assets, liabilities and cash flows
      relate to the continuing operations of the Company and its consolidated
      subsidiaries.




There
      is
      a common management structure across the Company, which ensures that the various
      subsidiary entities operate in a coordinated and complementary manner. The
      business is managed as a single operating unit or segment.




The
      Company is a majority owned subsidiary of News Corporation and conducts business
      transactions with a number of affiliates and subsidiaries of News
      Corporation.




**Note
      2.**  **Basis
      of presentation**




The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with U.S. generally accepted accounting principles (“GAAP”) for
      interim financial statements and with the instructions to Form 10-Q and Article
      10 of Regulation S-X. Information and footnote disclosures normally included
      in
      annual financial statements prepared in accordance with GAAP have been condensed
      or omitted pursuant to such rules and regulations. In the opinion of management,
      the unaudited consolidated financial statements reflect all adjustments
      (consisting only of normal recurring adjustments) necessary for a fair
      presentation of the consolidated financial position, the consolidated operating
      results and the consolidated cash flows as of and for the periods shown. The
      unaudited consolidated results of operations for the three- and six-month
      periods ended December 31, 2007 are not necessarily indicative of results
      that may be expected for any other interim period or for the full fiscal year
      ending June 30, 2008.




These
      interim unaudited consolidated financial statements and notes hereto should
      be
      read in conjunction with the audited consolidated financial statements and
      notes
      thereto for the fiscal year ended June 30, 2007 included in the Company’s Annual
      Report on Form 10-K as filed with the Securities and Exchange Commission on
      August 29, 2007. Financial information as of June 30, 2007 has been derived
      from those audited consolidated financial statements.




These
      interim consolidated financial statements are unaudited and do not constitute
      U.K. statutory results as defined in Section 240 of the Companies Act 1985
      of
      Great Britain. U.K. statutory accounts for the fiscal year ended June 30, 2007,
      which comprise parent company unconsolidated financial statements prepared
      under
      U.K. generally accepted accounting practice, and on which the auditors’ report
      was unqualified, were approved by the Company’s shareholders at its Annual
      General Meeting of Shareholders held on October 26, 2007 and have been delivered
      to the Registrar of Companies for England and Wales.




The
      preparation of financial statements in conformity with GAAP requires that
      management make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities as of the date of the consolidated financial statements
      and the reported amounts of revenue and expenses during the reporting period.
      Because of the use of estimates inherent in the financial reporting process,
      actual results could differ from those estimates.




The
      Company maintains a 52-53 week fiscal year ending on the Sunday nearest to
      each
      reporting date. As such, all references to December 31, 2007 and
      December 31, 2006 relate to the three- and six-month periods ended
      December 30, 2007 and December 31, 2006, respectively. For convenience
      purposes, the Company continues to date its financial statements as of December
      31.




All
      amounts are presented in thousands, except share and per share amounts or unless
      otherwise noted.




Page
          4


**Recent
      accounting pronouncements**




*Income
      taxes*




On
      July
      1, 2007, the Company adopted the provisions of Financial Accounting Standards
      Board (the “FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income
      Taxes, an interpretation of FAS 109, Accounting for Income Taxes,” (“FIN 48”),
      to create a single model to address accounting for uncertainty in tax positions.
      FIN 48 clarifies the accounting for income taxes, by prescribing a minimum
      recognition threshold a tax position is required to meet before being recognized
      in the financial statements. FIN 48 also provides guidance on derecognition,
      measurement, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. The adoption of FIN 48 did not have a
      material impact on the Company’s liability for unrecognized tax benefits. Total
      unrecognized tax benefits at the date of the Company’s adoption of FIN 48 were
      $1.7 million, all of which will affect the Company’s effective income tax rate,
      if and when recognized in future years. Movements in the accrued balance during
      the three- and six-month periods ended December 31, 2007 were immaterial. The
      Company does not presently anticipate such uncertain income tax positions will
      significantly increase or decrease in the next 12 months; however, actual
      developments in this area could differ from those currently
      expected.




The
      Company recognizes interest and penalty charges related to unrecognized tax
      benefits as income tax expense, which is consistent with the recognition in
      prior reporting periods. As of July 1, 2007, the Company’s recorded liability
      for accrued interest was immaterial, and there was no material change in the
      accrual for interest for either of the three- or six-month periods ended
      December 31, 2007.




Her
      Majesty’s Revenue and Customs in the United Kingdom has completed its review of
      the Company’s U.K. tax returns for all fiscal years through fiscal 2005 and has
      commenced a review of the Company’s U.K. tax returns for fiscal 2006.
      Additionally, the Company’s income tax returns for the fiscal years 2003 through
      2006 are under examination in various foreign jurisdictions.




*Business
      acquisitions and disposals*




In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 141(revised 2007),
“Business Combinations” (“SFAS No. 141R”). SFAS No. 141R significantly
      changes the accounting for business combinations in a number of areas, including
      the treatment of contingent consideration, pre-acquisition contingencies,
      transaction costs, in-process research and development and restructuring costs.
      In addition, under SFAS No. 141R, changes in an acquired entity’s deferred
      tax assets and uncertain tax positions after the measurement period will impact
      income tax expense. SFAS No. 141R is effective for fiscal years beginning
      after December 15, 2008.  The Company will adopt SFAS No. 141R
      beginning in the first quarter of fiscal 2010.   This standard will
      change the Company’s accounting treatment for business combinations on a
      prospective basis.




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
      in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
      No. 160”). SFAS No. 160 changes the accounting and reporting for minority
      interests, which will be recharacterized as noncontrolling interests and
      classified as a component of equity. This new consolidation method significantly
      changes the accounting for transactions involving minority interest holders.
      SFAS No. 160 is effective for fiscal years beginning after
      December 15, 2008.  The Company will adopt SFAS No. 160 beginning
      in the first quarter of fiscal 2010.  This standard would change the
      Company’s accounting treatment for transactions involving any minority interest
      holders.




*Other*




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      No. 157”), providing a framework to improve the comparability and consistency of
      fair value measurements in applying GAAP. SFAS No. 157 also expands the
      disclosures regarding fair value measurement. SFAS No. 157 will become effective
      for the Company beginning in fiscal 2009. The Company is currently evaluating
      what effects the adoption of SFAS No. 157 will have on the Company’s future
      consolidated results of operations and financial condition.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities Including an Amendment of FASB
      Statement No. 115” (“SFAS No. 159”). SFAS No. 159 allows companies to choose to
      measure many financial instruments and certain other items at fair value. SFAS
      No. 159 will become effective for the Company beginning in fiscal 2009. The
      Company is currently evaluating what effects the adoption of SFAS No. 159 will
      have on the Company’s future consolidated results of operations and financial
      condition.




Page
          5


In
      March
      2007, the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 07-3,
“Accounting for Nonrefundable Advance Payment for Goods or Services to Be Used
      in Future Research and Development Activities” (“EITF 07-3”).
      EITF 07-3 requires that nonrefundable advance payments for future research
      and development activities be deferred and capitalized. EITF 07-3 requires
      that such amounts be recognized as an expense as the goods are delivered or
      the
      related services are performed. If, subsequently, based on management’s
      assessment, it is no longer expected that the goods will be delivered or
      services will be rendered, then EITF 07-3 requires that the capitalized advance
      payment be charged to expense. EITF 07-3 will be effective for the Company
      beginning in fiscal 2009. The Company is currently evaluating what effects,
      if
      any, the adoption of EITF 07-3 will have on the Company’s future consolidated
      results of operations and financial condition.




**Note
      3.**  **Comprehensive
      income**




Comprehensive
      income comprises net income, foreign currency translation adjustments and
      certain pension adjustments. The components of comprehensive income were as
      follows:




**For
                the three months ended**
              **December
                31,**
            
            **For
                the six months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**Net
                income
            
            $
            40,369
            
            $
            30,291
            
            $
            86,663
            
            $
            65,379Foreign
                currency translation differences (no tax effect)
            
            
            (1,249
            )
            
            5,435
            
            
            2,448
            
            
            5,798Comprehensive
                income
            
            $
            39,120
            
            $
            35,726
            
            $
            89,111
            
            $
            71,177





**Note
      4.**  **Net
      income per share**




Basic
      net
      income per share is calculated as net income divided by the weighted average
      number of ordinary shares in issue in each period. The interests of ordinary
      shareholders may be diluted due to the existence of equity awards granted to
      employees. The dilutive effect of potential shares to be issued pursuant to
      outstanding equity awards has been calculated using the treasury stock method
      and as such, is a function of the average share price in each period. The
      Company has two classes of ordinary shares: Series A ordinary shares, par value
      $0.01 per share (“Series A ordinary shares”) and Series B ordinary shares, par
      value $0.01 per share (“Series B ordinary shares”), which have equal rights
      except in respect of voting and have equal weighting in the calculation of
      net
      income per share and equal net income per share.




The
      numerator for the calculations of net income per share is net income. The
      denominator for the calculations is the weighted average number of ordinary
      shares, as follows:




**For
                the three months ended**
              **December
                31,**
            
            **For
                the six months ended**
              **December
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Weighted
                average number of ordinary shares in issue
            
            
            57,970,040
            
            
            57,045,855
            
            
            57,870,748
            
            
            56,967,765Effect
                of dilutive equity awards
            
            
            1,080,817
            
            
            938,707
            
            
            837,491
            
            
            924,759Denominator
                for dilutive net income per share
            
            
            59,050,857
            
            
            57,984,562
            
            
            58,708,239
            
            
            57,892,524





Page
          6


**Note
      5.**  **Inventories**




(in
                thousands)
            
            **As
                of**
              **December
                31,**
              **2007**
            
            **As
                of**
              **June
                30,**
              **2007**Unprocessed
                smart cards and their components
            
            $
            60,703
            
            $
            51,630Other
                smart card inventory
            
            
            6,225
            
            
            2,476Inventory
                reserves
            
            
            (2,324
            )
            
            (2,434
            )64,604
            
            
            51,672Contract
                work-in-progress
            
            
            3,340
            
            
            2,461Total
                inventories
            
            $
            67,944
            
            $
            54,133





Unprocessed
      smart cards and their components are considered to be in the state of
      work-in-progress. Other smart card inventory represents smart cards shipped
      to
      customers but for which revenue had not been recognized as of the balance sheet
      date.




**Note
      6.**  **Deferred
      income**




(in
                thousands)
            
            **As
                of**
              **December
                31,**
              **2007**
            
            **As
                of**
              **June
                30,**
              **2007**Deferred
                security fees
            
            $
            153,969
            
            $
            180,009Advance
                receipts and other deferred income
            
            
            63,309
            
            
            53,285Total
                deferred income
            
            $
            217,278
            
            $
            233,294Included
                within current liabilities
            
            $
            83,649
            
            $
            75,777Included
                within non-current liabilities
            
            
            133,629
            
            
            157,517$
            217,278
            
            $
            233,294





**Note
      7.**  **Related-party
      transactions**




The
      Company conducts business transactions with News Corporation and its
      subsidiaries and affiliates. These entities are considered to be related parties
      under SFAS No. 57, “Related Party Disclosures.” Agreements covering arrangements
      between News Corporation’s subsidiaries or affiliates and the Company are
      entered into in the context of two entities over which a third entity exercises
      significant influence or control. Therefore, there can be no assurance that
      each
      of the agreements, the transactions provided for therein or any amendments
      thereof will be effected on terms at least as favorable to the Company as could
      have been obtained from unaffiliated third parties. Any new contracts with
      related parties or significant amendments to such contracts are approved by
      the
      Audit Committee (the “Audit Committee”) of the Company’s Board of Directors (the
“Board”) in accordance with NASDAQ listing requirements.




These
      transactions are of three main types: the provision by the Company of technology
      and services for digital pay-television systems; the payment by the Company
      of
      royalties for the use of certain intellectual property rights; and the receipt
      by the Company of some administration and finance services.




**a)
      Provision of technology and services**




Technology
      and services for digital pay-television platform operators are supplied by
      the
      Company to affiliates and subsidiaries of News Corporation. The principal
      related parties to whom the Company supplies such services are BSkyB, DIRECTV
      (including its subsidiaries or affiliates DIRECTV Latin America, Sky Brasil
      and
      Sky Mexico), FOXTEL, Sky Network Television and Tata Sky (all of which currently
      are affiliates of News Corporation), and SKY Italia and STAR TV (both of which
      are wholly owned subsidiaries of News Corporation).




Page
          7


Revenue
      recognized from such related parties was as follows:




**For
                the three months ended**
              **December
                31,**
            
            **For
                the six months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**Revenue
                from related parties
            
            $
            146,452
            
            $
            122,659
            
            $
            305,710
            
            $
            254,862





Included
      within the consolidated balance sheets are the following amounts in respect
      of
      normal sales transactions with related parties:




(in
                thousands)
            
            **As
                of**
              **December
                31,**
              **2007**
            
            **As
                of**
              **June
                30,**
              **2007**Accounts
                receivable
            
            $
            94,675
            
            $
            89,711Accrued
                income
            
            
            27,611
            
            
            26,854Deferred
                income
            
            
            (169,278
            )
            
            (200,478
            )





**b)
      Royalty payments**




A
      royalty
      is payable to a related party in respect of certain intellectual property rights
      that the Company has licensed for use in certain applications supplied to its
      customers. The royalty expense in respect of these related party arrangements,
      which is included within cost of goods and services sold, was as
      follows:




**For
                the three months ended**
              **December
                31,**
            
            **For
                the six months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**Royalties
                payable to related parties
            
            $
            969
            
            $
            397
            
            $
            1,811
            
            $
            1,135





Included
      within the consolidated balance sheets are the following amounts in respect
      of
      royalties payable to a related party:




(in
                thousands)
            
            **As
                of**
              **December
                31,**
              **2007**
            
            **As
                of**
              **June
                30,**
              **2007**Accrued
                expenses
            
            $
            5,363
            
            $
            3,553





**c)
      Administration and finance services**




News
      Corporation provides services under a Master Intercompany Agreement that
      provides, among other things, for arrangements governing the relationship
      between the Company and News Corporation. The consideration for each of the
      services and other arrangements set forth in the Master Intercompany Agreement
      is mutually agreed and based upon allocated costs. All such consideration and
      any material arrangements are subject to the approval of the Audit Committee.
      The services covered by the Master Intercompany Agreement include cash
      management and financing, services of News Corporation employees, facility
      arrangements and employee matters, including pensions and certain other
      services.




Administration
      fees charged to the Company in respect of these services were as
      follows:




**For
                the three months ended**
              **December
                31,**
            
            **For
                the six months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**Administrative
                fees charged by related parties
            
            $
            38
            
            $
            59
            
            $
            75
            
            $
            118





Page
          8


As
      part
      of these administration and finance services, News Corporation pays certain
      costs (principally certain payroll, legal and property expenses) on behalf
      of
      the Company. The Company reimburses News Corporation for such payments,
      typically the month following that in which the payment was made by News
      Corporation. Included within the consolidated balance sheets are the following
      amounts that were owed to News Corporation in respect of administrative services
      and other costs paid by News Corporation on behalf of the Company:




(in
                thousands)
            
            **As
                of**
              **December
                31,**
              **2007**
            
            **As
                of**
              **June
                30,**
              **2007**Accounts
                payable
            
            $
            3,049
            
            $
            2,165





**d)
      Other**




The
      Company has a short-term loan facility of £30 million (approximately $60
      million) from a subsidiary of News Corporation. The facility has no expiry
      date
      and no amounts were drawn down as of December 31, 2007 or June 30, 2007. The
      facility is considered to be adequate for the Company’s needs.




The
      Company has entered into cross-guarantees with HSBC Bank plc (“HSBC”) providing
      mutual guarantees with other subsidiaries of News Corporation for amounts owed
      to HSBC under a collective overdraft facility of £20 million (approximately $40
      million). News Corporation has indemnified the Company against any liabilities
      which the Company may be required to pay under these cross-guarantees. The
      Company has been informed by News Corporation that no amounts were owed to HSBC
      as of December 31, 2007 or June 30, 2007 that would be covered by these
      guarantees.




**Note
      8.**  **Contingencies
      and commitments**




**a)
      Litigation**




*Echostar
      Litigation*




On
      June
      6, 2003, Echostar Communications Corporation, Echostar Satellite Corporation,
      Echostar Technologies Corporation and Nagrastar L.L.C. (collectively,
“Echostar”) filed an action against the Company in the United States District
      Court for the Central District of California. Echostar filed an amended
      complaint on October 8, 2003, which purported to allege claims for violation
      of
      the Digital Millennium Copyright Act (“DMCA”), the Communications Act of 1934
      (“CA”), the Electronic Communications Privacy Act, the Computer Fraud and Abuse
      Act, California’s Unfair Competition statute and the federal Racketeer
      Influenced and Corrupt Organizations (“RICO”) statute. The complaint also
      purported to allege claims for civil conspiracy, misappropriation of trade
      secrets and interference with prospective business advantage. The complaint
      sought injunctive relief, unspecified compensatory and exemplary damages and
      restitution. On December 22, 2003, all of the claims were dismissed by the
      court, except for the DMCA, CA and unfair competition claims, and the court
      limited these claims to acts allegedly occurring within three years of the
      filing of Echostar’s original complaint.




After
      Echostar filed a second amended complaint, the Company filed a motion to dismiss
      this complaint on March 31, 2004. On July 21, 2004, the court issued an order
      directing Echostar to, among other things, file a third amended complaint within
      ten days correcting various deficiencies noted in the second amended complaint.
      Echostar filed its third amended complaint on August 4, 2004. On August 6,
      2004,
      the court ruled that the Company was free to file a motion to dismiss the third
      amended complaint, which the Company did on September 20, 2004. The hearing
      occurred on January 3, 2005. On February 28, 2005, the court issued an order
      treating the Company’s motion to dismiss as a motion for a more definite
      statement, granting the motion and giving Echostar until March 30, 2005 to
      file
      a fourth amended complaint correcting various deficiencies noted in the third
      amended complaint. On March 30, 2005, Echostar filed a fourth amended complaint,
      which the Company moved to dismiss. On July 27, 2005, the court granted in
      part
      and denied in part the Company’s motion to dismiss, and again limited Echostar’s
      surviving claims to acts allegedly occurring within three years of the filing
      of
      Echostar’s original complaint. The Company believes these surviving claims are
      without merit and intends to vigorously defend against them.




Page
          9


On
      October 24, 2005, the Company filed its Amended Answer with Counterclaims,
      alleging that Echostar misappropriated the Company’s trade secrets, violated the
      Computer Fraud and Abuse Act and engaged in unfair competition. On
      November 8, 2005, Echostar moved to dismiss the Company’s counterclaims for
      conversion and claim and delivery, arguing that these claims were preempted
      and
      time-barred. Echostar also moved for a more definite statement of the Company’s
      trade secret misappropriation claim. On December 8, 2005, the court granted
      in
      part and denied in part Echostar’s motion to dismiss and for a more definite
      statement, but granted the Company leave to file amended counterclaims. On
      December 13, 2005, the Company filed a Second Amended Answer with Counterclaims,
      which Echostar answered on December 27, 2005. The Company filed motions for
      summary judgment dismissing Echostar’s claims and Echostar filed a motion for
      summary judgment dismissing the Company’s counterclaims on October 29, 2007.
      Those motions were heard on January 7, 2008. On January 16, 2008, the court
      granted the motions in part and denied them in part. The court has set this
      case
      to go to trial in April 2008.




*Sogecable
      Litigation*




On
      July
      25, 2003, Sogecable, S.A. and its subsidiary Canalsatellite Digital, S.L.,
      Spanish satellite broadcasters and customers of Canal+ Technologies SA
      (together, “Sogecable”), filed an action against the Company in the United
      States District Court for the Central District of California. Sogecable filed
      an
      amended complaint on October 9, 2003, which purported to allege claims for
      violation of the DMCA and the RICO statute. The amended complaint also purported
      to allege claims for interference with contract and prospective business
      advantage. The complaint sought injunctive relief, unspecified compensatory
      and
      exemplary damages and restitution. On December 22, 2003, all of the claims
      were
      dismissed by the court. Sogecable filed a second amended complaint. The Company
      filed a motion to dismiss the second amended complaint on March 31, 2004. On
      August 4, 2004, the court issued an order dismissing the second amended
      complaint in its entirety. Sogecable had until October 4, 2004 to file a third
      amended complaint. On October 1, 2004, Sogecable notified the court that it
      would not be filing a third amended complaint, but would appeal the court’s
      entry of final judgment dismissing the suit to the United States Ninth Circuit
      Court of Appeals. On December 14, 2006, the appellate court issued a memorandum
      decision reversing the district court’s dismissal. On January 26, 2007, the
      Company filed its petition for rehearing by an en banc panel of the United
      States Ninth Circuit Court of Appeals. On February 21, 2007, the petition was
      denied. On June 11, 2007, the Company filed a petition for a Writ of Certiorari
      in the United States Supreme Court seeking reversal of the Ninth Circuit Court
      of Appeals’ decision. On August 27, 2007, the Company renewed its motion to
      dismiss the second amended complaint on grounds not previously decided. On
      October 1, 2007, the petition for Writ of Certiorari was denied. On
      January 25, 2008, the court issued an order granting in part and denying in
      part
      the Company’s renewed motion to dismiss Sogecable’s second amended complaint.
      The court dismissed Sogecable’s claim for tortious interference with progressive
      economic advantage, but allowed Sogecable to proceed on its RICO and DCMA
      claims, as well as its claim for tortious interference with contract.The
      court has set June 2, 2009 as the trial date. The Company believes that
      Sogecable’s claims are without merit and it will continue to vigorously defend
      itself in this matter.




*Barry
      Thomas Litigation*




On
      November 28, 2005, Barry W. Thomas filed a complaint alleging infringement
      of
      United States Patent No. 4,777,354 by DIRECTV, Inc., its parent The DIRECTV
      Group, Inc., and the National Rural Telecommunications Cooperative in the United
      States Distinct Court for the Western District of North Carolina, Charlotte
      Division, captioned Barry W. Thomas v. DIRECTV, Inc., *et
      al* .,
      No.
      3:05CV496-K (W.D.N.C.). Although not a party to this case, the Company has
      assumed a share in the cost of DIRECTV, Inc.’s defense. The asserted patent
      expired on January 27, 2006.




On
      February 24, 2006, Mr. Thomas voluntarily dismissed his complaint against The
      DIRECTV Group, Inc., but not his complaint against DIRECTV, Inc. On February
      27,
      2006, DIRECTV, Inc. filed an Answer and Counterclaims where, among other things,
      DIRECTV, Inc. denied Mr. Thomas’s allegations of infringement and alleged that
      the patent is invalid, unenforceable, and that Mr. Thomas’s cause of action is
      barred by the equitable doctrine of laches.




DIRECTV,
      Inc. filed a motion for summary judgment barring pre-suit damages based on
      its
      laches defense on September 12, 2006. The court granted DIRECTV, Inc.’s
      motion on December 19, 2006, limiting DIRECTV, Inc.’s potential liability to the
      two-month period between the filing of the complaint and the expiration of
      the
      patent. There is no schedule for pretrial proceedings or trial date set by
      the
      court, although the court held a patent claim construction hearing on November
      17, 2006. The parties are now awaiting the court’s decision on issues of claim
      construction and further guidance concerning a case schedule.




The
      Company believes that Mr. Thomas’s claims are without merit and it will continue
      to vigorously defend itself in this matter.




**b)
      Guarantees**




In
      the
      normal course of business, the Company provides, and from time to time makes
      payments in respect of, indemnification agreements of varying scopes, including
      warranties concerning the security of the Company’s smart cards, limited product
      warranties and indemnification of customers against claims of intellectual
      property infringement made by third parties arising from the use of the
      Company’s products or services. Also, the Company may be subject to liquidated
      damages in the event of late delivery of goods or services. The nature of these
      commitments has been considered in determining the revenue and costs recognized
      in these financial statements. Costs are accrued for known warranty and
      indemnification issues if a loss is probable and can be reasonably estimated.
      Historically, costs related to these warranties and indemnification agreements
      have not been significant, but because potential future costs are highly
      variable, the Company is unable to estimate the maximum potential impact of
      these guarantees on the Company’s future results of operations.




Page
          10


**c)
      Other**




The
      nature of the Company’s business is such that it may be subject to claims by
      third parties alleging infringements of various intellectual property rights.
      Such claims are vigorously defended. Where a liability arising from these claims
      is probable, an accrual is made based on management’s best estimate. It is not
      considered that any resulting liability in excess of amounts recognized in
      these
      financial statements would materially affect the Company’s financial
      position.




Amounts
      payable by the Company under certain contracts are subject to audit rights
      held
      by third parties and the terms of such contracts may be open to subjective
      interpretation. The Company settles its liabilities under such contracts based
      on its assessment of the amounts due. However, it may be subject to claims
      that
      the amounts paid are incorrect. It is not considered that any resulting
      liability in excess of amounts recognized in these financial statements would
      materially affect the Company’s financial position.




The
      Company experiences routine litigation in the normal course of its business.
      The
      Company believes that none of its pending litigation will have a material
      adverse effect on its consolidated financial condition, future results of
      operations or liquidity.




The
      Company’s operations are subject to tax in various domestic and international
      jurisdictions and, as a matter of course, the Company is regularly audited
      by
      U.K. and overseas tax authorities. The Company believes it has appropriately
      accrued for the expected outcome of all pending tax matters and does not
      currently anticipate that the ultimate resolution of pending tax matters will
      have a material adverse effect on its consolidated financial condition, future
      results of operations or liquidity.




**Note
      9.**  **Equity-based
      compensation**




The
      following amounts have been recorded in the consolidated financial statements
      relating to equity-based compensation:




**For
                the three months ended**
              **December
                31,**
            
            **For
                the six months ended**
              **December
                31,**(in
                thousands, except share amounts)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**Number
                of stock options exercised in period
            
            
            280,838
            
            
            294,017
            
            
            329,636
            
            
            326,078Number
                of conditional awards vested in period, net of statutory tax
                withholdings
            
            
            —
            
            
            —
            
            
            67,409
            
            
            —Equity-based
                compensation cost included within the statement of
                operations
            
            $
            4,181
            
            $
            1,784
            
            $
            8,492
            
            $
            3,738Net
                cash received from exercise of equity-based awards
            
            $
            5,579
            
            $
            4,638
            
            $
            5,888
            
            $
            5,245Excess
                tax benefits derived from equity-based awards
            
            $
            836
            
            $
            1,763
            
            $
            888
            
            $
            1,790Intrinsic
                value of stock options exercised
            
            $
            10,583
            
            $
            9,403
            
            $
            11,918
            
            $
            10,247





During
      the three-month period ended December 31, 2007, fixed conditional awards over
      American Depositary Receipts (“ADRs”) representing an aggregate of 27,500 Series
      A ordinary shares were awarded to certain employees and directors, twenty-five
      percent of which will vest on August 15, 2008. The remaining balance will vest
      in three equal annual installments, subject to the individual’s continued
      employment with the Company. The grant date fair value of these awards was
      $55.91 per share.




Page
          11


In
      addition, during the three-month period ended December 31, 2007, certain
      employees and executives of the Company had the opportunity to earn grants
      of
      ADRs representing Series A ordinary shares under the NDS 2006 Long-Term
      Incentive Plan conditioned upon the attainment of pre-determined operating
      income goals for the fiscal year ending June 30, 2008 (the “Fiscal 2008
      Performance-Based Conditional Awards”). To the extent that it is determined that
      the Company’s actual fiscal 2008 operating income falls within the performance
      goal range, the employees or executives will receive a percentage of their
      annualized base salary, ranging from 0% to 45% for the vast majority of
      recipients (the range for some recipients was from 0% to up to 187.5%) in
      time-vested ADRs representing Series A ordinary shares. If it is determined
      that
      ADRs representing Series A ordinary shares are to be issued in respect of the
      Fiscal 2008 Performance-Based Conditional Awards, the first 25% of such ADRs
      will vest on August 15, 2008, with the remaining balance vesting in three equal
      annual installments over the next three years, subject to the individual’s
      continued employment with the Company. The grant date fair value of the awards
      was $55.91 per share.




As
      of
      December 31, 2007, the total compensation cost related to non-vested
      equity-based awards not yet recognized was approximately $46.3 million and
      the
      period over which it is expected to be recognized is 3.7 years. The Board may
      grant additional equity-based compensation, which would result in additional
      operating expenses being recorded in future periods.




**Note
      10.**  **Supplementary
      cash flow information**




**For
                the six months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006****Cash
                receipts and payments:**Cash
                payments for capital expenditure
            
            $
            (6,700
            )
            $
            (10,361
            )Proceeds
                from sale of property, plant and equipment
            
            
            260
            
            
            241Interest
                received in cash
            
            
            14,908
            
            
            10,038Cash
                payments for income taxes
            
            
            (23,991
            )
            
            (21,993
            )Gross
                purchases of short-term investments
            
            
            ─
            
            
            (203,387
            )Gross
                sales of short-term investments
            
            
            ─
            
            
            184,401Cash
                paid in respect of deferred consideration for acquisitions
            
            
            (115
            )
            
            (1,937
            )**Supplemental
                information on businesses acquired****(1)****:**Fair
                value of non-cash assets acquired(2)
            
            $
            12,566
            
            $
            92,213Cash
                (overdraft) acquired
            
            
            (48
            )
            
            13,435Less:
                liabilities assumed(2)
            
            
            (2,144
            )
            
            (11,694
            )Cash
                paid in respect of acquisitions
            
            $
            10,374
            
            $
            93,954


____________________


(1)
            In
                the six-month period ended December 31, 2007, the Company acquired
                CastUp
                Inc., a provider of solutions for the hosting, management and distribution
                of video over the Internet, for initial consideration of
                $10.4 million. In the six-month period ended December 31, 2006, we
                acquired Jungo Limited for cash consideration and costs totaling
                $77.5
                million, net of cash acquired. In the six-month period ended December
                31,
                2006, we also acquired Interactive Television Entertainment ApS for
                consideration of $3.0 million.


(2)
            Based
                on preliminary allocation of purchase
                price.





Page
          12


**Note
      11.**  **Pension
      expense**




The
      elements of expense related to the defined benefit pension scheme that the
      Company operates are as follows:




**For
                the three months ended**
              **December
                31,**
            
            **For
                the six months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**Service
                cost
            
            $
            59
            
            $
            51
            
            $
            117
            
            $
            102Interest
                cost
            
            
            339
            
            
            310
            
            
            674
            
            
            614Expected
                return on plan assets
            
            
            (321
            )
            
            (256
            )
            
            (637
            )
            
            (507
            )Amortization
                of unrecognized net loss
            
            
            108
            
            
            149
            
            
            215
            
            
            296$
            185
            
            $
            254
            
            $
            369
            
            $
            505





During
      the six-month periods ending December 31, 2007 and 2006, the Company made
      discretionary contributions of $1.0 million and $0.9 million, respectively,
      to the Company’s defined benefit pension scheme.




Page
          13


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




***This
      document contains statements that constitute “forward-looking statements” within
      the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
      and Section 27A of the Securities Act of 1933, as amended. The words “expect,”
“estimate,” “anticipate,” “predict,” “believe” and similar expressions and
      variations thereof are intended to identify forward-looking statements. These
      statements appear in a number of places in this document and include statements
      regarding the intent, belief or current expectations of NDS Group plc, its
      directors or its officers with respect to, among other things, trends affecting
      NDS Group plc’s financial condition or results of operations. Unless otherwise
      indicated or unless the context requires otherwise, all reference herein to
      the
“Company,” “we,” “our” and “us” refers to the NDS Group plc. Readers of this
      document are cautioned that any such forward-looking statements are not
      guarantees of future performance and involve risks and uncertainties. Those
      risks and uncertainties are discussed under Item 1A. Risk Factors of Part II
      of
      this Quarterly Report on Form 10-Q, in the Company’s Annual Report on Form 10-K
      for the fiscal year ended June 30, 2007 as filed with the Securities and
      Exchange Commission (“SEC”) on August 29, 2007 (SEC file no.*** **000-30364),
      as well as the information set forth elsewhere in this Quarterly Report. The
      Company does not ordinarily make projections of its future operating results
      and
      undertakes no obligation (and expressly disclaims any obligation) to publicly
      update or revise any forward-looking statements, whether as a result of new
      information, future events or otherwise, except as required by law. You should
      carefully review other documents filed by the Company with the SEC. This section
      should be read in conjunction with the unaudited consolidated financial
      statements of the Company and related notes set forth elsewhere
      herein.**




**Introduction**




Management’s
      discussion and analysis of financial condition and results of operations is
      intended to help provide an understanding of our financial condition, changes
      in
      financial condition and results of operations, and is organized as
      follows:




·
            ***Overview
                of our business***—
                This section provides a general description of our business and
                developments that have occurred to date during the fiscal year ending
                June
                30, 2008 that we believe are important in understanding our results
                of
                operations and financial condition or to disclose known future
                trends.




·
            ***Results
                of operations***—
                This section provides an analysis of our results of operations for
                the
                three- and six-month periods ended December 31, 2007 and 2006. In
                addition, a brief description is provided of significant transactions
                and
                events that impact the comparability of the results being
                analyzed.




·
            ***Liquidity
                and capital resources***—
                This section provides an analysis of our cash flows for the six-month
                periods ended December 31, 2007 and 2006. It includes a discussion
                of the
                financial capacity available to fund our future commitments and
                obligations, as well as a discussion of other financing
                arrangements.




**Overview
      of our Business**




We
      supply
      open end-to-end digital technology and services to digital pay-television
      platform operators, and content providers. Our technologies include conditional
      access and microprocessor security, broadcast stream management, set-top box
      and
      residential gateway middleware, electronic program guides (“EPGs”), digital
      video recording (“DVR”) technologies and interactive infrastructure and
      applications. Middleware and DVR technologies are deployed on third-party
      hardware devices, such as set-top boxes, residential gateway devices and PCs;
      we
      refer to these deployments as middleware clients and DVR clients, respectively.
      We provide technologies and services supporting standard definition and high
      definition television and a variety of industry, Internet and Internet protocol
      (“IP”) standards, as well as technology for mobile devices. Our software
      systems, consultancy and systems integration services are focused on providing
      platform operators and content providers with technology to help them profit
      from the secure distribution of digital information and entertainment to
      consumer devices that incorporate various technologies supplied by
      us.




Our
      main
      customers are the digital pay-television platform operators that utilize a
      broadcast infrastructure to deliver video and data to multiple subscribers.
      In
      addition, we may sell interactive applications to content providers, who do
      not
      usually operate a broadcast platform, but instead provide content for
      transmission over a platform operator’s network. The applications we sell to
      content providers make use of the functions and capabilities of the broadcast
      infrastructure.




We
      work
      with suppliers of other components of a broadcast platform, such as broadcast
      equipment, set-top box and residential gateway manufacturers. We integrate
      our
      technologies with the products manufactured by these suppliers to provide a
      platform operator with the required functionality. A particular platform
      operator may purchase some components of their broadcast platform from our
      competitors.




Page
          14


Our
      customers consist of a limited number of large digital pay-television platform
      operators that are introducing, marketing and promoting products and services
      that utilize our technology. Our three largest customers are DIRECTV in the
      United States, BSkyB in the United Kingdom and SKY Italia in Italy. Together,
      these three customers contributed, directly and indirectly, approximately 65%
      of
      our revenue during the six-month period ended December 31, 2007. We expect
      that
      a limited number of customers will continue to contribute a significant portion
      of our revenue. During the six-month period ended December 31, 2007, we extended
      our contracts to supply conditional access services to DIRECTV and its Latin
      American subsidiaries through June 30, 2013.




We
      compete primarily with technologies such as NagraVision (developed by Kudelski
      SA), DigiCipher (developed by Motorola, Inc.), Power Key (developed by
      Scientific-Atlanta, Inc.), OpenTV (developed by OpenTV Corp., a company
      controlled by Kudelski SA) and Microsoft Mediaroom (developed by Microsoft
      Corporation) both to attract new customers and to retain our existing customers.
      In addition, some of the companies that currently operate in the software
      business, but that have not historically been active competitors of ours, may,
      through acquisitions or the development of their own resources, seek to enter
      and obtain significant market share in our current or planned business
      areas.




A
      significant portion of our revenue is dependent upon our customers’ subscriber
      bases, the growth in their subscriber bases and the related quantities of
      set-top boxes deployed to their subscribers. Revenue can vary from period to
      period as our revenue reflects a small number of relatively large orders for
      our
      technology and services. These generally have long sales and order cycles,
      and
      delivery and acceptance of our products and services fluctuate over the course
      of these cycles. Our accounting policies often require us to defer revenue
      until
      after our technologies have been deployed by our customers or to recognize
      contract revenue over the term of any post-contract support period.




We
      consider that we operate and manage our business as a single segment. There
      are
      no separate divisions or profit centers. We assess the financial performance
      of
      our business by reviewing specific revenue streams in the aggregate and by
      customer. We assess our costs by considering individual cost centers and their
      aggregation into the general cost categories as described below.






**Revenue**




We
      derive
      revenue from:




1)**
            *Fees
                from the sale of smart cards and the provision of security maintenance
                services.*These
                fees are typically based on the number of smart cards supplied and
                the
                number of subscribers and/or smart cards authorized for a particular
                platform. Our fees may be reduced if the security of the system is
                compromised. We refer to fees from the sales of smart cards and the
                provision of security maintenance services as “conditional access
                revenue.”




2)**
            *Fees
                for the supply of an initial system and subsequent additional
                functionality and maintenance services*.
                These fees are typically based on the amount of manpower required
                to
                customize, integrate and install the system components and subsequently
                to
                maintain those components. We refer to such fees as “integration,
                development and support revenue.”




3)**
            *Fees
                linked to the deployment and use of our technologies*.
                These fees are typically based on the number of set-top boxes or
                residential gateway devices manufactured or deployed that contain
                the
                relevant technologies. Other fees may be based on the extent to which
                the
                technologies are used by our customers’ subscribers. For example, we may
                receive a share of incremental revenue generated by a platform operator
                or
                content provider from an application that incorporates our technologies.
                We refer to such fees as “license fees and
                royalties.”




These
      different types of fees are presented as three separate revenue streams in
      our
      consolidated statement of operations because they are influenced by different
      external factors.




We
      distinguish between revenue from “established technologies” and revenue from
“new technologies.” We categorize as revenue from established technologies our
      revenue from conditional access, middleware and EPG technologies and fees from
      the customization and integration of those technologies into head-end systems
      and set-top boxes, together with associated support. Revenue from these
      technologies is allocated between the three different revenue streams identified
      above. We aggregate under our separate new technologies revenue stream all
      revenue that we derive from DVR technologies, advanced middleware technologies,
      technologies involving broadband and video content over broadband (“IPTV”),
      interactive infrastructure and applications, and games and gaming. As our
      business develops, we will consider whether these groupings of revenue remain
      appropriate.




Page
          15


**Costs
      and Expenses**




Our
      costs
      and expenses consist of physical and processing costs of smart cards; personnel,
      travel and facilities costs; royalties paid for the right to use and sub-license
      certain intellectual property rights owned by third parties; and the
      amortization of intangible assets, such as intellectual property rights that
      we
      have acquired for incorporation within our technologies.




The
      physical costs of smart cards include the costs of the integrated circuits
      manufactured by third-party suppliers, the micro-module that houses the computer
      chips and the plastic body of the smart cards. We do not manufacture smart
      cards, but our engineers design computer chips that are embedded into the smart
      cards. We arrange for the computer chips to be manufactured and assembled by
      third-party suppliers. Smart card costs are dependent upon the costs of raw
      materials, including the cost of computer chips, plastic and assembly, and
      the
      quantity of smart cards purchased and processed in any period.




Personnel
      and facilities costs are allocated into four categories: operations, research
      and development, sales and marketing, and general and administration. We have
      employees and facilities in the United Kingdom, the United States, Israel,
      India, France, Denmark, Hong Kong, South Korea, China and
      Australia.




We
      classify operations costs as part of cost of goods and services sold. Operations
      costs include the costs of personnel and related costs, including an allocation
      of facilities costs, associated with our customer support and with the
      integration and development activities undertaken under a customer contract.
      Operations costs include the costs of operating our two smart card processing
      plants, including the depreciation of our smart card processing
      equipment.




Research
      and development costs consist mainly of personnel and related costs, including
      an allocation of facilities costs, attributable to our technical employees
      who
      are developing our technology and adapting it for specific customer
      requirements. These costs also include consumables and the depreciation of
      equipment used in development and test activities and are stated net of the
      benefit of grants and other incentives.




Sales
      and
      marketing costs mainly consist of personnel and related costs, including an
      allocation of facilities costs, of our sales and marketing employees in the
      United Kingdom, Europe, the Middle East, the United States and the Asia-Pacific
      region. Marketing costs also include advertising, exhibitions, marketing
      communications and demonstration activities.




General
      and administration costs consist primarily of executive and other personnel,
      facilities, legal and administration costs.




Operating
      expenses include gains and losses recognized on cash holdings as a result of
      changes in foreign exchange rates.




**Results
      of Operations**




***Commentary
      on the*** **three-
      and six-month periods ended December 31, 2007 versus the three- and six-month
      periods ended December 31, 2006**




*Revenue*




Revenue
      for the periods under review was as follows:




**For
                the three months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**Conditional
                access
            
            $
            119,411
            
            $
            98,184
            
            $
            21,227
            
            
            22
            %Integration,
                development & support
            
            
            12,844
            
            
            12,683
            
            
            161
            
            
            1
            %License
                fees & royalties
            
            
            29,061
            
            
            23,450
            
            
            5,611
            
            
            24
            %New
                technologies
            
            
            51,382
            
            
            28,922
            
            
            22,460
            
            
            78
            %Other
            
            
            2,250
            
            
            1,823
            
            
            427
            
            
            23
            %Total
                revenue
            
            $
            214,948
            
            $
            165,062
            
            $
            49,886
            
            
            30
            %





Page
          16




**For
                the six months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**Conditional
                access
            
            $
            240,994
            
            $
            191,031
            
            $
            49,963
            
            
            26
            %Integration,
                development & support
            
            
            23,753
            
            
            31,095
            
            
            (7,342
            )
            
            (24
            %)License
                fees & royalties
            
            
            58,005
            
            
            47,800
            
            
            10,205
            
            
            21
            %New
                technologies
            
            
            93,840
            
            
            56,421
            
            
            37,419
            
            
            66
            %Other
            
            
            3,232
            
            
            2,877
            
            
            355
            
            
            12
            %Total
                revenue
            
            $
            419,824
            
            $
            329,224
            
            $
            90,600
            
            
            28
            %





Revenue
      comparisons for the fiscal 2008 periods to the fiscal 2007 periods were affected
      by the relative weakness of the U.S. dollar over the periods. During the
      six-month period ended December 31, 2007, approximately 51% of our revenue
      was
      denominated in currencies other than the U.S. dollar, principally pounds
      sterling and euros. We estimate that the weaker U.S. dollar favorably impacted
      our total revenue for the six-month period ended December 31, 2007 by
      approximately $17 million, or 4%, compared to what would have been achieved
      had foreign exchange rates been consistent with those prevailing during the
      six-month period ended December 31, 2006. Similarly, for the three-month
      period ended December 31, 2007, we estimate that the weaker U.S. dollar
      favorably impacted revenue by approximately $9 million, or 4%.




Revenue
      from conditional access increased by 22% and 26% during the three- and six-month
      periods ended December 31, 2007, respectively, as compared to the three- and
      six-month periods ended December 31, 2006. The increases were principally due
      to
      recognition of a portion of security services revenue previously deferred as
      certain remaining revenue recognition criteria were satisfied during the three-
      and six-month periods ended December 31, 2007. Additionally, conditional access
      revenue rose due to increased security fees arising from the growth of the
      subscriber base of our customers, as well as an increase in customers and a
      higher volume of smart cards delivered to customers.




Authorized
      smart card activity in each period was as follows:




**For
                the three months endedDecember 31,**
            
            **For
                the six months endedDecember 31,**(in
                millions)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**Number
                of authorized cards, beginning of period
            
            
            78.6
            
            
            66.6
            
            
            75.4
            
            
            65.0Net
                additions
            
            
            4.1
            
            
            3.3
            
            
            7.3
            
            
            4.9Number
                of authorized cards, end of period
            
            
            82.7
            
            
            69.9
            
            
            82.7
            
            
            69.9





The
      quantity of smart cards delivered in each period was as follows:




**For
                the three months endedDecember 31,**
            
            **For
                the six months endedDecember 31,**(in
                millions)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**Number
                of smart cards delivered
            
            
            8.9
            
            
            6.3
            
            
            16.3
            
            
            13.0





The
      increase in the number of smart cards delivered in the three- and six-month
      periods ended December 31, 2007 as compared to the corresponding periods of
      the
      prior fiscal year principally reflects higher deliveries to existing customers
      and to new customers. The volume of smart cards supplied exceeded the increase
      in authorized smart cards in use due to a mixture of churn and the build-up
      of
      inventory by platform operators.




Integration,
      development and support revenue increased by 1% in the three-month period ended
      December 31, 2007 and decreased by 24% in the six-month period ended December
      31, 2007 as compared to the three- and six-month periods ended December 31,
      2006, respectively. The recognition of revenue from new customers and from
      the
      delivery of enhancements to several of our major customers is dependent on
      the
      timing of satisfaction of all revenue recognition criteria; therefore this
      component of revenue may fluctuate from period to period. The decline in
      integration, development and support revenue during the six-month period ended
      December 31, 2007 was a consequence of the recognition and delivery in the
      prior
      year six-month period of conditional access, EPG and middleware technologies
      to
      TataSky, which commenced broadcasting in India in the first quarter of fiscal
      2006.




Page
          17


License
      fee and royalty revenue increased by 24% and 21% in the three- and six-month
      periods ended December 31, 2007, respectively, as compared to the three- and
      six-month periods ended December 31, 2006, principally resulting from higher
      conditional access revenue, as noted above, and EPG royalties. In addition,
      middleware royalties increased due to an increase in the number of middleware
      clients deployed during the three- and six-month periods ended December 31,
      2007
      as compared to the corresponding periods of the prior fiscal year.




The
      table
      below sets forth the number of middleware clients deployed by our customers
      during the three- and six-month periods ended December 31, 2007 and
      2006:




**For
                the three months endedDecember 31,**
            
            **For
                the six months endedDecember 31,**(in
                millions)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**Number
                of middleware clients deployed, beginning of period
            
            
            69.9
            
            
            44.7
            
            
            61.8
            
            
            41.6Net
                additions
            
            
            6.5
            
            
            5.5
            
            
            14.6
            
            
            8.6Number
                of middleware clients deployed, end of period
            
            
            76.4
            
            
            50.2
            
            
            76.4
            
            
            50.2





The
      increase in revenue from new technologies of 78% and 66% in the three- and
      six-month periods ended December 31, 2007, respectively, compared to the three-
      and six-month periods ended December 31, 2006, was principally due to higher
      revenue from our DVR technologies and advanced middleware, IPTV, gaming
      applications and residential gateway devices. The higher revenue from our DVR
      technologies and advanced middleware was a result of an increase in the
      cumulative number of DVR clients deployed during the three- and six-month
      periods ended December 31, 2007 compared to the corresponding periods of the
      prior fiscal year.




The
      increase in the cumulative number of DVR clients deployed in each period was
      as
      follows:




**For
                the three months endedDecember 31,**
            
            **For
                the six months endedDecember 31,**(in
                millions)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**Number
                of DVR clients deployed, beginning of period
            
            
            8.8
            
            
            4.2
            
            
            7.3
            
            
            3.5Net
                additions
            
            
            1.6
            
            
            1.1
            
            
            3.1
            
            
            1.8Number
                of DVR clients deployed, end of period
            
            
            10.4
            
            
            5.3
            
            
            10.4
            
            
            5.3





*Cost
      of Goods and Services Sold and Gross Margin*




Cost
      of
      goods and services sold and gross margin for the periods under review were
      as
      follows:




**For
                the three months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**Cost
                of goods and services sold
            
            $
            81,486
            
            $
            61,118
            
            $
            20,368
            
            
            33
            %Gross
                margin
            
            $
            133,462
            
            $
            103,944
            
            $
            29,518
            
            
            28
            %Gross
                margin as a percentage of revenue
            
            
            62.1
            %
            
            63.0
            %
            
            (0.9
            %)
            
            **




____________________  **
      Not
      meaningful.




Page
          18


**For
                the six months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**Cost
                of goods and services sold
            
            $
            149,942
            
            $
            123,353
            
            $
            26,589
            
            
            22
            %Gross
                margin
            
            $
            269,882
            
            $
            205,871
            
            $
            64,011
            
            
            31
            %Gross
                margin as a percentage of revenue
            
            
            64.3
            %
            
            62.5
            %
            
            1.8
            %
            
            **


____________________  **
        Not
        meaningful.


Gross
      margin, defined as revenue less costs and expenses associated with that revenue
      ( *i.e.* ,
      cost of
      goods and services sold), is a non-GAAP financial measure. We believe that
      gross
      margin is an important measure for our management and investors. We consider
      that it gives a measure of profitability that distinguishes between those costs
      that are broadly a function of direct revenue-earning activities and costs
      that
      are of a general nature or that are incurred in the expectation of being able
      to
      earn future revenue. Cost of goods and services sold excludes charges in respect
      of amortization of intellectual property rights and other finite-lived
      intangibles that we have acquired.




Cost
      of
      goods and services sold increased by 33% and 22% during the three- and six-month
      periods ended December 31, 2007, respectively, as compared to the three- and
      six-month periods ended December 31, 2006, principally due to an increase in
      the
      number of our employees working on development, integration and support
      activities, as well as increased royalties paid to third parties for the use
      of
      their technologies and higher deliveries of smart cards during the periods.
      The
      increases were partially offset by lower smart card unit costs.




The
      increase in the total amount of employee costs allocated to cost of goods and
      services sold in the three-month period ended December 31, 2007 contributed
      to
      the decline of gross margin as a percentage of revenue by 0.9% to 62.1% from
      63.0% for the three-month period ended December 31, 2006. Because revenue
      increased by more than cost of goods and services sold during the six-month
      period ended December 31, 2007, and in particular because elements of
      higher conditional access revenue and royalty revenue had no associated direct
      costs, gross margin as a percentage of revenue was 64.3% for the six-month
      period ended December 31, 2007 as compared to 62.5% for the corresponding
      period of the prior fiscal year.




*Operating
      Expenses*




Operating
      expenses for the periods under review were as follows:




**For
                the three months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**Research
                & development
            
            $
            48,040
            
            $
            43,309
            
            $
            4,731
            
            
            11
            %Sales
                & marketing
            
            
            14,042
            
            
            9,314
            
            
            4,728
            
            
            51
            %General
                & administration
            
            
            18,538
            
            
            11,411
            
            
            7,127
            
            
            62
            %Amortization
                of intangibles
            
            
            3,332
            
            
            2,510
            
            
            822
            
            
            33
            %Total
                operating expenses
            
            $
            83,952
            
            $
            66,544
            
            $
            17,408
            
            
            26
            %





Page
          19


**For
                the six months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**Research
                & development
            
            $
            99,051
            
            $
            77,975
            
            $
            21,076
            
            
            27
            %Sales
                & marketing
            
            
            23,662
            
            
            17,291
            
            
            6,371
            
            
            37
            %General
                & administration
            
            
            32,758
            
            
            23,688
            
            
            9,070
            
            
            38
            %Amortization
                of intangibles
            
            
            6,615
            
            
            4,927
            
            
            1,688
            
            
            34
            %Total
                operating expenses
            
            $
            162,086
            
            $
            123,881
            
            $
            38,205
            
            
            31
            %





Expense
      comparisons of the fiscal 2008 periods to the fiscal 2007 periods were affected
      by the relative weakness of the U.S. dollar over the periods. During the
      six-month period ended December 31, 2007, approximately 72% of our total
      expenses were denominated in currencies other than the U.S. dollar, principally
      pounds sterling, Israeli shekels, euros and Indian rupees. We estimate that
      the
      weaker U.S. dollar increased our total expenses in the six-month period ended
      December 31, 2007 by approximately $14 million, or 4%, compared to what would
      have been achieved had foreign exchange rates been consistent with those
      prevailing during the six-month period ended December 31, 2006. Similarly,
      for the three-month period ended December 31, 2007, we estimate that the weaker
      U.S. dollar adversely impacted expenses by approximately $8 million, or 5%.
      The
      increase in operating expenses was offset in part by foreign exchange gains
      of
      $2.3 million and $8.1 million recognized during the three- and six-month
      periods ended December 31, 2007 in the consolidated statement of operations
      as a
      result of holding cash in currencies other than the U.S. dollar. These amounts
      compare to $1.6 million and $0.9 million, respectively, in the corresponding
      periods of the previous fiscal year.




Our
      main
      operating expenses are employee costs (including the cost of equity-based
      awards), facilities costs, depreciation and travel costs. Our main operating
      expenses have increased primarily due to a higher number of employees,
      facilities expenses and legal costs. Employee costs were approximately 25%
      and
      29% higher during the three- and six-month periods ended December 31, 2007,
      respectively, as compared to the corresponding periods of the prior fiscal
      year.




Our
      employee numbers (which include contractors) have increased over the period
      under review, as follows:




**For
                the three months ended**
              **December
                31,**
            
            **For
                the six months ended**
              **December
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Number
                of employees, beginning of period
            
            
            3,665
            
            
            3,089
            
            
            3,572
            
            
            2,989Net
                additions
            
            
            155
            
            
            123
            (1)
            
            248
            
            
            223
            (1)Number
                of employees, end of period
            
            
            3,820
            
            
            3,212
            (1)
            
            3,820
            
            
            3,212
            (1)Average
                number of employees during period
            
            
            3,742
            
            
            3,148
            
            
            3,672
            
            
            3,095




____________________


(1)  Excludes
      136 employees of Jungo Limited (“Jungo”), which we acquired on December 31,
      2006.




Research
      and development costs increased by 11% and 27% for the three- and six-month
      periods ended December 31, 2007, respectively, as compared to the three- and
      six-month periods ended December 31, 2006, principally as a result of
      higher employee headcount due to an increased number of projects. The increase
      in the employee costs in the six-month period ended December 31, 2007 was
      partially offset by a $6.7 million grant from the French government as a
      consequence of our being engaged in certain eligible research projects. In
      the
      six-month period ended December 31, 2006 we received a similar grant
      of $5.5 million.




Sales
      and
      marketing expenses increased by 51% and 37% in the three- and six-month periods
      ended December 31, 2007, respectively, as compared to the three- and six-month
      periods ended December 31, 2006, principally as a result of higher employee
      headcount and travel costs, increased attendance at trade shows and a higher
      level of corporate communications activities.




General
      and administrative expenses increased by 38% in the six-month period ended
      December 31, 2007 as compared to the six-month period ended December 31, 2006,
      largely due to higher legal expenses, equity compensation costs, business
      development costs and facilities and infrastructure costs. During the
      three-month period ended December 31, 2007, general and administrative expenses
      increased by 62% as compared to the three-month period ended December 31, 2006,
      principally due to increased legal expenses, as well as equity compensation
      costs and facilities and infrastructure costs.




Page
          20


Amortization
      of finite-lived intangible assets increased by 33% and 34% in the three- and
      six-month periods ended December 31, 2007, respectively, as compared to the
      three- and six-month periods ended December 31, 2006, principally due to the
      acquisition of Jungo in December 2006.




*Operating
      Income and Other Items*




As
      a
      result of the factors outlined above, and, in particular, the increase in
      conditional access and new technologies revenue, operating income was $49.5
      million, or 23.0% of revenue, for the three-month period ended December 31,
      2007, compared to $37.4 million, or 22.7% of revenue, for the three-month
      period ended December 31, 2006. Operating income was $107.8 million, or
      25.6% of revenue, for the six-month period ended December 31, 2007, compared
      to
      $82.0 million, or 24.9% of revenue, for the six-month period ended December
      31,
      2006. We estimate that the weaker U.S. dollar increased our operating income
      in
      the three- and six-month period ended December 31, 2007 by approximately $3
      million and $11 million, respectively, compared to what would have been
      achieved had foreign exchange rates been consistent with those prevailing during
      the three- and six-month periods ended December 31, 2006.




Interest
      income earned on cash deposits was $7.6 million and $15.0 million in the three-
      and six-month periods ended December 31, 2007, respectively, as compared to
      $6.5
      million and $12.5 million in the three- and six-month periods ended
      December 31, 2006, respectively. These increases were due to higher cash
      balances and higher average interest rates.




Our
      effective tax rate was 29% for the three- and six-month periods ended December
      31, 2007 compared to 31% for the three- and six-month periods ended December
      31,
      2006. The decrease in the effective tax rate was due to higher benefits from
      research and development incentives and a higher portion of earnings being
      generated in jurisdictions with lower statutory tax rates. In July 2007, the
      U.K. government enacted legislation that reduced the standard U.K. corporate
      tax
      rate to 28%, effective April 1, 2008. The statutory tax rate on the Company’s
      U.K. taxable profits will be 29.5% in the fiscal year ending June 30, 2008
      and
      28% thereafter.




As
      a
      consequence of all the factors described above, net income for the three-month
      period ended December 31, 2007 was $40.4 million, or $0.70 per share ($0.68
      per
      share on a diluted basis), compared to $30.3 million, or $0.53 per share ($0.52
      per share on a diluted basis), for the three-month period ended December 31,
      2006. Net income for the six-month period ended December 31, 2007 was $86.7
      million, or $1.50 per share ($1.48 per share on a diluted basis), compared
      to
      $65.4 million, or $1.15 per share ($1.13 per share on a diluted basis), for
      the
      six-month period ended December 31, 2006.




**Liquidity
      and Capital Resources**




***Current
      Financial Condition***




Our
      principal source of liquidity is internally generated funds; however, we also
      have access to the worldwide capital markets. As of December 31, 2007, we had
      an
      unused credit facility to borrow up to £30 million (equivalent to approximately
      $60 million) from a subsidiary of News Corporation. No amounts have been drawn
      under this facility.




As
      of
      December 31, 2007, we had cash and cash equivalents totaling $663.5 million.
      Our
      accumulated cash is being held with the intention of using it for the future
      development of the business and there are currently no plans to pay any
      dividends to shareholders. We believe that we have sufficient working capital
      resources for our present requirements. Our internally generated funds are
      dependent on the continued profitability of our business.




The
      principal uses of cash that affect the Company’s liquidity position include
      purchases of smart cards, operational expenditures, capital expenditures,
      acquisitions and income tax payments.




We
      continue to invest in technical equipment for use in research and development
      and to support our customers. We have received payment from customers in advance
      of delivering the goods or services (deferred income) of approximately
      $217 million as of December 31, 2007 and we expect to utilize cash to meet
      our obligations under our arrangements with our customers. We have evaluated,
      and expect to continue to evaluate, possible acquisitions and dispositions
      of
      certain businesses. Such transactions may be material and may involve cash,
      our
      securities and/or the assumption of indebtedness.




Page
          21


***Sources
      and Uses of Cash***




We
      had a
      net inflow of cash and cash equivalents of $64.6 million in the six-month period
      ended December 31, 2007, compared to a net outflow of cash and cash equivalents
      (before purchases of short-term investments) of $26.1 million in the six-month
      period ended December 31, 2006, due to lower payments in respect of business
      acquisitions and an increase in net cash provided by operating
      activities.




Net
      cash
      provided by operating activities was as follows:




**For
                the six months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**Net
                cash provided by operating activities
            
            $
            75,069
            
            $
            59,399





The
      increase in net cash provided by operating activities in the six-month period
      ended December 31, 2007 as compared to the corresponding period of the prior
      fiscal year reflects higher receipts from customers and higher interest
      receipts. These factors were offset in part by higher payments relating to
      the
      purchase of smart cards and higher payroll costs, travel expenses and rent
      and
      facilities costs, as a result of an increase in the number of employees, and
      higher income tax payments.




Net
      cash
      used in investing activities was as follows:




**For
                the six months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**Capital
                expenditure
            
            $
            6,700
            
            $
            10,120Business
                acquisitions, net of cash acquired
            
            
            10,422
            
            
            80,519Deferred
                payments in respect of business acquisitions
            
            
            115
            
            
            1,937Short-term
                investments, net
            
            
            ─
            
            
            18,986Net
                cash used in investing activities
            
            $
            17,237
            
            $
            111,562





In
      the
      six-month period ended December 31, 2007, we acquired CastUp Inc., a provider
      of
      solutions for the hosting, management and distribution of video over the
      Internet, for initial consideration of $10.4 million. In the six-month period
      ended December 31, 2006, we acquired Jungo for cash consideration and costs
      totaling $77.5 million, net of cash acquired. In the six-month period ended
      December 31, 2006, we also acquired Interactive Television
      Entertainment ApS for consideration of $3.0 million.




Capital
      expenditure was $6.7 million in the six-month period ended December 31,
      2007 as compared to $10.1 million in the corresponding period of the
      previous fiscal year, primarily because payments for capital expenditure in
      the
      six-month period ended December 31, 2006 included investments in new
      facilities.




During
      the six-month period ended December 31, 2006, we invested $19.0 million in
      short-term investments (cash deposits with an initial term of more than six
      months). These cash deposits matured during the fiscal year ended June 30,
      2007
      and we did not reinvest such funds as longer-term deposits because the
      differential in interest rates between longer- and shorter-term deposits was
      negligible.




Net
      cash
      generated by financing activities was as follows:




**For
                the six months ended**
              **December
                31,**(in
                thousands)
            
            **2007**
            
            **2006**Issuance
                of shares
            
            $
            5,888
            
            $
            5,245Excess
                tax benefits realized on shares issued as a result of equity compensation
                awards
            
            
            848
            
            
            1,790Net
                cash generated by financing activities
            
            $
            6,736
            
            $
            7,035





Page
          22


During
      the six-month period ended December 31, 2007, we issued 329,636 of our Series
      A
      ordinary shares, par value $0.01 per share (“Series A Ordinary Shares”) to
      certain of our employees as a result of the exercise of stock options over
      Series A Ordinary Shares for cash. This compares to 326,078 Series A Ordinary
      Shares which we issued in the corresponding period of the previous fiscal year.
      Certain shares issued as a result of equity compensation awards result in a
      tax
      benefit higher than the amounts recorded in the consolidated statement of
      operations. Such excess tax benefits are shown as a financing cash flow to
      the
      extent that they are realized.




***Commitments
      and Contractual Obligations***




In
      connection with our acquisition of Jungo in December 2006, additional
      consideration of up to $17.0 million was payable in cash if Jungo achieved
      certain revenue and profitability targets during the year ended December 31,
      2007. However, those revenue and profitability targets were not met during
      the
      year ended December 31, 2007. Therefore, we were not required to pay any
      additional consideration.




Other
      than disclosed elsewhere in this Quarterly Report, our commitments have not
      changed significantly from disclosures included in the our Annual Report on
      Form
      10-K for the fiscal year ended June 30, 2007 filed with the SEC on August 29,
      2007.




**Item
      3.**  **Quantitative
      and Qualitative Disclosures about Market Risk**




We
      are
      exposed to changes in foreign exchange rates. We operate in international
      markets and have an operational presence in several countries. Accordingly,
      our
      costs and revenue are primarily denominated in a mixture of U.S. dollars,
      Israeli shekels, pounds sterling and euros.




Approximately
      51% of our revenue was denominated in currencies other than the U.S. dollar,
      principally pounds sterling and euros, during the six-month period ended
      December 31, 2007. We estimate that the weaker U.S. dollar favorably
      impacted our total revenue for the six-month period ended December 31, 2007
      by approximately $17 million, or 4%, compared to what would have been achieved
      had foreign exchange rates been consistent with those prevailing during the
      six-month period ended December 31, 2006. For the three-month period ended
      December 31, 2007, we estimate that the weaker U.S. dollar favorably
      impacted revenue by approximately $9 million, or 4%.




Approximately
      72% of our total expenses was denominated in currencies other than the U.S.
      dollar, principally pounds sterling, Israeli shekels, euros and Indian rupees,
      during the six-month period ended December 31, 2007. We estimate that the
      weaker U.S. dollar increased our total expenses in the six-month period ended
      December 31, 2007 by approximately $14 million, or 4%, compared to what
      would have been achieved had foreign exchange rates been consistent with those
      prevailing during the six-month period ended December 31, 2006. For the
      three-month period ended December 31, 2007, we estimate that the weaker U.S.
      dollar adversely impacted expenses by approximately $8 million, or
      5%.




As
      a
      result of fluctuations in foreign exchange rates, we experienced net gains
      on
      cash holdings of $6.2 million in the six-month period ended December 31, 2007,
      of which a gain of approximately $8.1 million was recorded within operating
      expenses, and a loss of approximately $1.9 million was recorded within other
      comprehensive income.




We
      estimate that the weaker U.S. dollar increased our operating income in the
      three- and six-month period ended December 31, 2007 by approximately $4 million
      and $11 million, respectively, compared to what would have been achieved
      had foreign exchange rates been consistent with those prevailing during the
      three- and six-month periods ended December 31, 2006.




As
      of
      December 31, 2007, approximately 73% of our cash was held in U.S. dollars,
      13%
      in pounds sterling and 4% in Israeli shekels, with most of the remaining balance
      held in euros. Our policy is to hold cash in U.S. dollar bank deposits and
      to
      hold cash in other currencies to the extent that our cash flow projections
      indicate that we have need for those other currencies. Where we require other
      currencies or identify a surplus of non-U.S. dollar cash balances, we may make
      purchases or sales on the spot market. Historically, we have not entered into
      free-standing derivative contracts to hedge foreign exchange exposure arising
      from operating activities. We expect to review this policy from time to time
      as
      circumstances change. We had no derivative instruments outstanding as of
      December 31, 2007. Part of our cash holdings in currencies other than the U.S.
      dollar serves to limit the impact on changes in exchange rates on our forecast
      operating income and net income, but, as a consequence, introduces an element
      of
      exposure to movements in foreign exchange rates in respect of cash
      balances.




Page
          23


Our
      cash
      holdings are in excess of our immediate operating requirements; therefore,
      we
      are exposed to changes in market interest rates on cash deposits. We estimate
      that a decline in market interest rates available for cash deposits of one
      percentage point would decrease our annual interest income by approximately
      $6.6
      million.




**Item
      4.**  **Controls
      and Procedures**




**a)
      Disclosure Controls and Procedures**




The
      Company’s management, with the participation of the Company’s Chairman and Chief
      Executive Officer and Chief Financial Officer, has evaluated the effectiveness
      of the Company’s disclosure controls and procedures (as such term is defined in
      Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934,
      as
      amended (the “Exchange Act”)) as of the end of the period covered by this
      quarterly report. Based on such evaluation, the Company’s Chairman and Chief
      Executive Officer and Chief Financial Officer have concluded that, as of the
      end
      of such period, the Company’s disclosure controls and procedures were effective
      in recording, processing, summarizing and reporting, on a timely basis,
      information required to be disclosed by the Company in the reports that it
      files
      or submits under the Exchange Act and were effective in ensuring that
      information required to be disclosed by the Company in the reports it files
      or
      submits under the Exchange Act is accumulated and communicated to the Company’s
      management, including the Company’s Chairman and Chief Executive Officer and
      Chief Financial Officer, as appropriate to allow timely decisions regarding
      required disclosure.




**b)
      Internal Control over Financial Reporting**




There
      has
      been no change in the Company’s internal control over financial reporting (as
      such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange
      Act)
      during the Company’s second quarter of fiscal 2008 that has materially affected,
      or is reasonably likely to materially affect, the Company’s internal control
      over financial reporting.




Page
          24


**PART
      II - Other Information**




**Item
      1.****Legal
      Proceedings**




See
      Note
      8a to the accompanying unaudited consolidated financial statements, which is
      incorporated herein by reference.




**Item
      1A.**  **Risk
      Factors**




Prospective
      investors should consider carefully the risk factors set out below before making
      an investment in the Company’s securities.




***Our
      business will suffer if we do not respond to commercial and technological
      changes affecting the broadcasting industry.***




Our
      business and the market in which we operate are characterized by rapid
      commercial and technological change, evolving industry standards and frequent
      product enhancements. Many digital broadcasters are seeking more sophisticated
      software that will afford them greater flexibility in delivering content such
      as
      news, films and sports. They are also seeking to offer additional services,
      such
      as middleware, EPGs, games, gaming and other interactive applications, DVR
      functionality, home networking and other services.




Our
      continued success will depend, in part, upon our ability to develop and market
      products and services that respond to technological changes and evolving
      industry standards in a timely and cost-effective manner. If the market in
      which
      we operate develops more slowly than we anticipate, or if we should fail to
      develop and introduce products and services that are compatible with industry
      standards, satisfy customer requirements and compete effectively with products
      and services offered by our competitors, our business, operating results and
      financial condition could be materially adversely affected.




***Our
      business may suffer if we and our customers do not respond to commercial and
      technological changes affecting the business of delivering information and
      entertainment, especially the threat of the Internet and broadband and IPTV
      technologies.***




Our
      customers are mainly pay-television platform operators. As technologies develop,
      other means of delivering information and entertainment to consumers’
televisions are evolving. In particular, telecommunication companies and
      Internet service providers are competing with traditional television companies.
      Cable television and mobile telephone companies are now also marketing packages
      that combine television, telephone and high-speed Internet access to consumers.
      As a result, our largest customers are facing increased competition that could
      affect their ability to attract and retain subscribers. If we and our customers
      do not address these commercial and technological changes, our business,
      operating results and financial condition could be materially adversely
      affected.




***Our
      operating results and growth could decline if our customers’ subscriber bases do
      not continue to increase.***




A
      significant portion of our revenue is derived from the sale of smart cards
      to
      our customers and ongoing fees paid by our customers on a monthly basis based
      on
      the number of active subscribers or authorized smart cards. We also receive
      royalties based on each set-top box manufactured or deployed that incorporates
      our technologies. Therefore, a significant portion of our revenue is dependent
      upon our customers’ subscriber numbers, the growth in subscriber and set-top box
      numbers, the degree to which set-top boxes are replaced with enhanced models
      and
      the number of set-top boxes in each subscriber’s home. If our customers’
subscriber numbers do not continue to increase, we may be unable to generate
      substantial revenue growth or sustain our current revenue levels and, as a
      consequence, our business, operating results and financial condition could
      be
      materially adversely affected.




***Our
      business could be harmed if the security provided by our conditional access
      systems and products is compromised.***




We
      face
      risks relating to the failure of our conditional access systems to protect
      platform operators and content providers from signal theft. An important
      component of our conditional access systems is the smart cards we provide for
      the platform operators’ individual subscribers. Unauthorized viewing and use of
      content may be accomplished by counterfeiting the smart card or otherwise
      thwarting its security features. Any significant increase in the incidence
      of
      signal theft could require the replacement of a platform operator’s smart cards
      sooner than otherwise planned. In those cases where we have accepted specific
      responsibilities for maintaining the security of a platform operator’s
      conditional access system, significant costs could be imposed on us if a
      security breach requires an accelerated replacement of smart cards. To the
      extent that signal theft may result in the cessation of all, or some portion
      of,
      the per-subscriber fees paid to us by a broadcaster while the security breach
      is
      being remedied or, in the event of termination by the broadcaster of our
      agreement if the breach is not satisfactorily remedied, the resultant loss
      of
      revenue could have a material adverse effect on our business, operating results
      and financial condition. A significant increase in the level of signal theft,
      whether or not resulting from a failure of our conditional access systems,
      could
      also injure the reputation of our conditional access systems among our customers
      and potential customers and as a consequence, our business, operating results
      and financial condition could be materially adversely affected.




Page
          25


***A
      substantial part of our expected future revenue and income growth is based
      on
      our aim to sell advanced technologies and services to our existing customers
      and
      to sell end-to-end systems to new customers.***




We
      expect
      over the next several years to sell advanced technology solutions for the
      television market, including DVR functionality, games, gaming and other
      interactive applications, home networks services and other services. The market
      for advanced television technology solutions is still new and evolving.
      Historically, we have derived only a relatively small percentage of our total
      revenue from these offerings. We cannot be certain that the demand for or the
      market acceptance of these technologies will develop as we anticipate, and
      even
      if they do, we cannot be certain that we will be able to market these solutions
      effectively and successfully respond to changes in consumer preferences. In
      addition, our ability to market those solutions will be affected to a large
      degree by platform operators. If platform operators determine that our solutions
      do not meet their business or operational expectations, they may choose not
      to
      offer our applications to their customers. To the extent that platform operators
      and content providers fail to renew or enter into new or expanded contracts
      with
      us for provision of advanced technologies, we will be unable to maintain or
      increase the associated revenue from those offerings. Moreover, due to global
      economic conditions, platform operators may slow the pace of their deployment
      of
      these advanced services and such action would negatively impact our revenue.
      Accordingly, our ability to generate substantial revenue from our advanced
      technology solutions offerings is uncertain.




***Our
      business could be harmed if a defect in our software or technology interferes
      with, or causes any failure in, our customers’
systems.***




Our
      software and technology are integrated into the broadcast infrastructure of
      our
      customers. As a result, any defect, error or performance problem with our
      software or technology could interfere with a critical component of one or
      more
      of our customers’ systems, or potentially cause a critical component of one or
      more of our customers’ systems to fail for a period of time. This could result
      in claims for substantial damages against us, regardless of whether we are
      responsible for such failure. Any claim brought against us could be expensive
      to
      defend and require the expenditure of a significant amount of resources,
      regardless of whether we prevail. Although we have not experienced any such
      material interference or failure in the past, any future problem could cause
      severe customer service and public relations problems for our customers and
      as a
      consequence, our business, operating results and financial condition could
      be
      materially adversely affected.




***We
      depend upon key personnel, including our senior executives and technical and
      engineering staff, to operate our business effectively, and we may be unable
      to
      attract or retain such personnel.***




Our
      future success depends largely upon the continued service of our senior
      executive officers and other key management and technical personnel. If certain
      of our senior executives were to leave the Company, we may be placed at a
      competitive disadvantage. In addition, we may also need to increase the number
      of our technical, consulting and support employees to support new customers
      and
      the expanding needs of our existing customers. We have, in the past, experienced
      difficulty in recruiting sufficient numbers of qualified personnel. If we are
      not successful in these recruiting efforts, our business may be adversely
      affected.




***Intense
      competition could reduce our market share and harm our financial
      performance.***




We
      compete with numerous companies both to attract new customers and to retain
      our
      existing customers. Such competition may cause us to lose market share and
      may
      result in reduced profit margins. It may also hinder our ability to develop
      our
      business in areas such as DVRs, middleware, interactive television services
      and
      broadband and IPTV. In addition, some of the companies that currently operate
      in
      the software business, but that have not historically been active competitors
      of
      ours may, in the future, through acquisitions or the development of their own
      resources, seek to enter and obtain significant market share in our current
      or
      planned business areas. Increased competition from existing or new competitors
      could result in price reductions, reduced margins or loss of market share,
      any
      of which could materially and adversely affect our business, operating results
      and financial condition.




Page
          26


***We
      derive a significant portion of our revenue from a limited number*** **of
      large customers. Our revenue could decline significantly if any of these
      customers significantly reduces its purchases of our technology or services
      or
      terminates its relationship with us.**




Our
      growth has depended historically on large digital satellite broadcasters
      introducing, marketing and promoting products and services that utilize our
      technology. We currently derive, and we expect to continue to derive, a
      significant portion of our revenue from a limited number of large customers.
      Our
      three largest customers are DIRECTV, BSkyB and SKY Italia. During the six-month
      period ended December 31, 2007, these three customers accounted directly and
      indirectly for approximately 65% of our total revenue. News Corporation, which
      holds approximately 72% holder of our total and issued outstanding share
      capital, currently owns approximately 41%, 39% and 100% of DIRECTV, BSkyB and
      SKY Italia, respectively. In December 2006, News Corporation announced that
      it
      entered into an agreement with Liberty Media Corporation, which, if consummated,
      would result in News Corporation no longer owning its shares in DIRECTV. The
      agreement received the requisite approval by the stockholders of News
      Corporation in April 2007 but remains subject to regulatory approval. News
      Corporation has announced that it expects the transaction to be completed in
      the
      first quarter of the 2008 calendar year. We have a number of contracts with
      DIRECTV, its subsidiaries and affiliates, covering the supply of conditional
      access, middleware and DVR technologies, which expire at various dates through
      2013 and which contain various terms covering renewal and termination. We expect
      to continue to be dependent upon a limited number of customers for a significant
      portion of our revenue, although the particular customers may vary from period
      to period. If a large customer purchases significantly less of our products
      or
      services, defers or cancels orders, or fails to renew or terminates its
      relationship with us or renews with us on less favorable terms, our revenue
      could decline significantly and as a result, our business, operating results
      and
      financial condition could be materially adversely affected.




***The
      nature of our business is such that our operating results may fluctuate from
      period to period.***




Our
      operating results have varied in the past from quarter to quarter and from
      year
      to year and are likely to vary from period to period in the future.
      Historically, our revenue has reflected a small number of relatively large
      orders for our technology and services, which generally have long sales and
      order cycles. Additionally, our customers may replace their subscribers’ smart
      cards from time to time to maintain the security of their conditional access
      systems and this significantly affects our revenue in periods when we supply
      such replacement smart cards. As a result, we believe that period-to-period
      comparisons of our operating results may not be a good indication of our future
      performance. Our actual results may differ from expectations, which could
      adversely affect the price of our securities.




***Changes
      to current accounting policies or in how such policies are interpreted or
      applied to our business could have a significant effect on our financial
      results.***




New
      accounting pronouncements, or a change in how U.S. generally accepted accounting
      principles (“GAAP”) are interpreted or applied to our business, could have a
      significant effect on our financial results. Our accounting policies that
      recently have been or may in the future be affected by changes in the accounting
      rules include revenue recognition, accounting for income taxes and accounting
      for goodwill and other intangible assets.




Our
      revenue recognition policy, in particular, is a key component of our results
      of
      operations and is based on complex rules that require us to make judgments
      and
      estimates. In applying our revenue recognition policy, we must determine what
      portions of our revenue are recognized currently and which portions must be
      deferred. Because different contracts may require different accounting
      treatment, it may be difficult for investors to properly assess our financial
      condition or operating results unless they carefully review all of our financial
      information, including our consolidated financial statements and notes
      thereto.




***Failure
      to protect the intellectual property rights upon which we depend could harm
      our
      business.***




We
      rely
      primarily on a combination of patent, trademark and copyright laws, trade
      secrets, confidentiality procedures and contractual provisions to protect our
      intellectual property rights and the obligations we have to third parties from
      whom we license intellectual property rights. However, we may not be able to
      detect unauthorized use of, or take appropriate steps to enforce, our
      intellectual property rights and this could have a material adverse effect
      on
      our business, operating results and financial condition.




***Defending
      against intellectual property infringement claims could harm our
      business.***




We
      may be
      subject to an increased risk of infringement claims as the number of products
      and competitors grows and the functionality of products in different industry
      segments overlaps. It may be alleged that products that we have developed or
      technology that we have licensed from third parties infringes the rights of
      others. Intellectual property claims could be time consuming to defend, result
      in costly litigation, divert management’s attention and resources and cause
      product shipment delays. Such claims could also require us to seek to enter
      into
      royalty or license agreements, redesign our products or potentially cease using
      aspects of technology, which could have a material adverse effect on our
      business, operating results and financial condition.




Page
          27


We
      grant
      certain indemnification rights to our customers when we license our software
      technologies. We may, therefore, become subject to third-party infringement
      claims through those commercial arrangements. In addition, the damages to which
      we are subject may be increased by the use of our technologies in our customers’
products.




Many
      of
      our agreements with customers contain an indemnification obligation, which
      could
      be triggered in the event that a customer is named in an infringement suit
      involving their products or involving the customer’s products or services that
      incorporate or use our products. If it is determined that our products infringe
      as alleged in any of the asserted claims in such a suit, we may be prevented
      from distributing certain of our products and we may incur significant
      indemnification liabilities, which may adversely affect our business, operating
      results and financial condition.




In
      addition, while damage claims in respect of an alleged infringement may, in
      many
      cases, be based upon a presumed royalty rate to which the patent holder would
      have otherwise been entitled, it is possible that our liability may increase
      as
      a result of the incorporation of our technology with our customer’s products. In
      some cases, potential damages payable by us could be based on the profits
      derived by our customers from a product that infringes through the use of our
      software even though we receive a relatively moderate economic benefit from
      the
      licensing arrangement.




***Any
      significant disruption in our processing of smart cards could adversely affect
      our business.***




We
      process all of our smart cards at two facilities, one located in the United
      Kingdom and the other in the United States. A significant disruption in the
      processing of smart cards at either facility could result in delays in the
      delivery of smart cards to our customers. The sale of smart cards that we have
      processed is a material portion of our business. Although our smart card
      processing facilities are designed to provide sufficient capacity to meet
      expected demand if one facility becomes inoperable for a limited period of
      time,
      any significant disruption to our smart card processing facilities could result
      in the loss of revenue, customers and future sales.




***We
      may be unable to process sufficient quantities of smart cards because we obtain
      certain components from, and depend upon, a limited number of
      suppliers.***




We
      currently obtain the computer chips used in our smart cards from a limited
      number of suppliers. In the event of a disruption of supply, including a
      shortage of manufacturing capacity, we may be unable to develop an alternative
      source in a timely manner or at favorable prices. Such failure could harm our
      ability to deliver smart cards to our customers or could negatively affect
      our
      operating margins. This could have a material adverse effect on our business,
      operating results and financial condition.




***Political,
      regulatory and economic risks associated with our international customers could
      harm our business.***




Our
      customers are located throughout the world. Inherent risks of doing business
      in
      international markets include changes in legal and regulatory requirements,
      export restrictions, exchange controls, tariffs and other trade barriers, longer
      payment cycles, political disruption, wars, acts of terrorism and civil unrest.
      We may incur substantial expense as a result of the imposition of new
      restrictions or changes in the existing legal and regulatory environments in
      the
      territories where we conduct our business or due to political and economic
      instability in these territories.




The
      telecommunications, media, broadcast, cable television and gaming and gambling
      industries are subject to extensive regulation by governmental agencies. These
      governmental agencies continue to oversee and adopt legislation and regulation
      over these industries, particularly in the areas of user privacy, consumer
      protection, online content distribution and the characteristics and quality
      of
      online products and services, which may affect our business, the development
      of
      our products, the decisions by market participants to adopt our products and
      services or the acceptance of interactive television by the marketplace in
      general. In particular, governmental laws or regulations restricting or
      burdening the exchange of personally identifiable information could delay the
      implementation of interactive services or create liability for us or any other
      manufacturer of software that facilitates information exchange. These
      governmental agencies may also seek to regulate interactive television directly.
      Future developments relating to any of these regulatory matters may adversely
      affect our business.




A
      portion
      of our business involves the licensing of software used to conduct betting
      and
      gaming applications. The regulation of the gambling industry is complex,
      intensive and constantly changing. The adoption or modification of laws or
      regulations relating to Internet gambling in various jurisdictions could
      adversely affect the manner in which we currently conduct this portion of our
      business.




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          28


***Fluctuations
      in foreign exchange rates could harm our financial
      condition.***




A
      risk
      inherent in our international operations is the exposure to fluctuations in
      currency exchange rates. In the six-month period ended December 31, 2007,
      approximately 51% of our revenue and approximately 72% of our total expenses
      were denominated in currencies other than the U.S. dollar. Additionally, as
      of
      December 31, 2007, approximately 27% of our cash balances were denominated
      in
      currencies other than the U.S. dollar. As a result, we are exposed to
      fluctuations in foreign exchange rates that may have a material adverse effect
      on our business, operating results and financial condition.




Additionally,
      although most of our contracts with customers in Latin America, India and the
      Asia-Pacific region are denominated in U.S. dollars, those customers are
      affected by fluctuations in their local currencies and by exchange control
      regulations that may restrict their ability to remit payments to
      us.




***We
      are subject to certain risks relating to our operations in
      Israel.***




We
      have
      research and development facilities in Israel and we have customers in Israel.
      Therefore, we are directly influenced by the political, economic and security
      conditions affecting Israel. Any major hostilities involving Israel, or the
      interruption or curtailment of trade or the movement of people within Israel
      or
      between Israel and other countries, could significantly harm our business,
      operating results and financial condition. Additionally, certain of our
      employees are currently required to perform annual reserve duty in the Israeli
      Defense Force, and are subject to being called for active military duty at
      any
      time. We have, in the past, operated effectively under these requirements.
      We
      cannot predict the effect of these obligations on us in the future.




***We
      are controlled by, and are dependent upon our relationship with, News
      Corporation.***




We
      are
      controlled by News Corporation. As of December 31, 2007, News Corporation
      beneficially owned approximately 72% of our total issued and outstanding share
      capital. Because News Corporation beneficially owns 100% of our Series B
      ordinary shares, par value $0.01 per share (“Series B Ordinary Shares”), which
      have ten votes per share (as opposed to our Series A Ordinary Shares, which
      have
      one vote per share), it controls approximately 96% of our voting power. By
      reason of such ownership, News Corporation is able to control the composition
      of
      our entire Board of Directors and to control the votes on all other matters
      submitted to a vote of our shareholders. Four of our seven current Directors
      have been appointed by News Corporation, including Dr. Abe Peled, our Chairman
      and Chief Executive Officer, who from time to time is involved in matters
      pertaining to News Corporation’s wider business interests.




Businesses
      in which News Corporation has an interest currently account for, and are
      expected to continue to account for, a significant portion of our revenue.
      During the six-month period ended December 31, 2007, approximately 73% of our
      total revenue were derived directly from businesses in which News Corporation
      has an interest. Those businesses include our three largest customers. Although
      we believe the terms of our contracts with such related parties are no less
      favorable to us than those that we could obtain from unrelated third parties,
      we
      cannot assure you that this is the case.




In
      addition, because a number of major broadcasters around the world are owned
      or
      controlled by entities that compete with News Corporation or entities in which
      News Corporation has an interest, our ability to attract customers in which
      News
      Corporation does not have an interest may be affected by their perception of
      our
      relationship with News Corporation.




***Because
      we are controlled by News Corporation, we are exempt from certain listing
      requirements of The*** **NASDAQ
      Stock Market relating to corporate governance matters.**




Over
      the
      past several years, the National Association of Securities Dealers has adopted
      certain listing requirements for companies listed on The NASDAQ Stock Market.
      As
      a result of News Corporation’s beneficial ownership of our Series B Ordinary
      Shares, we are deemed to be a “controlled company” and accordingly are not
      subject to some of these requirements, including the requirement that a majority
      of our Board of Directors be “independent” under the guidelines established by
      the National Association of Securities Dealers and certain requirements
      regarding the determination of our Chairman and Chief Executive Officer’s
      compensation and our director nominees. While we do not believe that our
      exemption from those requirements affects the manner and method by which we
      manage and operate the Company, investors should be aware that we are not
      subject to those provisions and may have no obligation to comply with those
      requirements in the future unless our ownership profile changes.




Page
          29


***Since
      we are a public limited company organized under the laws of England and Wales,
      your rights as a shareholder differ from the rights of shareholders under U.S.
      law.***




NDS
      Group
      plc is a public limited company organized under the laws of England and Wales.
      The rights of holders of our ordinary shares and, indirectly, many of the rights
      of holders of our American Depositary Shares (“ADSs”) are governed by English
      law and by our Memorandum and Articles of Association. These rights differ
      from
      the rights of shareholders in U.S. companies. In particular, English law
      significantly limits the circumstances under which shareholders of English
      companies may bring derivative actions. Under English law generally, only the
      Company can be the proper plaintiff in proceedings in respect of wrongful acts
      committed against us. In addition, it may be difficult for you to enforce
      liabilities predicated upon U.S. securities laws.




***Our
      share price could be affected by our ordinary shares becoming available for
      sale
      in the future or by the dilutive effect of the issue of new
      shares.***




If
      investors or News Corporation sell substantial amounts of our ADSs or ordinary
      shares in the public market, the market price of our ADSs could fall. The
      negative effect of such sales on the market price of our ADSs could be more
      pronounced given the relatively small number of our ordinary shares in ADS
      form
      relative to the total number of shares outstanding. In addition, such sales
      could create the public perception of difficulties or problems with our
      technologies and services. These sales may also make it more difficult for
      us to
      sell equity or equity-related securities in the future at a time and price
      that
      we deem appropriate if we require additional financing.




Interests
      of existing shareholders may also be diluted due to the existence of stock
      options granted to certain employees and any equity awards that we may grant
      to
      our Directors, executive officers and employees in the future.




**Item
      2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**




Not
      applicable.




**Item
      3.**  **Defaults
      upon Senior Securities**




Not
      applicable.




**Item
      4.****Submission
      of Matters to a Vote of Security Holders**




The
      Company held its Annual General Meeting of Shareholders (the “Annual Meeting”)
      on October 26, 2007. A brief description of the matters voted upon at the Annual
      Meeting and the results of the voting on such matters is set forth
      below:




*Proposal
      1*




A
      proposal to approve the Company’s U.K. Annual Report and Financial Statements
      for the year ended June 30, 2007 was voted upon as follows:




For:
            
            
            432,601,532Against:
            
            
            3,392,355Abstain:
            
            
            2,221




*Proposal
      2*




A
      proposal to approve the Directors’ Remuneration Report for the year ended June
      30, 2007 was voted upon as follows:


For:
              
              
              432,588,035Against:
              
              
              3,403,773Abstain:
              
              
              4,310
  Page
            30
 *Proposal
        3*




A
      proposal to ratify the appointment of Ernst & Young LLP as the Company’s
      independent registered public accounting firm for the fiscal year ending June
      30, 2008 and to authorize the Audit Committee of the Company’s Board of
      Directors to determine remuneration in respect of such period was voted upon
      as
      follows:




For:
              
              
              435,984,198Against:
              
              
              5,920Abstain:
              
              
              6,000




*Proposal
      4*




A
      proposal to re-appoint Peter J. Powers as a Director was voted upon as
      follows:


For:
              
              
              432,592,143Withhold
                Authority:
              
              
              3,403,975




**Item
      5.****Other
      Information**




Not
      applicable.




**Item
      6.****Exhibits**




12.
            Computation
                of Ratio of Earnings to Fixed
                Charges




31.1
            Chairman
                and Chief Executive Officer Certification required by Rules 13a-14(a)
                and
                15d-14(a) of the Securities Exchange Act of 1934, as amended (the
                “Exchange Act”)




31.2
            Chief
                Financial Officer Certification required by Rules 13a-14(a) and 15d-14(a)
                of the Exchange Act




32
            Certification
                of Chairman and 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




Page
          31


**Signatures**




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




NDS
              GROUP
              PLC(Registrant)By:
            /s/ Alexander
              GershAlexander
              GershChief
              Financial Officer




Date: January
      29, 2008




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        32