**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 September 30, 2007**





**or**





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





**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**  **x** **No**  **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 x** **** **Accelerated
        filer o** **Non-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
      October 25, 2007, the following shares were outstanding: 15,908,295 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 months ended
                September
                30, 2007 and 2006
            1Consolidated
                Balance Sheets as of September 30, 2007 (unaudited) and June 30,
                2007
            2Unaudited
                Consolidated Statements of Cash Flows for the three months ended
                September
                30, 2007 and 2006
            3Notes
                to the Unaudited Consolidated Financial Statements
            4Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            12Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            20Item
                4.
            Controls
                and Procedures
            20**PART
                II – Other Information**Item
                1.
            Legal
                Proceedings
            21Item
                1A.
            Risk
                Factors
            21Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            26Item
                3.
            Defaults
                upon Senior Securities
            26Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            26Item
                5.
            Other
                Information
            26Item
                6.
            Exhibits
            26Signatures
            27









**PART
      I – Financial Information**




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




**NDS
      Group plc**


**Unaudited
      Consolidated Statements of Operations**




**For the three months ended**
              **September 30,**(in
                thousands, except per-share amounts)
            
            **2007**
            
            **2006****Revenue:**Conditional
                access
            
            $
            121,583
            
            $
            92,847Integration,
                development & support
            
            
            10,909
            
            
            18,412License
                fees & royalties
            
            
            28,944
            
            
            24,350New
                technologies
            
            
            42,458
            
            
            27,499Other
            
            
            982
            
            
            1,054Total
                revenue
            
            
            204,876
            
            
            164,162Cost
                of goods and services sold
            
            
            (68,456
            )
            
            (62,235
            )**Gross
                margin**
            
            
            136,420
            
            
            101,927**Operating
                expenses:**Research
                & development
            
            
            (51,011
            )
            
            (34,666
            )Sales
                & marketing
            
            
            (9,620
            )
            
            (7,977
            )General
                & administration
            
            
            (14,220
            )
            
            (12,277
            )Amortization
                of other intangibles
            
            
            (3,283
            )
            
            (2,417
            )Total
                operating expenses
            
            
            (78,134
            )
            
            (57,337
            )**Operating
                income**
            
            
            58,286
            
            
            44,590Interest
                income – net
            
            
            7,372
            
            
            6,012Income
                before income tax expense
            
            
            65,658
            
            
            50,602Income
                tax expense
            
            
            (19,364
            )
            
            (15,514
            )**Net
                income**
            
            $
            46,294
            
            $
            35,088**Net
                income per share:**Basic
                net income per share
            
            $
            0.80
            
            $
            0.62Diluted
                net income per share
            
            $
            0.79
            
            $
            0.61




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**
              **September 30,**
              **2007**
              **(Unaudited)**
            
            **As of**
              **June 30,**
              **2007**
              **(See Note 2)****ASSETS****Current
              assets:**Cash
                and cash equivalents
            
            $
            622,167
            
            $
            592,750Accounts
                receivable, net (inclusive of $86,377 and $89,711 due from related
                parties)
            
            
            131,550
            
            
            134,624Accrued
                income
            
            
            48,930
            
            
            40,605Inventories,
                net
            
            
            58,535
            
            
            54,133Prepaid
                expenses
            
            
            22,709
            
            
            19,415Other
                current assets
            
            
            3,530
            
            
            3,926Total
                current assets
            
            
            887,421
            
            
            845,453Property,
                plant & equipment, net
            
            
            53,487
            
            
            54,801Goodwill
            
            
            132,716
            
            
            124,614Other
                intangibles, net
            
            
            64,557
            
            
            63,080Other
                non-current assets
            
            
            67,423
            
            
            56,905**Total
                assets**
            
            $
            1,205,604
            
            $
            1,144,853**LIABILITIES
                AND SHAREHOLDERS’ EQUITY****Current
              liabilities:**Accounts
                payable (inclusive of $4,478 and $2,165 due to related
                parties)
            
            $
            25,700
            
            $
            22,110Deferred
                income
            
            
            84,648
            
            
            75,777Accrued
                payroll costs
            
            
            21,898
            
            
            31,186Accrued
                expenses
            
            
            37,683
            
            
            37,473Income
                tax liabilities
            
            
            28,361
            
            
            17,693Other
                current liabilities
            
            
            21,758
            
            
            18,287Total
                current liabilities
            
            
            220,048
            
            
            202,526Deferred
                income
            
            
            139,424
            
            
            157,517Other
                non-current liabilities
            
            
            53,196
            
            
            46,537**Total
                liabilities**
            
            
            412,668
            
            
            406,580Commitments
                and contingencies**Shareholders’
                equity:**Series
                A ordinary shares, par value $0.01 per share: 48,000,000 shares
                authorized; 15,829,189 and 15,718,904 shares outstanding as of September
                30, and June 30, 2007, respectively
            
            
            158
            
            
            157Series
                B ordinary shares, par value $0.01 per share: 52,000,000 shares
                authorized; 42,001,000 shares outstanding as of September 30, and
                June 30,
                2007, respectively
            
            
            420
            
            
            420Deferred
                shares, par value £1 per share: 42,000,002 shares authorized and
                outstanding as of September 30, and June 30, 2007
            
            
            64,103
            
            
            64,103Additional
                paid-in capital
            
            
            568,059
            
            
            563,388Retained
                earnings
            
            
            102,400
            
            
            56,106Other
                comprehensive income
            
            
            57,796
            
            
            54,099**Total
                shareholders’ equity**
            
            
            792,936
            
            
            738,273**Total
                liabilities and shareholders’ equity**
            
            $
            1,205,604
            
            $
            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 three months ended**
              **September 30,**(in
                thousands)
            
            **2007**
            
            **2006****Operating
                activities:**Net
                income
            
            $
            46,294
            
            $
            35,088Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
            
            
            5,652
            
            
            4,376Amortization
                of other intangibles
            
            
            3,283
            
            
            2,417Equity-based
                compensation
            
            
            4,311
            
            
            2,315Other
            
            
            97
            
            
            176Change
                in operating assets and liabilities, net of acquisitions:Inventories
            
            
            (4,402
            )
            
            (6,978
            )Receivables
                and other assets
            
            
            (18,244
            )
            
            (29,538
            )Deferred
                income
            
            
            (9,222
            )
            
            8,627Accounts
                payable and other liabilities
            
            
            9,016
            
            
            (8,205
            )Net
                cash provided by operating activities
            
            
            36,785
            
            
            8,278**Investing
                activities:**Capital
                expenditure
            
            
            (3,470
            )
            
            (4,050
            )Short-term
                investments
            
            
            ─
            
            
            (102,352
            )Business
                acquisitions, net of cash acquired
            
            
            (10,374
            )
            
            (3,634
            )Net
                cash used in investing activities
            
            
            (13,844
            )
            
            (110,036
            )**Financing
                activities:**Issuance
                of shares (inclusive of realized excess tax benefits of $79 and
                $27)
            
            
            388
            
            
            634**Net
                increase (decrease) in cash and cash equivalents**
            
            
            23,329
            
            
            (101,124
            )Cash
                and cash equivalents, beginning of period
            
            
            592,750
            
            
            320,636Currency
                exchange movements
            
            
            6,088
            
            
            336**Cash
                and cash equivalents, end of period**
            
            $
            622,167
            
            $
            219,848




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-month period ended
      September 30, 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 will be 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 September 30, 2007 and September
      30,
      2006 relate to the three-month periods ended September 30, 2007 and October
      1, 2006, respectively. For convenience purposes, the Company continues to date
      its financial statements as of September 30.




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. Movement in the accrued balance during
      the three-month period ended September 30, 2007 was 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, as well as the change in the accrual for
      interest for the three-month period ended September 30, 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 years up to 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.




*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.




In
      March
      2007, the Emerging Issues Task Force 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 should be deferred and capitalized. EITF 07-3 requires that such
      amounts should 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 the capitalized advance payment should 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.


Page
          5


**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**
              **September 30,**(in
                thousands)
            
            **2007**
            
            **2006**Net
                income
            
            $
            46,294
            
            $
            35,088Foreign
                currency translation differences (no tax effect)
            
            
            3,697
            
            
            363Comprehensive
                income
            
            $
            49,991
            
            $
            35,451




**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 as such 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**
              **September 30,****2007**
            
            **2006**Weighted
                average number of ordinary shares in issue
            
            
            57,771,456
            
            
            56,889,675Effect
                of dilutive equity awards
            
            
            773,849
            
            
            886,532Denominator
                for dilutive net income per share
            
            
            58,545,305
            
            
            57,776,207




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




(in
                thousands)
            
            **As of**
              **September 30,**
              **2007**
            
            **As of**
              **June 30,**
              **2007**Unprocessed
                smart cards and their components
            
            $
            54,236
            
            $
            51,630Other
                smart card inventory
            
            
            2,391
            
            
            2,476Inventory
                reserves
            
            
            (2,286
            )
            
            (2,434
            )54,341
            
            
            51,672Contract
                work-in-progress
            
            
            4,194
            
            
            2,461Total
                inventories
            
            $
            58,535
            
            $
            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.


Page
          6


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




(in
                thousands)
            
            **As of**
              **September 30,**
              **2007**
            
            **As of**
              **June 30,**
              **2007**Deferred
                security fees
            
            $
            168,476
            
            $
            180,009Advance
                receipts and other deferred income
            
            
            55,596
            
            
            53,285Total
                deferred income
            
            $
            224,072
            
            $
            233,294Included
                within current liabilities
            
            $
            84,648
            
            $
            75,777Included
                within non-current liabilities
            
            
            139,424
            
            
            157,517$
            224,072
            
            $
            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 to
      affiliates and subsidiaries of News Corporation. The principal related parties
      to whom the Company supplied such services are BSkyB, DIRECTV (including its
      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).




Revenue
      recognized from such related parties was as follows:




**For the three months ended**
              **September 30,**(in
                thousands)
            
            **2007**
            
            **2006**Revenue
                from related parties
            
            $
            159,258
            
            $
            132,203




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




(in
                thousands)
            
            **As of**
              **September 30,**
              **2007**
            
            **As of**
              **June 30,**
              **2007**Accounts
                receivable
            
            $
            86,377
            
            $
            89,711Accrued
                income
            
            
            33,185
            
            
            26,854Deferred
                income
            
            
            (180,395
            )
            
            (200,478
            )




Page
          7




**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
      customers. The royalty expense in respect of this related party arrangement
      is
      included within cost of goods and services sold was as follows:




**For
                the three months ended**
              **September
                30,**(in
                thousands)
            
            
            **2007**
            
            
            **2006**Royalties
                payable to related party
            
            $
            842
            
            $
            738




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




(in
                thousands)
            
            **As
                of**
              **September 30,**
              **2007**
            
            **As
                of**
              **June
                30,**
              **2007**Accrued
                expenses
            
            $
            4,395
            
            $
            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**
              **September
                30,**(in
                thousands)
            
            
            **2007**
            
            
            **2006**Administration
                fees charged by related parties
            
            $
            37
            
            $
            59




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**
              **September 30,**
              **2007**
            
            **As
                of**
              **June
                30,**
              **2007**Accounts
                payable
            
            $
            4,478
            
            $
            2,165







**d)
      Other**




The
      Company has a short-term loan facility of £30 million (approximately $61
      million) from a subsidiary of News Corporation. The facility has no expiry
      date
      and no amounts were drawn down as of September 30, 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 $41
      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 September 30, 2007 or June 30, 2007 that would be covered by these
      guarantees.


Page
          8




**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.




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 court has set this case to go to
      trial in February 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. That
      motion is under submission. On October 1, 2007, the petition for Writ of
      Certiorari was denied. The Company believes that Sogecable’s claims are without
      merit and it will continue to vigorously defend itself in this
      matter.




Page
          9




*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 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.




**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.


Page
          10




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




No
      awards
      of equity-based compensation were made in either of the three-month periods
      ended September 30, 2007 or 2006. The following amounts have been recorded
      in
      the consolidated financial statements relating to equity-based
      compensation:




**For
                the three months ended**
              **September
                30,**(in
                thousands, except share amounts)
            
            
            **2007**
            
            
            **2006**Number
                of stock options exercised in period
            
            
            48,798
            
            
            32,061Number
                of conditional awards vested in period, net of statutory tax
                withholdings
            
            
            67,409
            
            
            ─Equity-based
                compensation cost included within the statement of
                operations
            
            $
            4,311
            
            $
            2,315Net
                cash received from exercise of equity-based awards
            
            $
            309
            
            $
            607Excess
                tax benefits derived from equity-based awards
            
            $
            52
            
            $
            27Intrinsic
                value of stock options exercised
            
            $
            1,335
            
            $
            844




As
      of
      September 30, 2007, the total compensation cost related to non-vested equity
      awards not yet recognized was approximately $27.2 million and the period over
      which it is expected to be recognized is 3.1 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 three months ended**
              **September
                30,**(in
                thousands)
            
            **2007**
            
            **2006**Cash
                payments for capital expenditure
            
            $
            (3,531
            )
            $
            (4,077
            )Proceeds
                from sale of property, plant and equipment
            
            
            61
            
            
            27Interest
                received in cash
            
            
            7,381
            
            
            4,245Cash
                payments for income taxes
            
            
            (8,400
            )
            
            (11,076
            )Gross
                purchases of short-term investments
            
            
            ─
            
            
            (102,352
            )




**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**
              **September
                30,**(in
                thousands)
            
            **2007**
            
            **2006**Service
                cost
            
            $
            58
            
            $
            51Interest
                cost
            
            
            335
            
            
            304Expected
                return on plan assets
            
            
            (316
            )
            
            (251
            )Amortization
                of unrecognized net loss
            
            
            107
            
            
            147$
            184
            
            $
            251


Page
          11


**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. 0-30364), 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-month periods ended September 30, 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 three-month
                periods ended September 30, 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. Such
      customers usually do not operate a broadcast platform, but 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. A particular
      platform operator may purchase some components from our competitors. We
      integrate our technologies with those of other suppliers to provide a platform
      operator with the required functionality.


Page
          12


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 67%
      of
      our revenue during the three-month period ended September 30, 2007. We expect
      that a limited number of customers will continue to contribute a significant
      portion of our revenue.




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. 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
                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.”




2)
            *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.”




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.




**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.


Page
          13


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 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, 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-month
      period ended September 30, 2007 versus the three-month period ended September
      30, 2006**




*Revenue*




Revenue
      for the periods under review was as follows:




**For
                the three months ended**
              **September
                30,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**Conditional
                access
            
            $
            121,583
            
            $
            92,847
            
            $
            28,736
            
            
            31
            %Integration,
                development & support
            
            
            10,909
            
            
            18,412
            
            
            (7,503
            )
            
            (41
            %)License
                fees & royalties
            
            
            28,944
            
            
            24,350
            
            
            4,594
            
            
            19
            %New
                technologies
            
            
            42,458
            
            
            27,499
            
            
            14,959
            
            
            54
            %Other
            
            
            982
            
            
            1,054
            
            
            (72
            )
            
            (7
            %)Total
                revenue
            
            $
            204,876
            
            $
            164,162
            
            $
            40,714
            
            
            25
            %




Comparisons
      of revenue for the three-month period ended September 30, 2007 to the
      three-month period ended September 30, 2006 were affected overall by the
      relative weakness of the U.S. dollar over the periods. Approximately 52% of
      our
      revenue was denominated in currencies other than the U.S. dollar, principally
      pounds sterling and euros during the three-month period ended September 30,
      2007. We estimate that the weaker U.S. dollar favorably impacted our total
      revenue for the three-month period ended September 30, 2007 by approximately
      $8
      million, or 4%, compared to what would have been achieved had foreign exchange
      rates been consistent with those prevailing during the three-month period ended
      September 30, 2006.




Revenue
      from conditional access increased by 31% during the three-month period ended
      September 30, 2007 as compared to the three-month period ended September 30,
      2006. This was principally due to the fact that, during the three-month period
      ended September 30, 2007, we recognized a portion of security services
      revenue previously deferred as all remaining obligations were satisfied in
      accordance with our revenue recognition criteria. Additionally, conditional
      access revenue rose due to the increased total of security fees arising from
      the
      growth of our customer base, and also sales gains and a higher volume of smart
      cards delivered to customers.


Page
          14




Authorized
      smart card activity in each period was as follows:




**For
                the three months ended**
              **September
                30,**(in
                millions)
            
            **2007**
            
            **2006**Number
                of authorized cards, beginning of period
            
            
            75.4
            
            
            65.0Net
                additions
            
            
            3.2
            
            
            1.6Number
                of authorized cards, end of period
            
            
            78.6
            
            
            66.6




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




**For
                the three months ended**
              **September
                30,**(in
                millions)
            
            
            **2007**
            
            
            **2006**Number
                of smart cards delivered
            
            
            7.4
            
            
            6.7




The
      increase in the number of smart cards delivered in the three-month period ended
      September 30, 2007 as compared to the corresponding period of the prior fiscal
      year principally reflected deliveries 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 by the build-up of inventory by platform operators.




Integration,
      development and support revenue decreased by 41% in the three-month period
      ended
      September 30, 2007 as compared to the corresponding period of the prior fiscal
      year. 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 our revenue recognition criteria and therefore this
      component of our revenue tends to fluctuate from period to period. The decline
      in integration, development and support revenue was a consequence of the
      recognition in the three-month period ended September 30, 2006 of revenue from
      the delivery of conditional access, EPG and middleware to TataSky, which
      commenced broadcasting in India in August 2006.




License
      fee and royalty revenue increased by 19% in the three-month period ended
      September 30, 2007 as compared to the corresponding period of the prior fiscal
      year, principally as a result of higher conditional access and EPG royalties
      due
      to an increase in the number of platform operators and service providers that
      deploy our technology. This increase was also due to an increase in the number
      of middleware clients deployed during the three-month period ended September
      30,
      2007 as compared to the corresponding period of the prior fiscal
      year.




The
      table
      below sets forth the number of middleware clients deployed by our customers
      during the three-month periods ended September 30, 2007 and 2006:




**For
                the three months ended**
              **September
                30,**(in
                millions)
            
            **2007**
            
            **2006**Number
                of middleware clients deployed, beginning of period
            
            
            61.8
            
            
            41.6Net
                additions
            
            
            8.1
            
            
            3.1Number
                of middleware clients deployed, end of period
            
            
            69.9
            
            
            44.7




The
      increase in revenue from new technologies of 54% in the three-month period
      ended
      September 30, 2007, compared to the corresponding period of the prior fiscal
      year, was principally due to higher revenue from our DVR technologies and
      advanced middleware, 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-month period ended September 30, 2007 as compared to the corresponding
      period of the prior fiscal year.


Page
          15


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




**For
                the three months ended**
              **September
                30,**(in
                millions)
            
            **2007**
            
            **2006**Number
                of DVR clients deployed, beginning of period
            
            
            7.3
            
            
            3.5Net
                additions
            
            
            1.5
            
            
            0.7Number
                of DVR clients deployed, end of period
            
            
            8.8
            
            
            4.2




*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**
              **September
                30,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**Cost
                of goods and services sold
            
            $
            68,456
            
            $
            62,235
            
            $
            6,221
            
            
            10
            %Gross
                margin
            
            $
            136,420
            
            $
            101,927
            
            $
            34,493
            
            
            34
            %Gross
                margin as a percentage of revenue
            
            
            67
            %
            
            62
            %
            
            5
            %
            
            **





**
      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 10% during the three-month period ended
      September 30, 2007, as compared to the corresponding period of the previous
      fiscal year, principally due to an increase in the royalties that we pay to
      third parties for the use of their technologies, higher deliveries of smart
      cards during the period, an increase in the number of our employees working
      on
      development, integration and support activities and, to a lesser extent, wage,
      salary and benefit increases during the period. The increase was partially
      offset by lower smart card unit costs.




Because
      revenue increased by more than cost of goods and services sold during the
      three-month period ended September 30, 2007, and in particular because
      elements of higher conditional access revenues had no associated direct costs,
      gross margin as a percentage of revenue was 67% for the three-month period
      ended
      September 30, 2007 as compared to 62% for the corresponding period of
      the prior fiscal year.


Page
          16




*Operating
      Expenses*




Operating
      expenses for the periods under review were as follows:




**For the three months ended**
              **September 30,**(in
                thousands)
            
            
            **2007**
            
            
            **2006**
            
            
            **Change**
            
            
            **%
                Change**Research
                & development
            
            $
            51,011
            
            $
            34,666
            
            $
            16,345
            
            
            47
            %Sales
                & marketing
            
            
            9,620
            
            
            7,977
            
            
            1,643
            
            
            21
            %General
                & administration
            
            
            14,220
            
            
            12,277
            
            
            1,943
            
            
            16
            %Amortization
                of intangibles
            
            
            3,283
            
            
            2,417
            
            
            866
            
            
            36
            %Total
                operating expenses
            
            $
            78,134
            
            $
            57,337
            
            $
            20,797
            
            
            36
            %




Comparisons
      of expenses for the three-month period ended September 30, 2007 with the
      three-month period ended September 30, 2006 were affected overall by the
      relative weakness of the U.S. dollar. In the three-month period ended
      September 30, 2007, approximately 68% of our total expenses was denominated
      in currencies other than the U.S. dollar, principally pounds sterling, Israeli
      shekels and euros. We estimate that the weaker U.S. dollar increased our total
      expenses in the three-month period ended September 30, 2007 by approximately
      $6
      million, or 4%, compared to what would have been achieved had foreign exchange
      rates been consistent with those prevailing during the three-month period ended
      September 30, 2006. The increase in total operating expenses was offset in
      part
      by foreign exchange gains of $5.7 million recognized in the consolidated
      statement of operations as a result of holding cash in currencies other than
      the
      U.S dollar.




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 and the
      related increase in payroll, facilities and legal costs. Employee costs were
      approximately 32% higher during the three-month period ended September 30,
      2007
      as compared to the corresponding period 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**
              **September 30,****2007**
            
            **2006**Number
                of employees, beginning of period
            
            
            3,572
            
            
            2,989Net
                additions
            
            
            93
            
            
            100Number
                of employees, end of period
            
            
            3,665
            
            
            3,089Average
                number of employees during period
            
            
            3,610
            
            
            3,057




Research
      and development costs increased by 47% for the three-month period ended
      September 30, 2007 as compared to the corresponding period of the prior fiscal
      year, principally as a result of higher employee headcount due to more research
      and development being performed, which 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 three-month period ended
      September 30, 2006, we received an equivalent grant of $5.5
      million.




Sales
      and
      marketing expenses increased by 21% in the three-month period ended September
      30, 2007 as compared to the corresponding period of the prior fiscal year,
      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 16% in the three-month period ended
      September 30, 2007 as compared to the corresponding period of the prior fiscal
      year, largely due to higher equity compensation costs, legal expenses and
      business development costs, and facilities and infrastructure
      costs.




Amortization
      of finite-lived intangible assets increased by 36% in the three-month period
      ended September 30, 2007 as compared to the corresponding period of the prior
      fiscal year, principally due to the acquisition of Jungo Limited in December
      2006.




Page
          17


*Operating
      Income and Other Items*




As
      a
      result of the factors outlined above, and, in particular, the increase in
      conditional access and royalty revenue, operating income was $58.3 million,
      or
      28% of revenue, for the three-month period ended September 30, 2007, compared
      to
      $44.6 million, or 27% of revenue, for the three-month period ended September
      30,
      2006. We estimate that the weaker U.S. dollar increased our operating income
      in
      the three-month period ended September 30, 2007 by approximately $2 million
      compared to what would have been achieved had foreign exchange rates been
      consistent with those prevailing during the three-month period ended September
      30, 2006. The increase in operating income was driven in part by foreign
      exchange gains of $5.7 million recognized in the consolidated statement of
      operations as a result of holding cash in currencies other than the U.S
      dollar.




Interest
      income earned on cash deposits was $7.4 million in the three-month period ended
      September 30, 2007, as compared to $6.0 million in the three-month period ended
      September 30, 2006. This was due to higher cash balances and higher average
      interest rates.




Our
      effective tax rate was 29% for the three-month period ended September 30, 2007,
      compared to 31% for the three-month period ended September 30, 2006. This 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 these factors, net income for the three-month period ended
      September 30, 2007 was $46.3 million, or $0.80 per share ($0.79 per share on
      a
      diluted basis), compared to $35.1 million, or $0.62 per share ($0.61 per share
      on a diluted basis), for the three-month period ended September 30,
      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 September 30, 2007, we
      had
      an unused credit facility to borrow up to £30 million (equivalent to
      approximately $61 million) from a subsidiary of News Corporation. No amounts
      have been drawn under this facility.




As
      of
      September 30, 2007, we had cash and cash equivalents totaling $622 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 $224
      million as of September 30, 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.




***Sources
      and Uses of Cash***




We
      had a
      net inflow of cash and cash equivalents of $23.3 million in the three-month
      period ended September 30, 2007, compared to a net inflow of cash and cash
      equivalents before purchases of short-term investments of $1.2 million in the
      three-month period ended September 30, 2006 due to an increase in net cash
      provided by operating activities.




Net
      cash
      provided by operating activities was as follows:




**For the three months ended**
              **September 30,**(in
                thousands)
            
            **2007**
            
            **2006**Net
                cash provided by operating activities
            
            $
            36,785
            
            $
            8,278




Page
          18


The
      increase in net cash provided by operating activities in the three-month period
      ended September 30, 2007 as compared to the corresponding period of the prior
      fiscal year reflects higher receipts from customers and lower income tax
      payments. 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.




**For the three months ended**
              **September 30,**(in
                thousands)
            
            **2007**
            
            **2006**Capital
                expenditure
            
            $
            (3,470
            )
            $
            (4,050
            )Business
                acquisitions, net of cash acquired
            
            
            (10,374
            )
            
            (3,634
            )Short-term
                investments, net
            
            
            ─
            
            
            (102,352
            )Net
                cash used in investing activities
            
            $
            (13,844
            )
            $
            (110,036
            )




In
      the
      three-month period ended September 30, 2007, we acquired CastUp Inc., a provider
      of solutions for the hosting, management and distribution of video over the
      Internet, for initial consideration net of cash acquired of $10.4 million.
      In
      the three-month period ended September 30, 2006, we acquired Interactive
      Television Entertainment ApS for initial consideration of $3.2 million and
      made
      deferred consideration payments in respect of previous acquisitions of
      approximately $0.4 million.




During
      the three-month period ended September 30, 2006, we invested $102.4 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 three months ended**
              **September
                30,**(in
                thousands)
            
            **2007**
            
            **2006**Issuance
                of shares
            
            $
            309
            
            $
            607Excess
                tax benefits realized on shares issued as a result of equity compensation
                awards
            
            
            79
            
            
            27Net
                cash generated by financing activities
            
            $
            388
            
            $
            634




During
      the three-month period ended September 30, 2007, 110,285 of our Series A
      ordinary shares, par value $0.01 per share (“Series A Ordinary Shares”), were
      issued to employees as a result of equity compensation awards (net of statutory
      payroll withholding deductions). This compares to 32,061 Series A Ordinary
      Shares 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***




There
      has
      been no material change to our commitments since June 30, 2007.




Page
          19


**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.




In
      the
      three-month period ended September 30, 2007, approximately 52% 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 three-month period ended September 30, 2007
      by approximately $8 million, or 4%, compared to what would have been achieved
      had foreign exchange rates been consistent with those prevailing during the
      three-month period ended September 30, 2006.




In
      the
      three-month period ended September 30, 2007, approximately 68% of our total
      expenses was denominated in currencies other than the U.S. dollar, principally
      pounds sterling, Israeli shekels and euros. We estimate that the weaker U.S.
      dollar increased our total expenses in the three-month period ended September
      30, 2007 by approximately $6 million, or 4%, compared to what would have been
      achieved had foreign exchange rates been consistent with those prevailing during
      to the three-month period ended September 30, 2006.




As
      a
      result of fluctuations in foreign exchange rates, we experienced net gains
      on
      cash holdings of $6.1 million in the three-month period ended September 30,
      2007, of which approximately $5.7 million was recorded within operating
      expenses, with the balance being recorded within other comprehensive income.
      Overall, we estimate that the weaker U.S. dollar increased operating income
      in
      the three-month period ended September 30, 2007 by approximately $2 million
      compared to what would have been achieved if exchange rates had been consistent
      with those prevailing during the three-month period ended September 30,
      2006.




As
      of
      September 30, 2007, approximately 70% of our cash was held in U.S. dollars,
      13%
      in pounds sterling, and 9% 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 September 30, 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.




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
      million.




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




**a)
      Disclosure Controls and Procedures**




The
      Company’s management, with the participation of the Company’s President 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 President 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 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 first quarter of fiscal 2008 that has materially affected,
      or is reasonably likely to materially affect, the Company’s internal control
      over financial reporting.




Page
          20


**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
          21




***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.




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          22


***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
      three-month period ended September 30, 2007, these three customers accounted
      directly and indirectly for approximately 67% of our total revenue. News
      Corporation, an approximately 73% holder of our total and issued outstanding
      share capital, currently owns approximately 40%, 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
      fourth quarter of the 2007 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
      2010 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
          23




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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          24




***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 three-month period ended September 30, 2007,
      approximately 52% of our revenue and approximately 68% of our total expenses
      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 September 30, 2007, News Corporation
      beneficially owned approximately 73% 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 three-month period ended September 30, 2007, approximately 78% 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 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
          25


***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**




Not
      applicable.




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




Not
      applicable.




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




12.
            Computation
                of Ratio of Earnings to Fixed Charges31.1
            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 Act32
            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
          26


**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: October
      29, 2007




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          27