**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 March 31, 2008**





**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**
              (State
                or other jurisdiction of incorporation or organization)
            **Not
                applicable**
              (I.R.S.
                Employer Identification No.)**One
                Heathrow Boulevard, 286 Bath Road, West Drayton, Middlesex, United
                Kingdom**
              (Address
                of principal executive offices)
            **UB7
                0DQ**
              (ZIP
                Code)





**+44
      20 8476 8000**


(Registrant’s
      telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.





**Yes**  **xNo**  **o**





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





**Large accelerated filer x**
            **Accelerated filer o**
            **Non-accelerated filer o**
            **Smaller reporting company 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
      April 29, 2008, the following shares were outstanding: 16,187,137 Series A
      ordinary shares, par value $0.01 per share; 42,001,000 Series B ordinary shares,
      par value $0.01 per share; and 42,000,002 deferred shares, par value £1 per
      share.





**NDS
      GROUP PLC**




**Table
      of Contents**




**PART
                I – Financial Information**Item
                1.
            Financial
                StatementsUnaudited
                Consolidated Statements of Operations for the three and nine months
                ended
                March 31, 2008 and 2007
            1Consolidated
                Balance Sheets as of March 31, 2008 (unaudited) and June 30,
                2007
            2Unaudited
                Consolidated Statements of Cash Flows for the nine months ended March
                31,
                2008 and 2007
            3Notes
                to the Unaudited Consolidated Financial Statements
            4Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            14Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            24Item
                4.
            Controls
                and Procedures
            25**PART
                II – Other Information**Item
                1.
            Legal
                Proceedings
            26Item
                1A.
            Risk
                Factors
            26Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            31Item
                3.
            Defaults
                upon Senior Securities
            31Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            31Item
                5.
            Other
                Information
            31Item
                6.
            Exhibits
            31Signatures
            32








**PART
      I – Financial Information**




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




**NDS
      Group plc**


**Unaudited
      Consolidated Statements of Operations**




**For the three months ended**
              **March 31,**
            
            **For the nine months ended**
              **March 31,**(in
                thousands, except per-share amounts)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007****Revenue:**Conditional
                access
            
            $
            123,510
            
            $
            101,655
            
            $
            364,504
            
            $
            292,686Integration,
                development & support
            
            
            14,134
            
            
            7,338
            
            
            37,887
            
            
            38,433License
                fees & royalties
            
            
            30,675
            
            
            27,122
            
            
            88,680
            
            
            74,922New
                technologies
            
            
            43,781
            
            
            40,953
            
            
            137,621
            
            
            97,374Other
            
            
            1,201
            
            
            1,323
            
            
            4,433
            
            
            4,200Total
                revenue
            
            
            213,301
            
            
            178,391
            
            
            633,125
            
            
            507,615Cost
                of goods and services sold
            
            
            (86,817
            )
            
            (70,573
            )
            
            (236,759
            )
            
            (193,926
            )**Gross
                margin**
            
            
            126,484
            
            
            107,818
            
            
            396,366
            
            
            313,689**Operating
                expenses:**Research
                & development
            
            
            (46,695
            )
            
            (45,638
            )
            
            (145,746
            )
            
            (123,613
            )Sales
                & marketing
            
            
            (12,714
            )
            
            (10,912
            )
            
            (36,376
            )
            
            (28,203
            )General
                & administration
            
            
            (20,440
            )
            
            (12,284
            )
            
            (53,198
            )
            
            (35,972
            )Amortization
                of other intangibles
            
            
            (3,331
            )
            
            (3,202
            )
            
            (9,946
            )
            
            (8,129
            )Total
                operating expenses
            
            
            (83,180
            )
            
            (72,036
            )
            
            (245,266
            )
            
            (195,917
            )**Operating
                income**
            
            
            43,304
            
            
            35,782
            
            
            151,100
            
            
            117,772Interest
                income
            
            
            6,502
            
            
            6,166
            
            
            21,458
            
            
            18,678Income
                before income tax expense
            
            
            49,806
            
            
            41,948
            
            
            172,558
            
            
            136,450Income
                tax expense
            
            
            (13,513
            )
            
            (12,724
            )
            
            (49,602
            )
            
            (41,847
            )**Net
                income**
            
            $
            36,293
            
            $
            29,224
            
            $
            122,956
            
            $
            94,603**Net
                income per share:**Basic
                net income per share
            
            $
            0.62
            
            $
            0.51
            
            $
            2.12
            
            $
            1.66Diluted
                net income per share
            
            $
            0.62
            
            $
            0.50
            
            $
            2.09
            
            $
            1.63





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**
              **March 31,**
              **2008**
              **(Unaudited)**
            
            **As of**
              **June 30,**
              **2007**
              **(See Note 2)****ASSETS****Current
                assets:**Cash
                and cash equivalents
            
            $
            696,247
            
            $
            592,750Accounts
                receivable, net (inclusive of $67,487 and $89,711 due from related
                parties)
            
            
            146,601
            
            
            134,624Accrued
                income
            
            
            49,111
            
            
            40,605Inventories,
                net
            
            
            70,730
            
            
            54,133Prepaid
                expenses
            
            
            23,466
            
            
            19,415Other
                current assets
            
            
            4,325
            
            
            3,926Total
                current assets
            
            
            990,480
            
            
            845,453Property,
                plant & equipment, net
            
            
            49,471
            
            
            54,801Goodwill
            
            
            134,344
            
            
            124,614Other
                intangibles, net
            
            
            58,947
            
            
            63,080Other
                non-current assets
            
            
            81,844
            
            
            56,905**Total
                assets**
            
            $
            1,315,086
            
            $
            1,144,853**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**
              **Current
                liabilities:**Accounts
                payable (inclusive of $5,437 and $2,165 due to related
                parties)
            
            $
            30,486
            
            $
            22,110Deferred
                income
            
            
            84,400
            
            
            75,777Accrued
                payroll costs
            
            
            37,677
            
            
            31,186Accrued
                expenses
            
            
            34,693
            
            
            37,473Income
                tax liabilities
            
            
            29,173
            
            
            17,693Other
                current liabilities
            
            
            21,534
            
            
            18,287Total
                current liabilities
            
            
            237,963
            
            
            202,526Deferred
                income
            
            
            123,773
            
            
            157,517Other
                non-current liabilities
            
            
            63,550
            
            
            46,537**Total
                liabilities**
            
            
            425,286
            
            
            406,580Commitments
                and contingencies**Shareholders’
                equity:**Series
                A ordinary shares, par value $0.01 per share: 48,000,000 shares
                authorized; 16,170,513 and 15,718,904 shares outstanding as of March
                31,
                2008 and June 30, 2007, respectively
            
            
            161
            
            
            157Series
                B ordinary shares, par value $0.01 per share: 52,000,000 shares
                authorized; 42,001,000 shares outstanding as of March 31, 2008 and
                June
                30, 2007, respectively
            
            
            420
            
            
            420Deferred
                shares, par value £1 per share: 42,000,002 shares authorized and
                outstanding as of March 31, 2008 and June 30, 2007
            
            
            64,103
            
            
            64,103Additional
                paid-in capital
            
            
            585,221
            
            
            563,388Retained
                earnings
            
            
            179,062
            
            
            56,106Other
                comprehensive income
            
            
            60,833
            
            
            54,099**Total
                shareholders’ equity**
            
            
            889,800
            
            
            738,273**Total
                liabilities and shareholders’ equity**
            
            $
            1,315,086
            
            $
            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 nine months ended**
              **March 31,**(in thousands)
            
            **2008**
            
            **2007****Operating
                activities:**Net
                income
            
            $
            122,956
            
            $
            94,603Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
            
            
            16,936
            
            
            13,992Amortization
                of other intangibles
            
            
            9,946
            
            
            8,129Equity-based
                compensation
            
            
            13,695
            
            
            6,256Other
            
            
            557
            
            
            546Change
                in operating assets and liabilities, net of acquisitions:Inventories
            
            
            (16,597
            )
            
            (12,692
            )Receivables
                and other assets
            
            
            (48,111
            )
            
            (58,970
            )Deferred
                income
            
            
            (25,121
            )
            
            44,789Accounts
                payable and other liabilities
            
            
            24,806
            
            
            105Net
                cash provided by operating activities
            
            
            99,067
            
            
            96,758**Investing
                activities:**Capital
                expenditure
            
            
            (10,657
            )
            
            (16,191
            )Short-term
                investments, net
            
            
            ─
            
            
            184,401Business
                acquisitions, net of cash acquired
            
            
            (10,466
            )
            
            (82,672
            )Net
                cash (used in) provided by investing activities
            
            
            (21,123
            )
            
            85,538**Financing
                activities:**Issuance
                of shares (inclusive of realized excess tax benefits of $1,077 and
                $2,922)
            
            
            8,086
            
            
            13,160**Net
                increase in cash and cash equivalents**
            
            
            86,030
            
            
            195,456Cash
                and cash equivalents, beginning of period
            
            
            592,750
            
            
            320,636Currency
                exchange movements
            
            
            17,467
            
            
            5,420**Cash
                and cash equivalents, end of period**
            
            $
            696,247
            
            $
            521,512





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 reported revenue, expenses, assets, liabilities and cash
      flows relate to the continuing operations of the Company and its consolidated
      subsidiaries.




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




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




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




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




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




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




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




The
      Company maintains a 52-53 week fiscal year ending on the Sunday nearest to
      each
      reporting date. As such, all references to March 31, 2008 and March 31,
      2007 relate to the three- and nine-month periods ended March 30, 2008 and April
      1, 2007, respectively. For convenience purposes, the Company continues to date
      its financial statements as of March 31.




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


Page
          4




**Recent
      accounting pronouncements**




*Income
      taxes*




On
      July
      1, 2007, the Company adopted the provisions of Financial Accounting Standards
      Board (the “FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income
      Taxes, an interpretation of FAS 109, Accounting for Income Taxes” (“FIN 48”), to
      create a single model to address accounting for uncertainty in tax positions.
      FIN 48 clarifies the accounting for income taxes, by prescribing a minimum
      recognition threshold a tax position is required to meet before being recognized
      in the financial statements. FIN 48 also provides guidance on derecognition,
      measurement, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. The adoption of FIN 48 did not have a
      material impact on the Company’s liability for unrecognized tax benefits. Total
      unrecognized tax benefits at the date of the Company’s adoption of FIN 48 were
      $1.7 million, all of which will affect the Company’s effective income tax rate,
      if and when recognized in future years. Movements in the accrued balance during
      the three- and nine-month periods ended March 31, 2008 were not material.
      The Company does not presently anticipate such uncertain income tax positions
      will increase or decrease significantly in the next 12 months; however, actual
      developments in this area could differ from those currently
      expected.




The
      Company recognizes interest and penalty charges related to unrecognized tax
      benefits as income tax expense, which is consistent with the recognition in
      prior reporting periods. As of July 1, 2007, the Company’s recorded liability
      for accrued interest was immaterial, and there was no material change in the
      accrual for interest for either of the three- or nine-month periods ended March
      31, 2008.




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




*Business
      acquisitions and disposals*




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




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




*Other*




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      No. 157”), which establishes a framework for measuring fair value and expands
      the related disclosure requirements. Certain provisions of SFAS 157 related
      to
      financial assets and liabilities as well as other assets and liabilities carried
      at fair value on a recurring basis will become effective for the Company
      beginning in fiscal 2009 and are not expected to have a material impact on
      the
      Company’s financial statements. The provisions of SFAS 157 related to other
      nonfinancial assets and liabilities will be effective for the Company beginning
      in fiscal 2010 and will be applied prospectively. The Company is currently
      evaluating the impact that the provisions of SFAS 157 will have on the Company’s
      consolidated financial statements as it relates to other nonfinancial assets
      and
      liabilities.




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


Page
          5


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




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




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




**For the three months ended**
              **March 31,**
            
            **For the nine months ended**
              **March 31,**(in thousands)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                income
            
            $
            36,293
            
            $
            29,224
            
            $
            122,956
            
            $
            94,603Foreign
                currency translation differences (no tax effect)
            
            
            4,286
            
            
            984
            
            
            6,734
            
            
            6,782Comprehensive
                income
            
            $
            40,579
            
            $
            30,208
            
            $
            129,690
            
            $
            101,385




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




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




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




**For the three months ended**
              **March 31,**
            
            **For the nine months ended**
              **March 31,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Weighted
                average number of ordinary shares in issue
            
            
            58,141,902
            
            
            57,344,449
            
            
            57,960,475
            
            
            57,091,493Effect
                of dilutive equity awards
            
            
            739,350
            
            
            860,300
            
            
            839,718
            
            
            922,750Denominator
                for dilutive net income per share
            
            
            58,881,252
            
            
            58,204,749
            
            
            58,800,193
            
            
            58,014,243


Page
          6


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




(in
                thousands)
            
            **As of**
              **March 31,**
              **2008**
            
            **As of**
              **June 30,**
              **2007**Unprocessed
                smart cards and their components
            
            $
            58,193
            
            $
            51,630Inventory
                reserves
            
            
            (2,250
            )
            
            (2,434
            )55,943
            
            
            49,196Deferred
                smart card costs
            
            
            10,341
            
            
            2,476Contract
                work-in-progress
            
            
            4,446
            
            
            2,461Total
                inventories
            
            $
            70,730
            
            $
            54,133




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




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




(in
                thousands)
            
            **As of**
              **March 31,**
              **2008**
            
            **As of**
              **June 30,**
              **2007**Deferred
                security fees
            
            $
            137,190
            
            $
            180,009Advance
                receipts and other deferred income
            
            
            70,983
            
            
            53,285Total
                deferred income
            
            $
            208,173
            
            $
            3,294Included
                within current liabilities
            
            $
            84,400
            
            $
            75,777Included
                within non-current liabilities
            
            
            123,773
            
            
            157,517$
            208,173
            
            $
            233,294





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




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




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




**a)
      Provision of technology and services**




Technology
      and services for digital pay-television platform operators are supplied by
      the
      Company to affiliates and subsidiaries of News Corporation. The principal
      related parties to whom the Company supplies such services are BSkyB, FOXTEL,
      Sky Network Television and Tata Sky (all of which are affiliates of News
      Corporation), and SKY Italia and STAR TV (both of which are wholly owned
      subsidiaries of News Corporation). In February 2008, News Corporation divested
      of its entire interest in its affiliate DIRECTV. The Company therefore no longer
      considers DIRECTV or its affiliates DIRECTV Latin America, Sky Brasil and Sky
      Mexico to be related parties.


Page
          7


Revenue
      recognized from such related parties was as follows:




**For the three months ended**
              **March 31,**
            
            **For the nine months ended**
              **March 31,**(in
                thousands)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**Revenue
                from related parties(1)
            
            $
            116,408
            
            $
            127,119
            
            $
            422,118
            
            $
            381,981





(1)  Includes
      revenue from DIRECTV and its affiliates for periods through February
      2008.




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




(in
                thousands)
            
            **As of**
              **March 31,**
              **2008**
            
            **As of**
              **June 30,**
              **2007**(1)Accounts
                receivable
            
            $
            67,487
            
            $
            89,711Accrued
                income
            
            
            12,066
            
            
            26,854Deferred
                income
            
            
            (66,792
            )
            
            (200,478
            )





(1)  Includes
      items in respect of DIRECTV and its affiliates.




**b)
      Royalty payments**




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




**For the three months ended**
              **March 31,**
            
            **For the nine months ended**
              **March 31,**(in thousands)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**Royalties
                payable to related parties
            
            $
            1,327
            
            $
            1,362
            
            $
            3,138
            
            $
            2,497





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




(in
                thousands)
            
            **As of**
              **March 31,**
              **2008**
            
            **As of**
              **June 30,**
              **2007**Accrued
                expenses
            
            $
            2,381
            
            $
            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.


Page
          8


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




**For the three months ended**
              **March 31,**
            
            **For the nine months ended**
              **March 31,**(in
                thousands)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**Administrative
                fees charged by related parties
            
            $
            37
            
            $
            61
            
            $
            112
            
            $
            179




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**
              **March
                31,**
              **2008**
            
            **As
                of**
              **June
                30,**
              **2007**Accounts
                payable
            
            $
            5,437
            
            $
            2,165




**d)
      Other**




The
      Company has a short-term loan facility of £30 million (approximately $60
      million) from a subsidiary of News Corporation. The facility has no expiry
      date
      and no amounts were drawn down as of March 31, 2008 or June 30, 2007. The
      facility is considered to be adequate for the Company’s needs.




The
      Company has entered into cross-guarantees with HSBC Bank plc (“HSBC”) providing
      mutual guarantees with other subsidiaries of News Corporation for amounts owed
      to HSBC under a collective overdraft facility of £20 million (approximately $40
      million). News Corporation has indemnified the Company against any liabilities
      which the Company may be required to pay under these cross-guarantees. The
      Company has been informed by News Corporation that no amounts were owed to
      HSBC
      as of March 31, 2008 or June 30, 2007 that would be covered by these
      guarantees.




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




**a)
      Litigation**




*Echostar
      Litigation*




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




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


Page
          9


On
      October 24, 2005, the Company filed its Amended Answer with Counterclaims,
      alleging that Echostar misappropriated the Company’s trade secrets, violated the
      Computer Fraud and Abuse Act and engaged in unfair competition. On
      November 8, 2005, Echostar moved to dismiss the Company’s counterclaims for
      conversion and claim and delivery, arguing that these claims were preempted
      and
      time-barred. Echostar also moved for a more definite statement of the Company’s
      trade secret misappropriation claim. On December 8, 2005, the court granted
      in
      part and denied in part Echostar’s motion to dismiss and for a more definite
      statement, but granted the Company leave to file amended counterclaims. On
      December 13, 2005, the Company filed a Second Amended Answer with Counterclaims,
      which Echostar answered on December 27, 2005. The Company filed motions for
      summary judgment dismissing Echostar’s claims and Echostar filed a motion for
      summary judgment dismissing the Company’s counterclaims on October 29, 2007.
      Those motions were heard on January 7, 2008. On January 16, 2008, the court
      granted the motions in part and denied them in part. The trial of this case
      began on April 9, 2008 and is ongoing.




*Sogecable
      Litigation*




On
      July
      25, 2003, Sogecable, S.A. and its subsidiary Canalsatellite Digital, S.L.,
      Spanish satellite broadcasters and customers of Canal+ Technologies SA
      (together, “Sogecable”), filed an action against the Company in the United
      States District Court for the Central District of California. Sogecable filed
      an
      amended complaint on October 9, 2003, which purported to allege claims for
      violation of the DMCA and the RICO statute. The amended complaint also purported
      to allege claims for interference with contract and prospective business
      advantage. The complaint sought injunctive relief, unspecified compensatory
      and
      exemplary damages and restitution. On December 22, 2003, all of the claims
      were
      dismissed by the court. Sogecable filed a second amended complaint. The Company
      filed a motion to dismiss the second amended complaint on March 31, 2004. On
      August 4, 2004, the court issued an order dismissing the second amended
      complaint in its entirety. Sogecable had until October 4, 2004 to file a third
      amended complaint. On October 1, 2004, Sogecable notified the court that it
      would not be filing a third amended complaint, but would appeal the court’s
      entry of final judgment dismissing the suit to the United States Ninth Circuit
      Court of Appeals. On December 14, 2006, the appellate court issued a memorandum
      decision reversing the district court’s dismissal. On January 26, 2007, the
      Company filed its petition for rehearing by an en banc panel of the United
      States Ninth Circuit Court of Appeals. On February 21, 2007, the petition was
      denied. On June 11, 2007, the Company filed a petition for a Writ of Certiorari
      in the United States Supreme Court seeking reversal of the Ninth Circuit Court
      of Appeals’ decision. On August 27, 2007, the Company renewed its motion to
      dismiss the second amended complaint on grounds not previously decided. On
      October 1, 2007, the petition for Writ of Certiorari was denied. On January
      25,
      2008, the court issued an order granting-in-part and denying-in-part the
      Company’s renewed motion to dismiss Sogecable’s second amended complaint. The
      court dismissed Sogecable’s claim for tortuous interference with prospective
      economic advantage, but allowed Sogecable to proceed on its RICO and DMCA
      claims, as well as its claim for tortuous interference with contract. The court
      has set February 16, 2010 as the trial date. The Company believes that
      Sogecable’s claims are without merit and it will continue to vigorously defend
      itself in this matter.




*Barry
      Thomas Litigation*




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




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




DIRECTV,
      Inc. filed a motion for summary judgment barring pre-suit damages based on
      its
      laches defense on September 12, 2006. The court granted DIRECTV, Inc.’s
      motion on December 19, 2006, limiting DIRECTV, Inc.’s potential liability to the
      two-month period between the filing of the complaint and the expiration of
      the
      patent. There is no schedule for pretrial proceedings or trial date set by
      the
      court, although the court held a patent claim construction hearing on November
      17, 2006. On February 28, 2008, the Court issued its Order and Memorandum on
      Claim Construction, which adopted the constructions proposed by DIRECTV, Inc.
      and the other defendants sued by Mr. Thomas for the claim terms in
      dispute.


Page
          10


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




**b)
      Guarantees**




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




**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
          11


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




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




**For the three months ended**
              **March 31,**
            
            **For the nine months ended**
              **March 31,**(in
                thousands, except share amounts)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**Number
                of stock options exercised in period
            
            
            60,457
            
            
            294,656
            
            
            390,093
            
            
            620,734Number
                of conditional awards vested in period, net of statutory tax
                withholdings
            
            
            —
            
            
            —
            
            
            67,409
            
            
            —Equity-based
                compensation cost included within the statement of
                operations
            
            $
            5,203
            
            $
            1,878
            
            $
            13,695
            
            $
            6,256Net
                cash received from exercise of equity-based awards
            
            $
            1,121
            
            $
            4,993
            
            $
            7,009
            
            $
            10,238Excess
                tax benefits derived from equity-based awards
            
            $
            245
            
            $
            1,143
            
            $
            1,133
            
            $
            2,933Intrinsic
                value of stock options exercised
            
            $
            2,013
            
            $
            9,278
            
            $
            13,931
            
            $
            19,525




During
      the nine-month period ended March 31, 2008, fixed conditional awards over
      American Depositary Receipts (“ADRs”) representing an aggregate of 27,500 Series
      A Ordinary Shares were awarded to certain employees and directors, 25% of which
      will vest on August 15, 2008. The remaining balance will vest in three equal
      annual installments, subject to the individual’s continued employment with the
      Company. The grant date fair value of these awards was $55.91 per share.




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




As
      of
      March 31, 2008, the total compensation cost related to non-vested equity-based
      awards not yet recognized was approximately $46.2 million and the period over
      which it is expected to be recognized is 3.5 years. The Board may grant
      additional equity-based compensation, which would result in additional operating
      expenses being recorded in future periods.


Page
          12


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




**For the nine months ended**
              **March 31,**(in
                thousands)
            
            **2008**
            
            **2007****Cash
                receipts and payments:**Cash
                payments for capital expenditure
            
            $
            (11,000
            )
            $
            (16,357
            )Proceeds
                from sale of property, plant and equipment
            
            
            343
            
            
            166Interest
                received in cash
            
            
            22,297
            
            
            19,847Cash
                payments for income taxes
            
            
            (38,548
            )
            
            (36,121
            )Gross
                purchases of short-term investments
            
            
            ─
            
            
            (203,387
            )Gross
                sales of short-term investments
            
            
            ─
            
            
            387,788Cash
                paid in respect of deferred consideration for acquisitions
            
            
            (116
            )
            
            (1,957
            )**Supplemental
                information on businesses acquired****(1)****:**Fair
                value of assets acquired(2)
            
            $
            13,763
            
            $
            105,334Less:
                cash acquired
            
            
            (24
            )
            
            (13,577
            )Less:
                liabilities assumed(2)
            
            
            (2,490
            )
            
            (11,042
            )Consideration
                payable and recognized in the consolidated balance sheets
            
            
            (899
            )
            
            ─Net
                cash paid in respect of acquisitions
            
            $
            10,350
            
            $
            80,715





(1)
            In
                the nine-month period ended March 31, 2008, the Company acquired
                CastUp
                Inc., a provider of solutions for the hosting, management and distribution
                of video over the Internet, for initial cash consideration and costs
                of
                $10.4 million. A further payment of approximately $0.9 million is
                expected to be paid once the value of the working capital balances
                at the
                time of acquisition is agreed upon by the parties. In the nine-month
                period ended March 31, 2007, the Company acquired Jungo Limited and
                Interactive Television Entertainment ApS for cash consideration and
                costs
                of $77.5 million, net of cash acquired, and $3.2 million,
                respectively.


(2)
            Based
                on preliminary allocation of purchase
                price.




**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**
              **March 31,**
            
            **For the nine months ended**
              **March 31,**(in
                thousands)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**Service
                cost
            
            $
            57
            
            $
            53
            
            $
            174
            
            $
            155Interest
                cost
            
            
            327
            
            
            317
            
            
            1,001
            
            
            931Expected
                return on plan assets
            
            
            (309
            )
            
            (261
            )
            
            (946
            )
            
            (768
            )Amortization
                of unrecognized net loss
            
            
            105
            
            
            153
            
            
            320
            
            
            449$
            180
            
            $
            262
            
            $
            549
            
            $
            767




The
      Company made discretionary contributions of $1.0 million to the Company’s
      defined benefit pension scheme in each of the nine-month periods ended March
      31,
      2008 and 2007.


Page
          13


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




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




**Introduction**




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




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




·
            ***Results
                of operations***—
                This section provides an analysis of our results of operations for
                the
                three- and nine-month periods ended March 31, 2008 and 2007. 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 nine-month
                periods ended March 31, 2008 and 2007. 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 and broadband 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 and/or a broadband infrastructure to deliver video and data to
      multiple subscribers. In addition, we may sell interactive applications to
      content providers, who do not usually operate a pay-TV platform, but instead
      provide content for transmission over a platform operator’s network. The
      applications we sell to content providers make use of the functions and
      capabilities of the broadcast infrastructure.




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


Page
          14


Our
      customers consist of a limited number of large digital pay-television platform
      operators that are introducing, marketing and promoting products and services
      that utilize our technology. Our three largest customers are DIRECTV in the
      United States, BSkyB in the United Kingdom and SKY Italia in Italy. Together,
      these three customers contributed, directly and indirectly, approximately 62%
      of
      our revenue during the nine-month period ended March 31, 2008. We expect that
      a
      limited number of customers will continue to contribute a significant portion
      of
      our revenue. During the nine-month period ended March 31, 2008, we extended
      our
      contracts to supply conditional access services to DIRECTV and its Latin
      American subsidiaries through June 30, 2013.




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




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




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




**Revenue**




We
      derive
      revenue primarily from:




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




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




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




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




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


Page
          15




**Costs
        and Expenses**
  Our
        costs
        and expenses consist of physical and processing costs of smart cards; personnel,
        travel and facilities costs; royalties paid for the right to use and sub-license
        certain intellectual property rights owned by third parties; legal costs;
        and
        the amortization of intangible assets, such as intellectual property rights
        that
        we have acquired for incorporation within our technologies.
  The
        physical costs of smart cards include the costs of the integrated circuits
        manufactured by third-party suppliers, the micro-module that houses the computer
        chips and the plastic body of the smart cards. We do not manufacture smart
        cards, but our engineers design computer chips that are embedded into the
        smart
        cards. We arrange for the computer chips to be manufactured and assembled
        by
        third-party suppliers. Smart card costs are dependent upon the costs of raw
        materials, including the cost of computer chips, plastic and assembly, and
        the
        quantity of smart cards purchased and processed in any period.
  Personnel,
        travel and facilities costs are allocated into four categories: operations,
        research and development, sales and marketing, and general and administration.
        We have employees and facilities in the United Kingdom, the United States,
        Israel, India, France, Denmark, Hong Kong, South Korea, China and
        Australia.
  We
        classify operations costs as part of cost of goods and services sold. Operations
        costs include the costs of personnel and related costs, including an allocation
        of facilities costs, associated with our customer support and with the
        integration and development activities undertaken under a customer contract.
        Operations costs include the costs of operating our two smart card processing
        plants, including the depreciation of our smart card processing
        equipment.
  Research
        and development costs consist mainly of personnel and related costs, including
        an allocation of facilities costs, attributable to our technical employees
        who
        are developing our technology and adapting it for specific customer
        requirements. These costs also include consumables and the depreciation of
        equipment used in development and test activities and are stated net of the
        benefit of grants and other incentives.
  Sales
        and
        marketing costs mainly consist of personnel and related costs, including
        an
        allocation of facilities costs of our sales and marketing employees in the
        United Kingdom, Europe, the Middle East, the United States and the Asia-Pacific
        region. Marketing costs also include advertising, exhibitions, marketing
        communications and demonstration activities.
  General
        and administration costs consist primarily of personnel, facilities and legal
        and administration costs.
  Operating
        expenses include gains and losses recognized on cash holdings as a result
        of
        changes in foreign exchange rates.
  **Results
        of Operations**
  **Commentary
        on the****three-
        and nine-month periods ended March 31, 2008 versus the three- and nine-month
        periods ended March 31, 2007**
  *Revenue*
  Revenue
        for the periods under review was as follows:
  **For the three months ended**
                **March 31,**(in
                  thousands)
              
              **2008**
              
              **2007**
              
              **Change**
              
              **% Change**Conditional
                  access
              
              $
              123,510
              
              $
              101,655
              
              $
              21,855
              
              
              21
              %Integration,
                  development & support
              
              
              14,134
              
              
              7,338
              
              
              6,796
              
              
              93
              %License
                  fees & royalties
              
              
              30,675
              
              
              27,122
              
              
              3,553
              
              
              13
              %New
                  technologies
              
              
              43,781
              
              
              40,953
              
              
              2,828
              
              
              7
              %Other
              
              
              1,201
              
              
              1,323
              
              
              (122
              )
              
              (9
              )%Total
                  revenue
              
              $
              213,301
              
              $
              178,391
              
              $
              34,910
              
              
              20
              %
  Page
            16
 
 **For the nine months ended**
                **March 31,**(in
                  thousands)
              
              **2008**
              
              **2007**
              
              **Change**
              
              **% Change**Conditional
                  access
              
              $
              364,504
              
              $
              292,686
              
              $
              71,818
              
              
              25
              %Integration,
                  development & support
              
              
              37,887
              
              
              38,433
              
              
              (546
              )
              
              (1
              )%License
                  fees & royalties
              
              
              88,680
              
              
              74,922
              
              
              13,758
              
              
              18
              %New
                  technologies
              
              
              137,621
              
              
              97,374
              
              
              40,247
              
              
              41
              %Other
              
              
              4,433
              
              
              4,200
              
              
              233
              
              
              6
              %Total
                  revenue
              
              $
              633,125
              
              $
              507,615
              
              $
              125,510
              
              
              25
              %
  Revenue
        comparisons for the fiscal 2008 periods to the fiscal 2007 periods were affected
        by the relative weakness of the U.S. dollar over the periods. Approximately
        38%
        and 46% of our revenue was denominated in currencies other than the U.S.
        dollar,
        principally pounds sterling and euros, during the three- and nine-month periods
        ended March 31, 2008, respectively. We estimate that the weaker U.S. dollar
        favorably impacted our total revenue for the nine-month period ended
        March 31, 2008 by approximately $21 million, or 3%, compared to what
        would have been achieved had foreign exchange rates been consistent with
        those
        prevailing during the nine-month period ended March 31, 2007. Similarly,
        for the three-month period ended March 31, 2008, we estimate that the
        weaker U.S. dollar favorably impacted revenue by approximately $5 million,
        or
        2%.
  Revenue
        from conditional access increased by 21% and 25% during the three- and
        nine-month periods ended March 31, 2008, respectively, as compared to the
        three-
        and nine-month periods ended March 31, 2007. The increases were principally
        due
        to recognition of a portion of security services revenue previously deferred
        as
        certain remaining revenue recognition criteria were satisfied during the
        three-
        and nine-month periods ended March 31, 2008. Additionally, conditional access
        revenue rose due to increased security fees arising from the growth of the
        subscriber base of our customers, as well as an increase in customers and
        a
        higher volume of smart cards delivered to customers.
  Authorized
        smart card activity in each period was as follows:
  **For the three months ended**
                **March 31,**
              
              **For the nine months ended**
                **March 31,**(in
                  millions)
              
              **2008**
              
              **2007**
              
              **2008**
              
              **2007**Number
                  of authorized cards, beginning of period
              
              
              82.7
              
              
              69.9
              
              
              75.4
              
              
              65.0Net
                  additions
              
              
              4.2
              
              
              3.0
              
              
              11.5
              
              
              7.9Number
                  of authorized cards, end of period
              
              
              86.9
              
              
              72.9
              
              
              86.9
              
              
              72.9
  The
        quantity of smart cards delivered in each period was as follows:
  **For the three months ended**
                **March 31,**
              
              **For the nine months ended**
                **March 31,**(in
                  millions)
              
              **2008**
              
              **2007**
              
              **2008**
              
              **2007**Number
                  of smart cards delivered for which revenue has been
                  recognized
              
              
              8.8
              
              
              6.3
              
              
              24.0
              
              
              19.4Number
                  of smart cards delivered for which no revenue has been
                  recognized
              
              
              1.8
              
              
              0.1
              
              
              2.9
              
              
              0.2Total
                  number of smart cards delivered
              
              
              10.6
              
              
              6.4
              
              
              26.9
              
              
              19.6
  The
        increase in the number of smart cards delivered in the three- and nine-month
        periods ended March 31, 2008 as compared to the corresponding periods of
        the
        prior fiscal year principally reflects higher deliveries to existing customers
        and to new customers. The volume of smart cards supplied exceeded the increase
        in authorized smart cards in use due to a mixture of churn and the build-up
        of
        inventory by platform operators.
  Page
            17
  During
        the three- and nine-month periods ended March 31, 2008 we delivered significant
        quantities of smart cards to customers for which we have not recognized any
        revenue. These deliveries relate to new customers, primarily in Europe and
        Asia-Pacific, where our contractual arrangements include elements that were
        undelivered as of the balance sheet date and for which we do not have
        vendor-specific objective evidence of fair value. In accordance with our
        accounting policies, we are precluded from recognizing any revenue under
        such
        arrangements until all elements have been delivered, or until have
        vendor-specific objective evidence of the fair value of any undelivered
        elements. We expect to begin recognizing revenue from these contracts within
        12
        months. The cost of smart cards delivered for which no revenue has been
        recognized is included as a separate element of inventory in our consolidated
        balance sheets.
  Integration,
        development and support revenue increased by 93% in the three-month period
        ended
        March 31, 2008 and decreased by 1% in the nine-month period ended March 31,
        2008
        as compared to the three- and nine-month periods ended March 31, 2007,
        respectively. The recognition of revenue from new customers and from the
        delivery of enhancements to several of our major customers is dependent on
        the
        timing of satisfaction of all revenue recognition criteria; therefore, this
        component of revenue may fluctuate from period to period. The increase in
        integration, development and support in the three-month period ended March
        31,
        2008 was primarily due to revenue recognition from the acceptance of a series
        of
        enhancements delivered to existing customers. The decline in integration,
        development and support revenue during the nine-month period ended March
        31,
        2008 was a consequence of the recognition and delivery in the prior year
        nine-month period of conditional access, EPG and middleware technologies
        to
        TataSky, which commenced broadcasting in India in the first quarter of fiscal
        2006.
  License
        fee and royalty revenue increased by 13% and 18% in the three- and nine-month
        periods ended March 31, 2008, respectively, as compared to the three- and
        nine-month periods ended March 31, 2007, principally resulting from higher
        conditional access and EPG royalties due to a higher number of set-top boxes
        deployed. Middleware royalties are driven by the number of middleware clients
        deployed. The table below sets forth the number of middleware clients deployed
        by our customers during each period:
  **For the three months ended**
                **March 31,**
              
              **For the nine months ended**
                **March 31,**(in
                  millions)
              
              **2008**
              
              **2007**
              
              **2008**
              
              **2007**Number
                  of middleware clients deployed, beginning of period
              
              
              76.4
              
              
              52.2
              (1)
              
              61.8
              
              
              41.6Acquisitions
              
              
              —
              
              
              —
              
              
              —
              
              
              2.0
              (1)Additions
              
              
              6.7
              
              
              5.1
              
              
              21.3
              
              
              13.7Number
                  of middleware clients deployed, end of period
              
              
              83.1
              
              
              57.3
              
              
              83.1
              
              
              57.3
 
 (1)
              Includes
                  2.0 million OpenRGTMresidential gateway middleware devices developed and deployed by
                  Jungo
                  that were recognized at the time of the acquisition of Jungo on
                  December
                  31, 2006.
  The
        increase in revenue from new technologies of 7% and 41% in the three- and
        nine-month periods ended March 31, 2008, respectively, compared to the three-
        and nine-month periods ended March 31, 2007, was principally due to higher
        revenue from our advanced middleware, IPTV, gaming applications and residential
        gateway devices. Revenue from our DVR technologies and advanced middleware
        is
        driven by the number of DVR clients deployed and the level of integration
        and
        development revenue recognized. The table below sets forth the cumulative
        number
        of DVR clients deployed during each period:
  **For the three months ended**
                **March 31,**
              
              **For the nine months ended**
                **March 31,**(in
                  millions)
              
              **2008**
              
              **2007**
              
              **2008**
              
              **2007**Number
                  of DVR clients deployed, beginning of period
              
              
              10.4
              
              
              5.3
              
              
              7.3
              
              
              3.5Additions
              
              
              1.7
              
              
              1.1
              
              
              4.8
              
              
              2.9Number
                  of DVR clients deployed, end of period
              
              
              12.1
              
              
              6.4
              
              
              12.1
              
              
              6.4
  Page
            18
  *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**
                **March 31,**(in
                  thousands)
              
              **2008**
              
              **2007**
              
              **Change**
              
              **% Change**Cost
                  of goods and services sold
              
              $
              86,817
              
              $
              70,573
              
              $
              16,244
              
              
              23
              %Gross
                  margin
              
              $
              126,484
              
              $
              107,818
              
              $
              18,666
              
              
              17
              %Gross
                  margin as a percentage of revenue
              
              
              59
              %
              
              60
              %
              
              (1
              )%
              
              **
  
 **
          Not
          meaningful.
  **For the nine months ended**
                **March 31,**(in
                  thousands)
              
              **2008**
              
              **2007**
              
              **Change**
              
              **% Change**Cost
                  of goods and services sold
              
              $
              236,759
              
              $
              193,926
              
              $
              42,833
              
              
              22
              %Gross
                  margin
              
              $
              396,366
              
              $
              313,689
              
              $
              82,677
              
              
              26
              %Gross
                  margin as a percentage of revenue
              
              
              63
              %
              
              62
              %
              
              1
              %
              
              **
  
 **
          Not
          meaningful.
 Cost
        of
        goods and services sold increased by 23% and 22% during the three- and
        nine-month periods ended March 31, 2008, respectively, as compared to the
        three-
        and nine-month periods ended March 31, 2007, principally due to an increase
        in
        the number of our employees working on development, integration and support
        activities, as well as increased royalties paid to third parties for the
        use of
        their technologies and higher deliveries of smart cards during the periods.
        The
        increases were partially offset by lower smart card unit costs.
  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.
  Gross
        margin as a percentage of revenue was 63% for the nine-month period ended
        March
        31, 2008 as compared to 62% for the corresponding period of the prior fiscal
        year. For the three-month period ended March 31, 2008, gross margin as a
        percentage of revenue was 59% as compared to 60% for the corresponding period
        of
        the prior fiscal year. The effect of an increase in the total amount of employee
        costs allocated to cost of goods and services sold offset the revenue growth
        and
        in particular the impact of those elements of higher conditional access revenue
        and royalty revenue which had no associated direct costs.
  Page
            19
  *Operating
        Expenses*
  Operating
        expenses for the periods under review were as follows:
  **For the three months ended**
                **March 31,**(in
                  thousands)
              
              **2008**
              
              **2007**
              
              **Change**
              
              **% Change**Research
                  & development
              
              $
              46,695
              
              $
              45,638
              
              $
              1,057
              
              
              2
              %Sales
                  & marketing
              
              
              12,714
              
              
              10,912
              
              
              1,802
              
              
              17
              %General
                  & administration
              
              
              20,440
              
              
              12,284
              
              
              8,156
              
              
              66
              %Amortization
                  of intangibles
              
              
              3,331
              
              
              3,202
              
              
              129
              
              
              4
              %Total
                  operating expenses
              
              $
              83,180
              
              $
              72,036
              
              $
              11,144
              
              
              15
              %
  **For the nine months ended**
                **March 31,**(in
                  thousands)
              
              **2008**
              
              **2007**
              
              **Change**
              
              **% Change**Research
                  & development
              
              $
              145,746
              
              $
              123,613
              
              $
              22,133
              
              
              18
              %Sales
                  & marketing
              
              
              36,376
              
              
              28,203
              
              
              8,173
              
              
              29
              %General
                  & administration
              
              
              53,198
              
              
              35,972
              
              
              17,226
              
              
              48
              %Amortization
                  of intangibles
              
              
              9,946
              
              
              8,129
              
              
              1,817
              
              
              22
              %Total
                  operating expenses
              
              $
              245,266
              
              $
              195,917
              
              $
              49,349
              
              
              25
              %
  Expense
        comparisons of the fiscal 2008 periods to the fiscal 2007 periods were affected
        by the relative weakness of the U.S. dollar over the periods. Approximately
        72%
        of our total expenses were denominated in currencies other than the U.S.
        dollar,
        principally pounds sterling, Israeli shekels, euros and Indian rupees, during
        the three- and nine-month periods ended March 31, 2008. We estimate that
        the weaker U.S. dollar increased our total expenses in the nine-month period
        ended March 31, 2008 by approximately $23 million, or 5%, compared to what
        would
        have been achieved had foreign exchange rates been consistent with those
        prevailing during the nine-month period ended March 31, 2007. Similarly,
        for the three-month period ended March 31, 2008, we estimate that the weaker
        U.S. dollar adversely impacted expenses by approximately $9 million, or 5%.
        The
        increase in operating expenses was offset in part by foreign exchange gains
        of
        $8.4 million and $16.5 million recognized during the three- and nine-month
        periods ended March 31, 2008, respectively, in the consolidated statement
        of
        operations as a result of holding cash in currencies other than the U.S.
        dollar.
        These amounts compare to $0.6 million and $1.5 million, respectively, in
        the
        corresponding periods of the previous fiscal year.
  Our
        main
        operating expenses are employee costs (including the cost of equity-based
        awards), facilities costs, depreciation, travel costs and legal expenses.
        Our
        main operating expenses have increased primarily due to a higher number of
        employees, facilities expenses and legal costs. Employee costs were
        approximately 28% higher in U.S. dollar terms during both the three- and
        nine-month periods ended March 31, 2008 as compared to the corresponding
        periods
        of the prior fiscal year.
  Our
        employee numbers (which include contractors) have increased over the period
        under review, as follows:
  **For the three months ended**
                **March 31,**
              
              **For the nine months ended**
                **March 31,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Number
                  of employees, beginning of period
              
              
              3,820
              
              
              3,212
              
              
              3,572
              
              
              2,989Net
                  additions
              
              
              66
              
              
              248
              
              
              314
              
              
              471
              (1)Number
                  of employees, end of period
              
              
              3,886
              
              
              3,460
              
              
              3,886
              
              
              3,460Average
                  number of employees during period
              
              
              3,857
              
              
              3,372
              
              
              3,731
              
              
              3,194
  
 (1)
              Includes
                  136 employees of Jungo, which was acquired on December 31,
                  2006.
  Page
            20
  Research
        and development costs increased by 2% and 18% for the three- and nine-month
        periods ended March 31, 2008, respectively, as compared to the three- and
        nine-month periods ended March 31, 2007, principally as a result of a
        higher number of employees working on an increased number of projects. The
        increase in the employee costs in the nine-month period ended March 31, 2008
        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
        nine-month period ended March 31, 2007 we received a similar grant of
        $5.5 million.
  Sales
        and
        marketing expenses increased by 17% and 29% in the three- and nine-month
        periods
        ended March 31, 2008, respectively, as compared to the three- and
        nine-month periods ended March 31, 2007, principally as a result of higher
        employee headcount and travel costs, increased attendance at trade shows
        and a
        higher level of corporate communications activities.
  During
        the three- and nine-month periods ended March 31, 2008, general and
        administrative expenses increased by 66% and 48%, respectively, as compared
        to
        the corresponding periods of the previous fiscal year, principally due to
        increased legal expenses, as well as equity compensation costs and facilities
        and infrastructure costs.
  Amortization
        of finite-lived intangible assets increased by 22% in the nine-month period
        ended March 31, 2008, as compared to the nine-month period ended March 31,
        2007, principally due to the acquisition of Jungo in December 2006. The increase
        in amortization of 4% in the three-month period ended March 31, 2008, as
        compared to the corresponding period of the previous fiscal year, was primarily
        the result of foreign exchange rate movements.
  *Operating
        Income and Other Items*
  As
        a
        result of the factors outlined above, and, in particular, the increase in
        conditional access and new technologies revenue and the impact of foreign
        currency exchange rate movements, operating income was $43.3 million, or
        20% of
        revenue, for the three-month period ended March 31, 2008, compared to
        $35.8 million, or 20% of revenue, for the three-month period ended March
        31, 2007. Operating income was $151.1 million, or 24% of revenue, for the
        nine-month period ended March 31, 2008, compared to $117.8 million, or 23%
        of
        revenue, for the nine-month period ended March 31, 2007.
  The
        principal foreign currency exchange rates that affect our consolidated results
        of operations and balance sheets are:
  **Average exchange rate for the**
                **nine months ended**
              
              **Period end exchange rate as of****March 31,**
                **2008**
              
              **March 31,**
                **2007**
              
              **March 31,**
                **2008**
              
              **June 30,**
                **2007**U.K.
                  pound sterling / U.S. dollar
              
              
              2.014
              
              
              1.914
              
              
              1.989
              
              
              2.006Euro
                  / U.S. dollar
              
              
              1.438
              
              
              1.291
              
              
              1.576
              
              
              1.352Israeli
                  shekel / U.S. dollar
              
              
              0.255
              
              
              0.239
              
              
              0.284
              
              
              0.235Indian
                  rupee / U.S. dollar
              
              
              0.025
              
              
              0.022
              
              
              0.025
              
              
              0.025
  We
        estimate that the weaker U.S. dollar increased our operating income in the
        three- and nine-month periods ended March 31, 2008 by approximately
        $4 million and $15 million, respectively, compared to what would have
        been achieved had foreign exchange rates been consistent with those prevailing
        during the three- and nine-month periods ended March 31, 2007.
  Interest
        income earned on cash deposits was $6.5 million and $21.5 million in the
        three-
        and nine-month periods ended March 31, 2008, respectively, as compared to
        $6.2 million and $18.7 million in the three- and nine-month periods ended
        March 31, 2007, respectively. These increases were principally due to
        higher cash balances.
  Our
        effective tax rate was 27% and 29% for the three- and nine-month periods
        ended
        March 31, 2008, respectively, compared to 30% and 31% for the three- and
        nine-month periods ended March 31, 2007, respectively. The decreases in the
        effective tax rate were due to higher benefits from research and development
        incentives and a higher portion of earnings being generated in jurisdictions
        with lower statutory and effective 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% for the fiscal year ending June 30, 2008 and 28%
        thereafter.
  As
        a
        consequence of all the factors described above, net income for the three-month
        period ended March 31, 2008 was $36.3 million, or $0.62 per share ($0.62
        per share on a diluted basis), compared to $29.2 million, or $0.51 per
        share ($0.50 per share on a diluted basis), for the three-month period ended
        March 31, 2007. Net income for the nine-month period ended March 31, 2008
        was
        $123.0 million, or $2.12 per share ($2.09 per share on a diluted basis),
        compared to $94.6 million, or $1.66 per share ($1.63 per share on a diluted
        basis), for the nine-month period ended March 31, 2007.
  Page
            21
  **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 March 31, 2008, we had
        an
        unused credit facility to borrow up to £30 million (equivalent to approximately
        $60 million) from a subsidiary of News Corporation. No amounts have been
        drawn
        under this facility.
  As
        of
        March 31, 2008, we had cash and cash equivalents totaling $696.2 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 our 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
        $208 million as of March 31, 2008 and we expect to utilize cash to meet our
        obligations under our arrangements with our customers and in order to recognize
        revenue deferred. 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 $86.0 million in the nine-month
        period ended March 31, 2008, compared to $195.5 million in the nine-month
        period ended March 31, 2007. During the nine-month period ended March 31,
        2007, short-term investments of $184.4 million matured and we did not reinvest
        such funds.
  Net
        cash
        provided by operating activities was as follows:
  **For the nine months ended**
                **March 31,**(in
                  thousands)
              
              **2008**
              
              **2007**Net
                  cash provided by operating activities
              
              $
              99,067
              
              $
              96,758
  The
        increase in net cash provided by operating activities in the nine-month period
        ended March 31, 2008 as compared to the corresponding period of the prior
        fiscal
        year reflects higher receipts from customers and higher interest receipts.
        These
        factors were substantially offset by higher payments relating to the purchase
        of
        smart cards and higher payroll costs, travel expenses, legal costs and income
        tax payments.
  Page
            22
  Net
        cash
        (used in) provided by investing activities was as follows:
  **For the nine months ended**
                **March 31,**(in
                  thousands)
              
              **2008**
              
              **2007**Capital
                  expenditure
              
              $
              (10,657
              )
              $
              (16,191
              )Business
                  acquisitions, net of cash acquired
              
              
              (10,350
              )
              
              (80,715
              )Deferred
                  payments in respect of business acquisitions
              
              
              (116
              )
              
              (1,957
              )Short-term
                  investments, net
              
              
              ─
              
              
              184,401Net
                  cash (used in) provided by investing activities
              
              $
              (21,123
              )
              $
              85,538
  In
        the
        nine-month period ended March 31, 2008, we acquired CastUp Inc., a provider
        of
        solutions for the hosting, management and distribution of video over the
        Internet, for initial consideration and costs of $10.4 million. In the
        nine-month period ended March 31, 2007, we acquired Jungo for cash consideration
        and costs totaling $77.5 million, net of cash acquired and we also acquired
        Interactive Television Entertainment ApS for cash consideration and costs
        of $3.2 million.
  Capital
        expenditure decreased to $10.7 million in the nine-month period ended March
        31, 2008 as compared to $16.2 million in the corresponding period of the
        previous fiscal year, primarily because payments for capital expenditure
        in the
        nine-month period ended March 31, 2007 included investments in new
        facilities.
  During
        the nine-month period ended March 31, 2007, short-term investments (cash
        deposits with an initial term of more than six months) of $184.4 million
        matured
        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
        provided by financing activities was as follows:
  **For the nine months ended**
                **March 31,**(in
                  thousands)
              
              **2008**
              
              **2007**Issuance
                  of shares
              
              $
              7,009
              
              $
              10,238Excess
                  tax benefits realized on shares issued as a result of equity compensation
                  awards
              
              
              1,077
              
              
              2,922Net
                  cash provided by financing activities
              
              $
              8,086
              
              $
              13,160
  During
        the nine-month period ended March 31, 2008, we issued 390,093 of our Series
        A
        Ordinary Shares to certain of our employees as a result of the exercise of
        stock
        options over Series A Ordinary Shares for cash. This compares to 620,734
        Series
        A Ordinary Shares which we issued in the corresponding period of the previous
        fiscal year. Certain shares issued as a result of equity compensation awards
        result in a tax benefit higher than the amounts recorded in the consolidated
        statement of operations. Such excess tax benefits are shown as a financing
        cash
        flow to the extent that they are realized.
  ***Commitments
        and Contractual Obligations***
  In
        connection with our acquisition of Jungo in December 2006, additional
        consideration of up to $17.0 million was payable in cash if Jungo achieved
        certain revenue and profitability targets during the year ended December
        31,
        2007. However, those revenue and profitability targets were not met during
        the
        year ended December 31, 2007; therefore, we are not required to pay any
        additional consideration.
  Other
        than disclosed elsewhere in this Quarterly Report, our commitments have not
        changed significantly from disclosures included in our Annual Report on Form
        10-K for the fiscal year ended June 30, 2007 filed with the SEC on August
        29,
        2007.
  Page
            23
  **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, euros and Indian rupees.
  Approximately
        38% and 46% of our revenue was denominated in currencies other than the U.S.
        dollar, principally pounds sterling and euros, during the three- and nine-month
        periods ended March 31, 2008, respectively. We estimate that the weaker U.S.
        dollar favorably impacted our total revenue for the nine-month period ended
        March 31, 2008 by approximately $21 million, or 3%, compared to what would
        have
        been achieved had foreign exchange rates been consistent with those prevailing
        during the nine-month period ended March 31, 2007. For the three-month period
        ended March 31, 2008, we estimate that the weaker U.S. dollar favorably impacted
        revenue by approximately $5 million, or 2%.
  Approximately
        72% of our total expenses were denominated in currencies other than the U.S.
        dollar, principally pounds sterling, Israeli shekels, euros and Indian rupees,
        during the three- and nine-month periods ended March 31, 2008. We estimate
        that the weaker U.S. dollar increased our total expenses in the nine-month
        period ended March 31, 2008 by approximately $23 million, or 5%, compared
        to what would have been achieved had foreign exchange rates been consistent
        with
        those prevailing during the nine-month period ended March 31, 2007. For the
        three-month period ended March 31, 2008, we estimate that the weaker U.S.
        dollar
        adversely impacted expenses by approximately $9 million, or 5%.
  As
        a
        result of fluctuations in foreign exchange rates, we experienced net gains
        on
        cash holdings of $17.5 million in the nine-month period ended March 31, 2008,
        of
        which a gain of approximately $16.5 million was recorded within operating
        expenses, and a gain of approximately $1.0 million was recorded within other
        comprehensive income. During the three-month period ended March 31, 2008,
        we
        experienced net gains on cash holdings of $11.2 million, of which a gain of
        approximately $8.5 million was recorded within operating expenses, and a
        gain of approximately $2.7 million was recorded within other comprehensive
        income.
  We
        estimate that the weaker U.S. dollar increased our operating income in the
        three- and nine-month period ended March 31, 2008 by approximately $4
        million and $15 million, respectively, compared to what would have been
        achieved had foreign exchange rates been consistent with those prevailing
        during
        the three- and nine-month periods ended March 31, 2007.
  As
        of
        March 31, 2008, approximately 63% of our cash was held in U.S. dollars, 12%
        in
        pounds sterling and 2% 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
        March
        31, 2008. A portion of our cash holdings is held in currencies other than
        the
        U.S. dollar in order to limit the impact on changes in exchange rates on
        our
        forecast operating income and net income, but, as a consequence, such practice
        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
        $7
        million.
  Page
            24
  **Item
        4.**  **Controls
        and Procedures**
  **a)
        Disclosure Controls and Procedures**
  The
        Company’s management, with the participation of the Company’s Chairman and Chief
        Executive Officer and Chief Financial Officer, has evaluated the effectiveness
        of the Company’s disclosure controls and procedures (as such term is defined in
        Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934,
        as
        amended (the “Exchange Act”)) as of the end of the period covered by this
        quarterly report. Based on such evaluation, the Company’s Chairman and Chief
        Executive Officer and Chief Financial Officer have concluded that, as of
        the end
        of such period, the Company’s disclosure controls and procedures were effective
        in recording, processing, summarizing and reporting, on a timely basis,
        information required to be disclosed by the Company in the reports that it
        files
        or submits under the Exchange Act and were effective in ensuring that
        information required to be disclosed by the Company in the reports it files
        or
        submits under the Exchange Act is accumulated and communicated to the Company’s
        management, including the Company’s Chairman and Chief Executive Officer and
        Chief Financial Officer, as appropriate to allow timely decisions regarding
        required disclosure.
  **b)
        Internal Control over Financial Reporting**
  There
        has
        been no change in the Company’s internal control over financial reporting (as
        such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange
        Act)
        during the Company’s third quarter of fiscal 2008 that has materially affected,
        or is reasonably likely to materially affect, the Company’s internal control
        over financial reporting.
  Page
            25
  **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 may 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 the security features of the conditional access system. Any
        significant increase in the incidence of signal theft could require us to
        replace a population of a platform operator’s smart cards or take other remedial
        action. 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 us
        to
        replace a population of smart cards or take other action to rectify the problem.
        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
            26
  ***A
        substantial part of our expected future revenue and income growth is based
        on
        our aim to sell advanced technologies and services to our existing customers
        and
        to sell end-to-end systems to new customers.***
  We
        expect
        over the next several years to sell advanced technology solutions for the
        television market, including DVR functionality, games, gaming and other
        interactive applications, home networks services and other services. The
        market
        for advanced television technology solutions is still new and evolving.
        Historically, we have derived only a relatively small percentage of our total
        revenue from these offerings. We cannot be certain that the demand for or
        the
        market acceptance of these technologies will develop as we anticipate, and
        even
        if they do, we cannot be certain that we will be able to market these solutions
        effectively and successfully respond to changes in consumer preferences.
        In
        addition, our ability to market those solutions will be affected to a large
        degree by platform operators. If platform operators determine that our solutions
        do not meet their business or operational expectations, they may choose not
        to
        offer our applications to their customers. To the extent that platform operators
        and content providers fail to renew or enter into new or expanded contracts
        with
        us for provision of advanced technologies, we will be unable to maintain
        or
        increase the associated revenue from those offerings. Moreover, due to global
        economic conditions, platform operators may slow the pace of their deployment
        of
        these advanced services and such action would negatively impact our revenue.
        Accordingly, our ability to generate substantial revenue from our advanced
        technology solutions offerings is uncertain.
  ***Our
        business could be harmed if a defect in our software or technology interferes
        with, or causes any failure in, our customers’
systems.***
  Our
        software and technology are integrated into the broadcast infrastructure
        of our
        customers. As a result, any defect, error or performance problem with our
        software or technology could interfere with a critical component of one or
        more
        of our customers’ systems, or potentially cause a critical component of one or
        more of our customers’ systems to fail for a period of time. This could result
        in claims for substantial damages against us, regardless of whether we are
        responsible for such failure. Any claim brought against us could be expensive
        to
        defend and require the expenditure of a significant amount of resources,
        regardless of whether we prevail. Although we have not experienced any such
        material interference or failure in the past, any future problem could cause
        severe customer service and public relations problems for our customers and
        as a
        consequence, our business, operating results and financial condition could
        be
        materially adversely affected.
  ***We
        depend upon key personnel, including our senior executives and technical
        and
        engineering staff, to operate our business effectively, and we may be unable
        to
        attract or retain such personnel.***
  Our
        future success depends largely upon the continued service of our senior
        executive officers and other key management and technical personnel. If certain
        of our senior executives were to leave the Company, we may be placed at a
        competitive disadvantage. In addition, we may also need to increase the number
        of our technical, consulting and support employees to support new customers
        and
        the expanding needs of our existing customers. We have, in the past, experienced
        difficulty in recruiting sufficient numbers of qualified personnel. If we
        are
        not successful in these recruiting efforts, our business may be adversely
        affected.
  ***Intense
        competition could reduce our market share and harm our financial
        performance.***
  We
        compete with numerous companies both to attract new customers and to retain
        our
        existing customers. Such competition may cause us to lose market share and
        may
        result in reduced profit margins. It may also hinder our ability to develop
        our
        business in areas such as DVRs, middleware, interactive television services
        and
        broadband and IPTV. In addition, some of the companies that currently operate
        in
        the software business, but that have not historically been active competitors
        of
        ours may, in the future, through acquisitions or the development of their
        own
        resources, seek to enter and obtain significant market share in our current
        or
        planned business areas. Increased competition from existing or new competitors
        could result in price reductions, reduced margins or loss of market share,
        any
        of which could materially and adversely affect our business, operating results
        and financial condition.
  Page
            27
  ***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 nine-month
        period ended March 31, 2008, these three customers accounted directly and
        indirectly for approximately 62% of our total revenue. News Corporation,
        which
        holds approximately 72% of our total and issued outstanding share capital,
        currently owns approximately 39% and 100% of BSkyB and SKY Italia, respectively.
        News Corporation previously owned a 41% interest in DIRECTV, but divested
        of its
        entire interest in February 2008. We have a number of contracts with DIRECTV,
        its subsidiaries and affiliates, covering the supply of conditional access,
        middleware and DVR technologies, which expire at various dates through 2013
        and
        which contain various terms covering renewal and termination. We expect to
        continue to be dependent upon a limited number of customers for a significant
        portion of our revenue, although the particular customers may vary from period
        to period. If a large customer purchases significantly less of our products
        or
        services, defers or cancels orders, or fails to renew or terminates its
        relationship with us or renews with us on less favorable terms, our revenue
        could decline significantly and as a result, our business, operating results
        and
        financial condition could be materially adversely affected.
  ***The
        nature of our business is such that our operating results may fluctuate from
        period to period.***
  Our
        operating results have varied in the past from quarter to quarter and from
        year
        to year and are likely to vary from period to period in the future.
        Historically, our revenue has reflected a small number of relatively large
        orders for our technology and services, which generally have long sales and
        order cycles. Additionally, our accounting policies may require us to defer
        revenue until all elements of an arrangement have been delivered to and accepted
        by our customers. 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 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
            28
  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.
  Page
            29
  ***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 nine-month period ended March 31, 2008,
        approximately 46% of our revenue and approximately 72% of our total expenses
        were denominated in currencies other than the U.S. dollar. Additionally,
        as of
        March 31, 2008, approximately 37% of our cash balances were denominated in
        currencies other than the U.S. dollar. As a result, we are exposed to
        fluctuations in foreign exchange rates that may have a material adverse effect
        on our business, operating results and financial condition.
  Additionally,
        although most of our contracts with customers in Latin America, India and
        the
        Asia-Pacific region are denominated in U.S. dollars, those customers are
        affected by fluctuations in their local currencies and by exchange control
        regulations that may restrict their ability to remit payments to
        us.
  ***We
        are subject to certain risks relating to our operations in
        Israel.***
  We
        have
        research and development facilities in Israel and we have customers in Israel.
        Therefore, we are directly influenced by the political, economic and security
        conditions affecting Israel. Any major hostilities involving Israel, or the
        interruption or curtailment of trade or the movement of people within Israel
        or
        between Israel and other countries, could significantly harm our business,
        operating results and financial condition. Additionally, certain of our
        employees are currently required to perform annual reserve duty in the Israeli
        Defense Force, and are subject to being called for active military duty at
        any
        time. We have, in the past, operated effectively under these requirements.
        We
        cannot predict the effect of these obligations on us in the future.
  ***We
        are controlled by, and are dependent upon our relationship with, News
        Corporation.***
  We
        are
        controlled by News Corporation. As of March 31, 2008, News Corporation
        beneficially owned approximately 72% of our total issued and outstanding
        share
        capital. Because News Corporation beneficially owns 100% of our Series B
        ordinary shares, par value $0.01 per share (“Series B Ordinary Shares”), which
        have ten votes per share (as opposed to our Series A Ordinary Shares, which
        have
        one vote per share), it controls approximately 96% of our voting power. By
        reason of such ownership, News Corporation is able to control the composition
        of
        our entire Board of Directors and to control the votes on all other matters
        submitted to a vote of our shareholders. Four of our seven current Directors
        have been appointed by News Corporation, including Dr. Abe Peled, our Chairman
        and Chief Executive Officer, who from time to time is involved in matters
        pertaining to News Corporation’s wider business interests.
  Businesses
        in which News Corporation has an interest currently account for, and are
        expected to continue to account for, a significant portion of our revenue,
        although the proportion of such revenue has declined following News
        Corporation’s divestiture of its interest in DIRECTV in February 2008. During
        the nine-month period ended March 31, 2008, approximately 38% of our total
        revenues were derived directly from businesses in which News Corporation
        has a
        continuing interest. Those businesses include two of our three largest
        customers. Although we believe the terms of our contracts with such related
        parties are no less favorable to us than those that we could obtain from
        unrelated third parties, we cannot assure you that this is the
        case.
  In
        addition, because a number of major broadcasters around the world are owned
        or
        controlled by entities that compete with News Corporation or entities in
        which
        News Corporation has an interest, our ability to attract customers in which
        News
        Corporation does not have an interest may be affected by their perception
        of our
        relationship with News Corporation.
  ***Because
        we are controlled by News Corporation, we are exempt from certain listing
        requirements of The*** **NASDAQ
        Stock Market relating to corporate governance matters.**
  Over
        the
        past several years, the National Association of Securities Dealers has adopted
        certain listing requirements for companies listed on The NASDAQ Stock Market.
        As
        a result of News Corporation’s beneficial ownership of our Series B Ordinary
        Shares, we are deemed to be a “controlled company” and accordingly are not
        subject to some of these requirements, including the requirement that a majority
        of our Board of Directors be “independent” under the guidelines established by
        the National Association of Securities Dealers and certain requirements
        regarding the determination of our Chairman and Chief Executive Officer’s
        compensation and our director nominees. While we do not believe that our
        exemption from those requirements affects the manner and method by which
        we
        manage and operate the Company, investors should be aware that we are not
        subject to those provisions and may have no obligation to comply with those
        requirements in the future unless our ownership profile changes.
  Page
            30
  ***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
            31
  **Signatures**
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, as amended, the
        registrant has duly caused this report to be signed on its behalf by the
        undersigned thereunto duly authorized.
  NDS
                  GROUP PLC(Registrant)By:
              /s/
                  Alexander GershAlexander
                  GershChief
                  Financial Officer
 
 Date:  May
        1,
        2008
  Page
            32