**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





**(Mark
      One)**


**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the quarterly period ended September 30, 2008**
              
              **or**** ̈**
            **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)
              
              **One
                Heathrow Boulevard, 286 Bath Road, West Drayton,**
              **Middlesex,
                United Kingdom**
              (Address
                of principal executive offices)
            **Not
                applicable**
              (I.R.S.
                Employer Identification No.)
              
              
              **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****x**
            **No**** ̈**Indicate
                by check mark whether the registrant is a large accelerated filer,
                an
                accelerated filer, a non-accelerated filer or a smaller reporting
                company.
                See 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**** ̈**
            **Non-accelerated filer**** ̈**
            **Smaller reporting company**** ̈**Indicate
                by check mark whether the registrant is a shell company (as defined
                in
                Rule 12b-2 of the Exchange Act).**Yes**** ̈**
            **No****x**As
                of October 29, 2008, the following shares were outstanding: 16,428,228
                Series A ordinary shares, par value $0.01 per share; 42,001,000 Series
                B
                ordinary shares, par value $0.01 per share; and 42,000,002 deferred
                shares, par value £1 per share.





**NDS
      GROUP PLC**




**Table
      of Contents**




**PART
                I – Financial Information**Item
                1.
            Financial
                StatementsUnaudited
                Consolidated Statements of Operations for the three months ended
                September
                30, 2008 and 2007
            1Consolidated
                Balance Sheets as of September 30, 2008 (unaudited) and June 30,
                2008
            2Unaudited
                Consolidated Statements of Cash Flows for the three months ended
                September
                30, 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
            25Item
                4.
            Controls
                and Procedures
            26**PART
                II – Other Information**Item
                1.
            Legal
                Proceedings
            27Item
                1A.
            Risk
                Factors
            27Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            33Item
                3.
            Defaults
                upon Senior Securities
            33Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            33Item
                5.
            Other
                Information
            33Item
                6.
            Exhibits
            34Signatures
            35





**PART
      I – Financial Information**




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




**NDS
      Group plc**


**Unaudited
      Consolidated Statements of Operations**




**For the three months ended**
              **September 30,**(in
                thousands, except per-share amounts)
            
            **2008**
            
            **2007****Revenue**
            
            $
            182,164
            
            $
            204,876Cost
                of goods and services sold
            
            
            (75,461
            )
            
            (68,456
            )Gross
                margin
            
            
            106,703
            
            
            136,420Operating
                expenses
            
            
            (80,794
            )
            
            (78,134
            )**Operating
                income**
            
            
            25,909
            
            
            58,286Interest
                income, net
            
            
            5,200
            
            
            7,372Other
                expenses
            
            
            (14,107
            )
            
            —Income
                before income tax expense
            
            
            17,002
            
            
            65,658Income
                tax expense
            
            
            (3,618
            )
            
            (19,364
            )**Net
                income**
            
            $
            13,384
            
            $
            46,294**Net
                income per share:**Basic
                net income per share
            
            $
            0.23
            
            $
            0.80Diluted
                net income per share
            
            $
            0.23
            
            $
            0.79




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


Page
          1


**NDS
      Group plc**




**Consolidated
      Balance Sheets**




(in
                thousands, except share amounts)
            
            **As of**
              **September 30,**
              **2008**
              **(Unaudited)**
            
            **As of**
              **June 30,**
              **2008**
              **(See Note 2)****ASSETS****Current
                assets:**Cash
                and cash equivalents
            
            $
            711,162
            
            $
            734,992Accounts
                receivable, net
              (inclusive
                of $48,675 and $50,339 due from related parties)
            
            
            119,141
            
            
            126,131Accrued
                income
            
            
            40,386
            
            
            46,948Inventories,
                net
            
            
            87,246
            
            
            79,659Prepaid
                expenses
            
            
            24,869
            
            
            24,904Other
                current assets
            
            
            19,523
            
            
            4,203Total
                current assets
            
            
            1,002,327
            
            
            1,016,837Property,
                plant & equipment, net
            
            
            47,239
            
            
            49,741Goodwill
            
            
            130,944
            
            
            134,693Other
                intangibles, net
            
            
            51,962
            
            
            55,806Deferred
                tax assets
            
            
            15,641
            
            
            17,370Other
                non-current assets
            
            
            109,402
            
            
            101,702**Total
                assets**
            
            $
            1,357,515
            
            $
            1,376,149**LIABILITIES
                AND SHAREHOLDERS’ EQUITY****Current
                liabilities:**Accounts
                payable
              (inclusive
                of $4,488 and $4,846 due to related parties)
            
            $
            27,463
            
            $
            33,611Deferred
                income
            
            
            125,584
            
            
            128,318Accrued
                expenses
            
            
            56,286
            
            
            87,115Income
                tax liabilities
            
            
            15,016
            
            
            24,513Other
                current liabilities
            
            
            33,291
            
            
            20,673Total
                current liabilities
            
            
            257,640
            
            
            294,230Deferred
                income
            
            
            79,454
            
            
            79,100Accrued
                expenses
            
            
            70,041
            
            
            67,713Other
                non-current liabilities
            
            
            4,419
            
            
            4,701**Total
                liabilities**
            
            
            411,554
            
            
            445,744Commitments
                and contingencies**Shareholders’
                equity:**Series
                A ordinary shares, par value $0.01 per share: 48,000,000 shares
                authorized; 16,424,907 and 16,250,058 shares outstanding as of September
                30, and June 30, 2008, respectively
            
            
            164
            
            
            162Series
                B ordinary shares, par value $0.01 per share: 52,000,000 shares
                authorized; 42,001,000 shares outstanding as of September 30, and
                June 30,
                2008, respectively
            
            
            420
            
            
            420Deferred
                shares, par value £1 per share: 42,000,002 shares authorized and
                outstanding as of September 30, and June 30, 2008,
                respectively
            
            
            64,103
            
            
            64,103Additional
                paid-in capital
            
            
            594,316
            
            
            590,663Retained
                earnings
            
            
            229,585
            
            
            216,201Other
                comprehensive income
            
            
            57,373
            
            
            58,856**Total
                shareholders’ equity**
            
            
            945,961
            
            
            930,405**Total
                liabilities and shareholders’ equity**
            
            $
            1,357,515
            
            $
            1,376,149




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


Page
          2


**NDS
      Group plc**


**Unaudited
      Consolidated Statements of Cash Flows**





**For the three months ended**
              **September 30,**(in
                thousands)
            
            **2008**
            
            **2007****Operating
                activities:**Net
                income
            
            $
            13,384
            
            $
            46,294Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
            
            
            5,451
            
            
            5,652Amortization
                of other intangibles
            
            
            3,333
            
            
            3,283Equity-based
                compensation
            
            
            4,795
            
            
            4,311Conditional
                Derivative Instrument, net (see Note 3)
            
            
            6,620
            
            
            —Other
            
            
            234
            
            
            97Change
                in operating assets and liabilities, net of acquisitions:Inventories
            
            
            (7,587
            )
            
            (4,402
            )Receivables
                and other assets
            
            
            7,292
            
            
            (18,244
            )Deferred
                income
            
            
            (2,380
            )
            
            (9,222
            )Accounts
                payable and other liabilities
            
            
            (35,875
            )
            
            9,016Net
                cash (used in) provided by operating activities
            
            
            (4,733
            )
            
            36,785**Investing
                activities:**Capital
                expenditure
            
            
            (5,446
            )
            
            (3,470
            )Business
                acquisitions, net of cash acquired
            
            
            (1,117
            )
            
            (10,374
            )Net
                cash used in investing activities
            
            
            (6,563
            )
            
            (13,844
            )**Financing
                activities:**Issuance
                of shares
              (inclusive
                of realized excess tax benefits of $262 and $79)
            
            
            1,135
            
            
            388**Net
                (decrease) increase in cash and cash equivalents**
            
            
            (10,161
            )
            
            23,329Cash
                and cash equivalents, beginning of period
            
            
            734,992
            
            
            592,750Currency
                exchange movements
            
            
            (13,669
            )
            
            6,088**Cash
                and cash equivalents, end of period**
            
            $
            711,162
            
            $
            622,167




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, Germany, 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-month period ended
      September 30, 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, 2009.




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, 2008 included in the Company’s Annual
      Report on Form 10-K as filed with the Securities and Exchange Commission on
      August 8, 2008. Financial information as of June 30, 2008 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.




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




The
      Company maintains a 52-53 week fiscal year ending on the Sunday nearest to
      each
      reporting date. As such, all references to September 30, 2008 and September
      30,
      2007 relate to the three-month periods ended September 28, 2008 and September
      30, 2007, respectively. For convenience purposes, the Company continues to
      date
      its financial statements as of September 30.




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




***Recent
      accounting pronouncements***




*Business
      combinations*




In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard (“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.


Page
          4


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.




*Fair
      values and financial instruments*




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. In accordance with SFAS No. 157, fair
      value
      measurements are required to be disclosed using a three-tiered fair value
      hierarchy which distinguishes market participant assumptions into the following
      categories: (i) inputs that are quoted prices in active markets (“Level 1”),
      (ii) inputs other than quoted prices included within Level 1 that are
      observable, including quoted prices for similar assets or liabilities
      (“Level  2”)
      and
      (iii) inputs that require the entity to use its own assumptions about market
      participant assumptions (“Level 3”). 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 became effective for the Company on July
      1,
      2008. The Company has entered into transactions in fiscal 2009 to which SFAS
      No.
      157 is relevant. These are discussed in Notes 3 and 4 below. 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.





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 became effective for the Company on July 1, 2008. The Company had no
      assets or liabilities subject to the provision of SFAS No. 159 as of June 30,
      2008.




In
      March
      2008, the FASB released SFAS No, 161, “Disclosures about Derivative Instruments
      and Hedging Activities” (“SFAS 161”). SFAS No. 161 requires qualitative
      disclosures about objectives and strategies for using derivatives, quantitative
      disclosures about fair value amounts of and gains and losses on derivative
      instruments, and disclosures about credit-risk-related contingent features
      in
      derivative agreements. The application of SFAS 161 will become effective for
      the
      Company beginning in fiscal 2010. The Company is currently evaluating the impact
      of SFAS 161 on its consolidated financial statements but does not expect it
      to
      have a material effect.




*Other*




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 became effective for the Company on July 1, 2008 but did not have
      any
      material impact on the Company’s consolidated results of operations and
      financial condition.




**Note
      3.**  **Proposed
      transaction**




On
      August
      14, 2008, the Company, News Corporation and two newly incorporated companies
      formed by funds advised by Permira Advisers LLP (the “Permira Newcos”) announced
      that the Company signed an implementation agreement pursuant to which the
      Company would become a privately-owned company, with the Permira Newcos and
      News
      Corporation owning approximately 51% and 49% of the Company, respectively (the
      “Proposed Transaction”). The Proposed Transaction would be effected by means
      of:




·
            Cancelling
                all of the outstanding Series A Ordinary Shares, par value $0.01
                per share
                (“Series A Ordinary Shares”), including shares represented by American
                Depositary Shares (“ADSs”) traded on The NASDAQ Stock Market (“NASDAQ”),
                for per-share consideration of $63 in cash;


Page
          5


·
            Cancelling
                approximately 67% of the Series B Ordinary Shares, par value $0.01
                per
                share (“Series B Ordinary Shares”) held by News Corporation for
                consideration of $63 per share to be paid in a combination of
                approximately $1.5 billion in cash and a $242 million vendor note.
                News
                Corporation currently owns 71.9% of the equity and 96.2% of the voting
                power of the Company through its ownership of 100% of the outstanding
                Series B Ordinary Shares. News Corporation would retain ownership
                of the
                remaining approximately 33% of the Series B Ordinary Shares it currently
                holds, resulting in it owning 49% of the Company following the completion
                of the Proposed Transaction; and




·
            Issuing
                the Permira Newcos new Series B Ordinary Shares representing 51%
                of the
                Company’s then outstanding Series B Ordinary
                Shares.




If
      the
      Proposed Transaction is consummated, it will be funded by a mix of senior and
      mezzanine indebtedness incurred by the Company, an investment provided by the
      Permira Newcos and cash on hand at the Company. The Company’s commitments and
      obligations with respect to the indebtedness are contingent upon the
      consummation of the Proposed Transaction.




The
      consummation of the Proposed Transaction is conditioned upon the approval of
      the
      transaction by holders of the Series A Ordinary Shares, the approval of the
      High
      Court of Justice of England and Wales, the receipt of certain regulatory
      approvals, the
      receipt of funding described above and
      certain other customary closing conditions. The consummation of the Proposed
      Transaction is also conditioned upon the Proposed Transaction being consummated
      by February 25, 2009, or such later date as agreed by the parties and approved
      by the High Court of Justice of England and Wales. There can be no assurance
      that the Proposed Transaction will be consummated.




During
      the three-month period ended September 30, 2008, the Company entered into a
      conditional forward currency derivative financial instrument to act as an
      economic hedge against the fact that a portion of the debt to be drawn down
      upon
      the consummation of the Proposed Transaction will be denominated in euros,
      but
      payments to shareholders will be denominated in U.S. dollars (the “Conditional
      Derivative Instrument”). The notional value of the Conditional Derivative
      Instrument is €367 million. Should the Proposed Transaction not be consummated,
      no amounts will be due under the Conditional Derivative Instrument. SFAS No.
      133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No.
      133”) requires all derivative financial instruments to be recognized at fair
      value as of the balance sheet date. The terms of the Conditional Derivative
      Instrument do not meet the criteria of SFAS No. 133 to qualify for hedge
      accounting and, accordingly, the changes in fair value of the Conditional
      Derivative Instrument are recorded within other expenses in the consolidated
      statement of operations.




The
      Company has estimated the fair value of the Conditional Derivative Instrument
      in
      accordance with SFAS No. 157. This requires the Company to include in the
      valuation inputs an assessment of the likelihood of the Proposed Transaction
      being consummated. The fair value is based on Level 3 inputs. These include
      forward foreign exchange rates, as well as an estimate of market participants’
assessment of the probability of the Proposed Transaction being completed within
      the parameters defined in the hedging contract, and counterparty
      risk.




The
      fair
      value of the Conditional Derivative Instrument as of September 30, 2008 was
      $11.0 million, and is recognized within other current liabilities. The Company
      has recognized a deferred income tax benefit of $4.4 million as a result of
      the
      Conditional Derivative Instrument. There were no cash flows associated with
      the
      Conditional Derivative Instrument in the three-month period ended September
      30,
      2008. Should the Proposed Transaction not be consummated, the amounts recorded
      as of September 30, 2008 will be reversed.




Expenses
      incurred by the Company in connection with the Proposed Transaction were as
      follows:




**For the three months ended**
              **September 30,**(in
                thousands)
            
            **2008**
            
            **2007**Legal
                and professional fees
            
            $
            3,092
            
            $
            ─Unrealized
                loss on the Conditional Derivative Instrument
            
            
            11,015
            
            
            ─Total
                amount recorded as other expenses
            
            $
            14,107
            
            $
            ─


Page
          6




**Note
      4.**  **Other
      derivative financial instruments**




SFAS
      No.
      133 requires every derivative instrument (including certain derivative
      instruments embedded in other contracts) to be recorded on the balance sheet
      at
      fair value as either an asset or a liability. SFAS No. 133 also requires that
      changes in the fair value of recorded derivatives be recognized currently in
      earnings unless specific hedge accounting criteria are met.




During
      the three-month period ended September 30, 2008, the Company commenced the
      use
      of financial instruments designated as cash flow hedges to hedge its exposure
      to
      foreign currency exchange risks associated with the operating expenses of its
      Israeli operations. All cash flow hedges are recorded at fair value on the
      consolidated balance sheet. The effective changes in fair value of derivatives
      designated as cash flow hedges are recorded in accumulated other comprehensive
      income. Amounts are reclassified from accumulated other comprehensive income
      when the underlying hedged item is recognized in earnings. If derivatives are
      not designated as cash flow hedges, changes in fair value are recorded in
      earnings.




As
      of
      September 30, 2008, the notional amount of these foreign exchange forward
      contracts with foreign currency risk was $279.0 million with settlement
      dates extending through August 2010. During the three-month period ended
      September 30, 2008, an unrealized gain of $17.0 million was recorded within
      other comprehensive income, a realized gain of $0.3 million was included within
      operating expenses and no amount of the cash flow hedge was determined to be
      ineffective. The fair value of these derivative financial instruments, measured
      by reference to quoted market exchange rates as of the balance sheet date (Level
      2 inputs), was included on the consolidated balance sheet as of September 30,
      2008 as other current assets of $7.8 million and other non-current assets of
      $9.2 million.




**Note
      5.**  **Comprehensive
      Income**




Comprehensive
      income comprises net income, foreign currency translation adjustments, changes
      in fair value of cash flow hedges and certain pension adjustments. The
      components of comprehensive income were as follows:




**For the three months ended**
              **September 30,**(in
                thousands)
            
            **2008**
            
            **2007**Net
                income
            
            $
            13,384
            
            $
            46,294Foreign
                currency translation differences (no tax effect)
            
            
            (13,692
            )
            
            3,697Changes
                in fair value of cash flow hedges (net of tax of $4,748 and
                $─)
            
            
            12,209
            
            
            ─Comprehensive
                income
            
            $
            11,901
            
            $
            49,991




**Note
      6.**  **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 and Series
      B Ordinary Shares, which have equal rights except in respect of voting and,
      as
      such, have equal weighting in the calculation of net income per share and equal
      net income per share.




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




**For the three months ended**
              **September 30,****2008**
            
            **2007**Weighted
                average number of ordinary shares in issue
            
            
            58,340,998
            
            
            57,771,456Effect
                of dilutive equity awards
            
            
            983,816
            
            
            773,849Denominator
                for dilutive net income per share
            
            
            59,324,814
            
            
            58,545,305


Page
          7


**Note
      7.**  **Inventories**




(in
                thousands)
            
            **As of**
              **September 30,**
              **2008**
            
            **As of**
              **June 30,**
              **2008**Unprocessed
                smart cards and their components
            
            $
            67,114
            
            $
            61,364Inventory
                reserves
            
            
            (4,467
            )
            
            (4,369
            )62,647
            
            
            56,995Deferred
                smart card costs
            
            
            16,529
            
            
            16,216Contract
                work-in-progress
            
            
            8,070
            
            
            6,448Total
                inventories
            
            $
            87,246
            
            $
            79,659




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
      8.**  **Deferred
      income**




(in
                thousands)
            
            **As of**
              **September 30,**
              **2008**
            
            **As of**
              **June 30,**
              **2008**Deferred
                security fees
            
            $
            132,752
            
            $
            135,175Advance
                receipts and other deferred income
            
            
            72,286
            
            
            72,243Total
                deferred income
            
            $
            205,038
            
            $
            207,418Included
                within current liabilities
            
            $
            125,584
            
            $
            128,318Included
                within non-current liabilities
            
            
            79,454
            
            
            79,100$
            205,038
            
            $
            207,418




**Note
      9.**  **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 which the Company supplied such services through the period
      covered by these financial statements 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 from that date, although it continues to conduct business with them.
      In
      April 2008, News Corporation increased its interest in Premiere AG (“Premiere”),
      a customer of the Company, to a level where it is considered to be a related
      party from that date.


Page
          8


Revenue
      recognized from such related parties was as follows:




**For the three months ended**
              **September 30,**(in
                thousands)
            
            **2008**(1)
            
            **2007**(2)Revenue
                from related parties
            
            $
            60,212
            
            $
            159,258





(1)
            Includes
                revenue from Premiere.


(2)
            Includes
                revenue from DIRECTV and its
                affiliates.




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




(in
                thousands)
            
            **As of**
              **September 30,**
              **2008**
            
            **As of**
              **June 30,**
              **2008**Accounts
                receivable
            
            $
            48,675
            
            $
            50,339Accrued
                income
            
            
            9,441
            
            
            11,299Other
                assets
            
            
            27,304
            
            
            27,704Deferred
                income
            
            
            (78,815
            )
            
            (73,099
            )




**b)
      Royalty payments**




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




**For the three months ended**
              **September 30,**(in
                thousands)
            
            **2008**
            
            **2007**Royalties
                payable to related party
            
            $
            956
            
            $
            842




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




(in
                thousands)
            
            **As of**
              **September 30,**
              **2008**
            
            **As of**
              **June 30,**
              **2008**Accrued
                expenses
            
            $
            1,769
            
            $
            3,148




**c)
      Administration and finance services**




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




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


Page
          9





**For the three months ended**
              **September 30,**(in
                thousands)
            
            **2008**
            
            **2007**Administration
                fees charged by related parties
            
            $
            36
            
            $
            37




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




(in
                thousands)
            
            **As of**
              **September 30,**
              **2008**
            
            **As of**
              **June 30,**
              **2008**Accounts
                payable
            
            $
            4,488
            
            $
            4,846




**d)
      Other**




The
      Company has a short-term loan facility of £30 million (approximately $55
      million) from a subsidiary of News Corporation. The facility has no expiry
      date
      and no amounts were drawn down as of September 30, 2008 or June 30, 2008. 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 $37
      million). News Corporation has indemnified the Company against any liabilities
      which the Company may be required to pay under these cross-guarantees. The
      Company has been informed by News Corporation that no amounts were owed to
      HSBC
      as of September 30, 2008 or June 30, 2008 that would be covered by these
      guarantees.




**Note
      10.**  **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. That complaint purported to allege
      claims for violation of the Digital Millennium Copyright Act (“DMCA”), the
      Communications Act of 1934 (“Communications Act”), the Electronic Communications
      Privacy Act, the Computer Fraud and Abuse Act, California’s Unfair Competition
      Law (“UCL”) 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. Extensive motion practice
      ensued regarding this complaint, regarding subsequent complaints filed by
      Echostar, and regarding counterclaims asserted by the Company.




The
      trial
      of this case began April 9, 2008. Echostar’s claims under the DMCA, the
      Communications Act, the California Penal Code, and RICO were tried to the jury,
      Echostar’s UCL claim was tried to the court and the Company’s counterclaim under
      the California Uniform Trade Secrets Act was tried to the jury. All other claims
      were either dismissed by the court or abandoned by the parties.




On
      May
      15, 2008, the jury returned its verdict. The jury found the Company not liable
      on three counts and awarded minimal damages on the remaining three counts.
      On
      those latter three counts, the jury awarded Echostar actual damages of $45.69
      or, in the alternative, statutory damages of $1,000. The Company believes that
      these awards relate to a single incident involving a test of a card during
      the
      course of the Company’s anti-piracy efforts. The jury found Echostar not liable
      on the Company’s counterclaim.


Page
          10


A
      hearing
      on the UCL claim was held on October 9, 2008. On October 15, 2008, the court
      issued its ruling. The court found the Company liable under the UCL based on
      the
      single incident that formed the basis for the jury’s previous verdict and
      awarded restitution in a nominal amount to EchoStar. The court also issued
      a
      permanent injunction that requires the Company to comply with the statutes
      that
      the jury previously found the Company had violated.




On
      October 20, 2008, Echostar and the Company filed applications requesting that
      the court award them attorneys’ fees and costs. The Company believes that
      Echostar’s request is without merit and intends to vigorously defend against
      that request. Instead, the Company believes that it prevailed in the litigation
      and on several claims for which a recovery of attorneys’ fees is authorized. The
      court has set a hearing for November 17, 2008 to hear argument related to
      requests for attorneys' fees and costs. It is not known when the court will
      provide a decision on those requests.




*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 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.


Page
          11


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. There has been no material change in the
      Company’s assessment of uncertain tax positions since June 30, 2008. The Company
      believes it has appropriately accrued for the expected outcome of all pending
      tax matters and does not currently anticipate that the ultimate resolution
      of
      pending tax matters will have a material adverse effect on its consolidated
      financial condition, future results of operations or liquidity.




**Note
      11.**  **Equity-based
      compensation**




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




**For the three months ended**
              **September 30,**(in
                thousands, except share amounts)
            
            **2008**
            
            **2007**Number
                of Series A Ordinary Shares issued in respect of stock options exercised
                in period
            
            
            32,472
            
            
            48,798Number
                of Series A Ordinary Shares issued in the period in respect of vested
                conditional awards, net of statutory tax withholdings
            
            
            142,377
            
            
            61,516Number
                of Series A Ordinary Shares issued in respect of all equity compensation
                plans
            
            
            174,849
            
            
            110,314Equity-based
                compensation cost included within the statement of
                operations
            
            $
            4,795
            
            $
            4,311Net
                cash received from exercise of equity-based awards
            
            $
            873
            
            $
            309Excess
                tax benefits derived from equity-based awards
            
            $
            278
            
            $
            52Intrinsic
                value of stock options exercised
            
            $
            1,045
            
            $
            1,335




As
      of
      September 30, 2008, the total compensation cost related to non-vested equity
      awards not yet recognized was approximately $34.0 million and the period over
      which it is expected to be recognized is 2.9 years. The Board may grant
      additional equity-based compensation, which would result in additional operating
      expenses being recorded in future periods.




No
      new
      equity-based awards were granted during the three-month period ended September
      30, 2008.


Page
          12


**Note
      12.**  **Supplementary
      cash flow information**




**For the three months ended**
              **September 30**(in
                thousands)
            
            **2008**
            
            **2007**Cash
                payments for capital expenditure
            
            $
            (5,472
            )
            $
            (3,531
            )Proceeds
                from sale of property, plant and equipment
            
            
            26
            
            
            61Interest
                received in cash
            
            
            6,026
            
            
            7,381Cash
                payments for income taxes
            
            
            (15,047
            )
            
            (8,400
            )Business
                acquisitions, net of cash acquired
            
            
            ─
            
            
            (10,374
            )Cash
                paid in respect of deferred consideration for acquisitions
            
            
            (1,117
            )
            
            ─


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, 2008 as filed with the Securities and
      Exchange Commission (“SEC”) on August 8, 2008 (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, 2009 that we believe are important in understanding our results
                of
                operations and financial condition or to disclose known future
                trends.




·
            ***Results
                of operations***—
                This section provides an analysis of our results of operations for
                the
                three-month periods ended September 30, 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 three-month
                periods ended September 30, 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 recorder (“DVR”) technologies and interactive
      infrastructure and applications. 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. During the three-month period ended September
      30,
      2008, our three largest customers were DIRECTV in the United States, BSkyB
      in
      the United Kingdom and SKY Italia in Italy. Together, these three customers
      contributed, directly and indirectly, approximately 52% of our revenue during
      the three-month period ended September 30, 2008. We expect that a limited number
      of customers will continue to contribute a significant portion of our revenue.




We
      compete primarily with technologies such as NagraVision (developed by Kudelski
      SA), DigiCipher (developed by Motorola, Inc.), Power Key (developed by
      Scientific-Atlanta, Inc.), OpenTV (developed by OpenTV Corp., a company
      controlled by Kudelski SA) and Microsoft Mediaroom (developed by Microsoft
      Corporation) and others, 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.




Recently,
      certain of our customers have begun recycling set-top boxes and smart cards
      when
      a subscriber terminates its subscription by re-issuing the set-top box and
      smart
      card to a new subscriber. Such activity by our customers reduces demand for
      new
      smart cards and also reduces our incremental set-top box royalties. Should
      this
      activity become more widespread, it could materially adversely affect our
      revenues. In addition, the security of our smart cards has not been compromised
      in recent years. Accordingly, certain customers have delayed or reduced plans
      to
      complete card changeovers. This change in approach has been reflected in amended
      contract terms with certain of our customers and this has resulted in lower
      conditional access revenues from those customers in fiscal 2009, a trend we
      expect will continue in future periods.




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.




**Recent
      Business Developments**




On
      August
      14, 2008, the News Corporation, two newly incorporated companies formed by
      funds
      advised by Permira Advisers LLP (the “Permira Newcos”) and we announced that the
      we signed an implementation agreement pursuant to which the we would become
      a
      privately-owned company, with the Permira Newcos and News Corporation owning
      approximately 51% and 49% of us, respectively (the “Proposed Transaction”). The
      Proposed Transaction would be effected by means of:




·
            Cancelling
                all of our outstanding Series A ordinary shares, par value $0.01
                per share
                (the “Series A Ordinary Shares”), including shares represented by American
                Depositary Shares (“ADSs”) traded on The NASDAQ Stock Market (“NASDAQ”),
                for per-share consideration of $63 in cash;




·
            Cancelling
                approximately 67% of our Series B ordinary shares, par value $0.01
                per
                share (the “Series B Ordinary Shares”) held by News Corporation for
                consideration of $63 per share to be paid in a combination of
                approximately $1.5 billion in cash and a $242 million vendor note.
                News
                Corporation currently owns 71.9% of our equity and 96.2% of our voting
                power through its ownership of 100% of the outstanding Series B Ordinary
                Shares. News Corporation would retain ownership of the remaining
                approximately 33% of the Series B Ordinary Shares it currently holds,
                resulting in it owning 49% of us following the completion of the
                Proposed
                Transaction; and




·
            Issuing
                the Permira Newcos new Series B Ordinary Shares representing 51%
                of our
                then outstanding Series B Ordinary
                Shares.




If
      the
      Proposed Transaction is consummated, it will be funded by a mix of senior and
      mezzanine indebtedness incurred by us, an investment provided by the Permira
      Newcos and our cash on hand. Our commitments and obligations with respect to
      the
      indebtedness are contingent upon the consummation of the Proposed Transaction.




Page
          15




The
      consummation of the Proposed Transaction is conditioned upon the approval of
      the
      transaction by holders of the Series A Ordinary Shares, the approval of the
      High
      Court of Justice of England and Wales, the receipt of certain regulatory
      approvals, the receipt of funding described above and certain other customary
      closing conditions. The consummation of the Proposed Transaction is also
      conditioned upon the Proposed Transaction being consummated by February 25,
      2009, or such later date as agreed by the parties and approved by the High
      Court
      of Justice of England and Wales. There can be no assurance that the Proposed
      Transaction will be consummated.




**Revenue**




We
      derive
      revenue from:




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




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




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




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




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




**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, Germany, 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.




Page
          16




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-month period ended September 30, 2008 versus the three-month period
      ended September 30, 2007***




Comparisons
      of our financial performance are materially impacted by fluctuations in foreign
      exchange rates. The principal foreign currency exchange rates that affect our
      consolidated results of operations and balance sheets are:




**Average exchange rate for the**
              **three months ended**
            
            **Period end exchange rate as of****September 30,**
              **2008**
            
            **September 30,**
              **2007**
            
            **September 30,**
              **2008**
            
            **June 30,**
              **2008**U.K.
                pound sterling / U.S. dollar
            
            
            0.5281
            
            
            0.4948
            
            
            0.5435
            
            
            0.5016Euro
                / U.S. dollar
            
            
            0.6646
            
            
            0.7276
            
            
            0.6851
            
            
            0.6350Israeli
                shekel / U.S. dollar
            
            
            3.4829
            
            
            4.1871
            
            
            3.4241
            
            
            3.3719Indian
                rupee / U.S. dollar
            
            
            43.5840
            
            
            40.3880
            
            
            46.4800
            
            
            42.7800




The
      effect of fluctuations in foreign exchange rates on our revenue and operating
      income may be summarized as follows:




(in
                thousands)
            
            **Revenue**
            
            **Operating**
              **income**For
                the three-month period ended September 30, 2007
            
            $
            204,876
            
            $
            58,286Effect
                of fluctuations in foreign currency exchange rates
            
            
            1,010
            
            
            (13,781
            )Effect
                of other operating factors
            
            
            (23,722
            )
            
            (18,596
            )For
                the three-month period ended September 30, 2008
            
            $
            182,164
            
            $
            25,909




Page
          17




The
      effect of fluctuations in foreign currency exchange rates can be further
      analyzed as follows:




(in
                thousands)
            
            **Revenue**
            
            **Operating**
              **income**Effect
                on recorded value of revenue transactions(1)
            
            $
            1,010
            
            $
            1,010Effect
                on recorded value of expense transactions(2)
            
            
            ─
            
            
            (4,463
            )1,010
            
            
            (3,453
            )Loss
                on revaluation of cash balances during the three-month period ended
                September 30, 2008(3)
            
            
            ─
            
            
            (4,587
            )Effect
                of fluctuations in foreign currency exchange rates on result for
                the
                three-month period ended September 30, 2008
            
            
            1,010
            
            
            (8,040
            )Less
                gain on revaluation of cash balances during the three-month period
                ended
                September 30, 2007(3)
            
            
            ─
            
            
            (5,741
            )Effect
                of fluctuations in foreign currency exchange rates on comparison
                of result
                for the three month period ended September 30, 2008 to that of the
                three-month-period ended September 30, 2007
            
            $
            1,010
            
            $
            (13,781
            )


__________________


(1)
            Approximately
                44% of our revenue was denominated in currencies other than U.S.
                dollars,
                principally pounds sterling and euros, during the three-month period
                ended
                September 30, 2008. The U.S. dollar was weaker against the euro but
                stronger against the pound sterling during the three-month period
                ended
                September 30, 2008 compared to the three-month period ended September
                30,
                2007, as measured by the average exchange rates prevailing during
                each
                period.


(2)
            Approximately
                75% 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-month period ended September 30,
                2008.


(3)
            We
                recorded a loss of $4.6 million within operating expenses in the
                three-month period ended September 30, 2008 as a result of holding
                cash in
                currencies other than the U.S. dollar, compared to a gain of $5.7
                million
                in the three-month period ended September 30,
                2007.




The
      effect of other operating factors on individual elements of our financial
      statements is discussed below.




*Revenue*




Revenue
      for the periods under review was as follows:




**For the three months ended**
              **September 30,**(in thousands)
            
            **2008**
            
            **2007**
            
            **Change**
            
            **% Change**Conditional
                access
            
            $
            98,766
            
            $
            121,583
            
            $
            (22,817
            )
            
            (19
            )%Integration,
                development & support
            
            
            11,368
            
            
            10,909
            
            
            459
            
            
            4
            %License
                fees & royalties
            
            
            24,205
            
            
            28,944
            
            
            (4,739
            )
            
            (16
            )%New
                technologies
            
            
            46,785
            
            
            42,458
            
            
            4,327
            
            
            10
            %Other
            
            
            1,040
            
            
            982
            
            
            58
            
            
            6
            %Total
                revenue
            
            $
            182,164
            
            $
            204,876
            
            $
            (22,712
            )
            
            (11
            )%




Revenue
      from conditional access decreased by 19% during the three-month period ended
      September 30, 2008 as compared to the three-month period ended September 30,
      2007. The decrease was principally due to recognition in the three-month period
      ended September 30, 2007 of a portion of security services revenue previously
      deferred as certain remaining revenue recognition criteria were satisfied during
      that period. Additionally, smart card and security fee revenues were lower
      during the three-month period ended September 30, 2008 due to lower unit prices.
      These factors were partially offset by an increased volume of smart cards
      delivered and the growth of the subscriber bases of our customers during the
      three-month period ended September 30, 2008.




Page
          18




The
      number of devices protected by NDS conditional access technology in each period
      was as follows:




**For the three months ended**
              **September 30,**(in millions)
            
            **2008**
            
            **2007**Number
                of devices protected by NDS conditional access technology, beginning
                of
                period
            
            
            90.3
            
            
            75.4Net
                additions
            
            
            5.1
            
            
            3.2Number
                of devices protected by NDS conditional access technology, end of
                period
            
            
            95.4
            
            
            78.6




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




**For the three months ended**
              **September 30,**(in
                millions)
            
            **2008**
            
            **2007**Number
                of smart cards delivered
            
            
            8.0
            
            
            7.4




The
      increase in the number of smart cards delivered in the three-month period ended
      September 30, 2008 as compared to the three-month period ended September 30,
      2007 principally reflects higher deliveries to existing customers in Asia and
      Europe 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. As described above, recently
      certain of our customers have begun recycling set-top boxes and smart cards
      when
      a subscriber terminates its subscription by re-issuing the set-top box and
      smart
      card to a new subscriber. Such activity by our customers reduces demand for
      new
      smart cards and also reduces our incremental set-top box royalties. This trend
      depressed demand for smart cards from certain of our customers in the
      three-month period ended September 30, 2008 and we expect this to continue
      in
      the future.




Integration,
      development and support revenue increased by 4% in the three-month period ended
      September 30, 2008 as compared to the three-month period ended September 30,
      2007. The recognition of revenue from new customers and from the delivery of
      enhancements to several of our existing major customers is dependent on the
      timing of satisfaction of all our revenue recognition criteria; therefore this
      component of our revenue tends to fluctuate from period to period.




License
      fee and royalty revenue decreased by 16% in the three-month period ended
      September 30, 2008 as compared to the three-month period ended September 30,
      2007, principally as a result of a decrease in the number of middleware clients
      deployed during the three-month period ended September 30, 2008 as compared
      to
      the three-month period ended September 30, 2007.




The
      table
      below sets forth the number of middleware clients deployed by our customers
      during the three-month periods ended September 30, 2008 and 2007:




**For the three months ended**
              **September 30,**(in
                millions)
            
            **2008**
            
            **2007**Number
                of middleware clients deployed, beginning of period
            
            
            92.5
            
            
            61.8Net
                additions
            
            
            6.2
            
            
            8.1Number
                of middleware clients deployed, end of period
            
            
            98.7
            
            
            69.9




The
      decrease in the number of middleware clients deployed was largely due to the
      download of our middleware to a large population of DIRECTV set-top boxes during
      the three-month period ended September 30, 2007, with no equivalent event in
      the
      three-month period ended September 30, 2008. Additionally, the set-top box
      recycling referred to above had an adverse effect in the three-month period
      ended September 30, 2008.




Page
          19




The
      increase in revenue from new technologies of 10% in the three-month period
      ended
      September 30, 2008, compared to the three-month period ended September 30,
      2007,
      was principally due to higher revenue from our Internet protocol television
      (“IPTV”) customers, and from gaming applications and residential gateway
      devices. These increases were partially offset by lower revenue from deployment
      of our DVR technologies and advanced middleware solutions. The fees recognized
      on deployment of DVR technologies were lower during the three-month period
      ended
      September 30, 2008 than in the three-month period ended September 30, 2007
      due
      to the timing of project acceptance.




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




**For the three months ended**
              **September 30,**(in millions)
            
            **2008**
            
            **2007**Number
                of DVR clients deployed, beginning of period
            
            
            13.1
            
            
            7.3Net
                additions
            
            
            1.4
            
            
            1.5Number
                of DVR clients deployed, end of period
            
            
            14.5
            
            
            8.8




*Cost
      of Goods and Services Sold and Gross Margin*




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




**For the three months ended**
              **September 30,**(in
                thousands)
            
            **2008**
            
            **2007**
            
            **Change**
            
            **%
                Change**Cost
                of goods and services sold
            
            $
            75,461
            
            $
            68,456
            
            $
            7,005
            
            
            10
            %Gross
                margin
            
            $
            106,703
            
            $
            136,420
            
            $
            (29,717
            )
            
            (22
            )%Gross
                margin as a percentage of revenue
            
            
            59
            %
            
            67
            %
            
            (8
            )%
            
            **




**
        Not
        meaningful.




Cost
      of
      goods and services sold increased by 10% during the three-month period ended
      September 30, 2008 as compared to the three-month period ended September 30,
      2007, principally due to an increase in the number of our employees working
      on
      development, integration and support activities in the three-month period ended
      September 30, 2008. This was offset in part by lower royalties paid to third
      parties during the three-month period ended September 30, 2008 for the use
      of
      their technologies.




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 59% for the three-month period ended
      September 30, 2008 as compared to 67% for the three-month period ended September
      30, 2007. This decrease was a consequence of the reduction in conditional access
      and royalty revenues (which had no associated direct costs) and the effect
      of an
      increase in the total amount of employee costs allocated to cost of goods and
      services sold during the three-month period ended September 30,
      2008.




Page
          20




*Operating
      Expenses*




Operating
      expenses for the periods under review were as follows:




**For the three months ended**
              **September 30,**(in thousands)
            
            **2008**
            
            **2007**
            
            **Change**
            
            **% Change**Research
                & development
            
            $
            47,893
            
            $
            51,011
            
            $
            (3,118
            )
            
            (6
            )%Sales
                & marketing
            
            
            12,118
            
            
            9,620
            
            
            2,498
            
            
            26
            %General
                & administration
            
            
            17,450
            
            
            14,220
            
            
            3,230
            
            
            23
            %Amortization
                of intangibles
            
            
            3,333
            
            
            3,283
            
            
            50
            
            
            2
            %Total
                operating expenses
            
            $
            80,794
            
            $
            78,134
            
            $
            2,660
            
            
            3
            %




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 increased in the three-month period ended September
      30,
      2008 as compared to the three-month period ended September 30, 2007, primarily
      due to a higher number of employees and higher facilities expenses. Employee
      costs were approximately 5% higher in U.S. dollar terms during the three-month
      period ended September 30, 2008 as compared to the three-month period ended
      September 30, 2007.




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




**For the three months ended**
              **September 30,****2008**
            
            **2007**Number of
                employees, beginning of period
            
            
            3,961
            
            
            3,572Net
                additions
            
            
            112
            
            
            93Number
                of employees, end of period
            
            
            4,073
            
            
            3,665Average
                number of employees during period
            
            
            4,038
            
            
            3,610




Research
      and development costs decreased by 6% for the three-month period ended September
      30, 2008 as compared to the three-month period ended September 30, 2007,
      primarily as a result of a small decrease in the number of employees working
      on
      research and development projects. Additionally, in the three-month period
      ended
      September 30, 2008, we recognized the benefit of a $7.9 million grant from
      the
      French government as a consequence of our engagement in certain eligible
      research projects. In the three-month period ended September 30, 2007, we
      received an equivalent grant of $6.7 million.




Sales
      and
      marketing expenses increased by 26% in the three-month period ended September
      30, 2008 as compared to the three-month period ended September 30, 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.




General
      and administrative expenses increased by 23% in the three-month period ended
      September 30, 2008 as compared to the three-month period ended September 30,
      2007, primarily as a result of holding cash in currencies other than the U.S.
      dollar as noted above, partially offset by lower legal expenses.




*Operating
      Income*




As
      a
      result of the factors outlined above, and, in particular, the decrease in
      conditional access and royalty revenue and the impact of foreign currency
      exchange rate movements, operating income was $25.9 million, or 14% of revenue,
      for the three-month period ended September 30, 2008, compared to $58.3 million,
      or 28% of revenue, for the three-month period ended September 30, 2007.




Page
          21


*Other
      Expenses*




Expenses
      incurred in connection with the Proposed Transaction were as
      follows:




**For the three months ended**
              **September 30,**(in
                thousands)
            
            **2008**
            
            **2007**Legal
                and professional fees
            
            $
            3,092
            
            $
            ─Unrealized
                loss on the Conditional Derivative Instrument
            
            
            11,015
            
            
            ─Total
                amount recorded as other expenses
            
            $
            14,107
            
            $
            ─




During
      the three-month period ended September 30, 2008, we entered into a conditional
      forward currency derivative financial instrument to act as an economic hedge
      against the fact that a portion of the debt to be drawn down upon the
      consummation of the Proposed Transaction will be denominated in euros, but
      payments to shareholders will be denominated in U.S. dollars (the “Conditional
      Derivative Instrument”). The notional value of the Conditional Derivative
      Instrument is €367 million. Should the Proposed Transaction not be consummated,
      no amounts will be due under the Conditional Derivative Instrument. SFAS No.
      133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No.
      133”) requires all derivative financial instruments to be recognized at fair
      value as of the balance sheet date. The terms of the Conditional Derivative
      Instrument do not meet the criteria of SFAS No. 133 to qualify for hedge
      accounting and accordingly the changes in fair value of the Conditional
      Derivative Instrument are recorded within other expenses in the consolidated
      statement of operations.




We
      have
      estimated the fair value of the Conditional Derivative Instrument in accordance
      with Statement of Financial Accounting Standards No. 157, “Fair Value
      Measurements” (“SFAS No. 157”). This requires us to include in the valuation
      inputs an assessment of the likelihood of the Proposed Transaction being
      consummated. The fair value is based on Level 3 inputs. These include forward
      foreign exchange rates, as well as an estimate of market participants’
assessment of the probability of the Proposed Transaction being completed within
      the parameters defined in the hedging contract, and counterparty
      risk.




The
      fair
      value of the Conditional Derivative Instrument as of September 30, 2008 was
      $11.0 million, and is recognized within other current liabilities. We recognized
      a deferred income tax benefit of $4.4 million as a result of the Conditional
      Derivative Instrument. There were no cash flows associated with the Conditional
      Derivative Instrument in the three-month period ended September 30, 2008. Should
      the Proposed Transaction not be consummated, the amounts recorded as of
      September 30, 2008 will be reversed.




During
      the three-month period ended September 30, 2008, we also incurred other expenses
      of $3.1 million in legal and professional fees associated with the Proposed
      Transaction, which are included in other expenses. We expect to incur further
      costs associated with the Proposed Transaction in future periods.




*Interest
      Income*




Interest
      income earned on cash deposits was $5.2 million in the three-month period ended
      September 30, 2008, as compared to $7.4 million in the three-month period ended
      September 30, 2007, due to lower interest rates.




*Income
      Taxes*




Our
      effective tax rate was 21.3% for the three-month period ended September 30,
      2008, compared to 29.5% for the three-month period ended September 30, 2007.
      The
      decrease was primarily due to a deferred income tax benefit of $4.4 million
      related to the Conditional Derivative Instrument discussed above and lower
      U.K.
      statutory tax rates.




*Net
      Income*




As
      a
      consequence of all the factors described above, net income for the three-month
      period ended September 30, 2008 was $13.4 million, or $0.23 per share
      ($0.23 per share on a diluted basis), compared to $46.3 million, or $0.80 per
      share ($0.79 per share on a diluted basis), for the three-month period ended
      September 30, 2007.




Page
          22




**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, subject to market conditions.
      As
      of September 30, 2008, we had an unused credit facility to borrow up to £30
      million (equivalent to approximately $55 million) from a subsidiary of News
      Corporation. No amounts have been drawn under this facility.




On
      August
      14, 2008, NDS Finance Limited (“NDS Finance”), a wholly owned subsidiary of
      ours, entered into (a) a senior credit agreement (the "Senior Facilities
      Agreement") and (b) a mezzanine credit agreement (the “Mezzanine Facility
      Agreement”). The Senior Facilities Agreement provides for senior secured credit
      facilities (the “Senior Facilities”) of up to $1.04 billion, comprising $890
      million term loan facilities (consisting of three tranches in the amount of
      $300
      million, $295 million and $295 million) and a $150 million revolving facility.
      The Mezzanine Facility Agreement provides for a mezzanine secured credit
      facility (the “Mezzanine Facility” and together with the Senior Facilities, the
      "Debt Facilities") of up to $385 million. Subject to the satisfaction of certain
      specified conditions, the Debt Facilities will be available to NDS Finance
      for
      the purpose of, among other things, financing in part the Proposed Transaction
      from August 14, 2008 to the earlier of (a) the date falling 15 days after the
      funding date, (b) the date on which the Scheme of Arrangement relating to the
      Proposed Transaction lapses or is withdrawn and (c) February 27, 2009. No
      amounts were outstanding under the Debt Facilities as of September 30,
      2008.




As
      of
      September 30, 2008, we had cash and cash equivalents of $711.2 million which
      is
      being held with the intention of using it for the future development of the
      business and for use in connection with the Proposed Transaction. 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.




As
      a
      result of our holding a portion of our cash in currencies other than the U.S.
      dollar, foreign exchange rate fluctuations have reduced the value of our cash
      holdings by $13.7 million during the three-month period ended September 30,
      2008.




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




We
      continue to invest in technical equipment for use in research and development
      and in supporting our customers. We have received payment from customers in
      advance of recognizing revenue (deferred income) of $205.0 million as of
      September 30, 2008 and we expect to utilize cash to meet our obligations
      under our arrangements with our customers. We have evaluated, and expect to
      continue to evaluate, possible acquisitions and dispositions of certain
      businesses. Such transactions may be material and may involve cash, our
      securities and/or the assumption of indebtedness.




Page
          23




***Sources
      and Uses of Cash***




We
      had a
      net outflow of cash and cash equivalents of $10.2 million in the three-month
      period ended September 30, 2008, compared to a net inflow of $23.3 million
      in
      the three-month period ended September 30, 2007 due to a decrease in net cash
      provided by operating activities, offset in part by lower cash payments for
      investing activities.




Net
      cash
      (used in) provided by operating activities was as follows:




**For the three months ended**
              **September 30,**(in thousands)
            
            **2008**
            
            **2007**Net
                cash (used in) provided by operating activities
            
            $
            (4,733
            )
            $
            36,785




The
      decrease in net cash provided by operating activities in the three-month period
      ended September 30, 2008 as compared to the three-month period ended September
      30, 2007 reflects lower receipts from customers, higher payments relating to
      the
      purchase of smart cards, higher income tax payments, and higher payroll costs,
      travel expenses and rent and facilities costs, as a result of an increase in
      the
      number of employees.




Net
      cash
      used in investing activities was as follows:




**For the three months ended**
              **September 30,**(in thousands)
            
            **2008**
            
            **2007**Capital
                expenditure
            
            $
            (5,446
            )
            $
            (3,470
            )Business
                acquisitions, net of cash acquired
            
            
            ─
            
            
            (10,374
            )Deferred
                consideration paid in respect of business acquisitions
            
            
            (1,117
            )
            
            ─Net
                cash used in investing activities
            
            $
            (6,563
            )
            $
            (13,844
            )




In
      the
      three-month period ended September 30, 2007, we acquired CastUp Inc., a provider
      of solutions for the hosting, management and distribution of video over the
      Internet, for initial consideration net of cash acquired of $10.4 million.
      In
      accordance with the acquisition agreement, a further payment of $1.1 million
      was
      paid during the three-month period ended September 30, 2008.




Net
      cash
      generated by financing activities was as follows:




**For the three months ended**
              **September 30,**(in
                thousands)
            
            **2008**
            
            **2007**Issuance
                of shares
            
            $
            873
            
            $
            309Excess
                tax benefits realized on shares issued as a result of equity compensation
                awards
            
            
            262
            
            
            79Net
                cash generated by financing activities
            
            $
            1,135
            
            $
            388




Fewer
      stock options were exercised during the three-month period ended September
      30,
      2008 than in the corresponding period of the prior fiscal year; however, the
      weighted average exercise price of stock options was higher during the
      three-month period ended September 30, 2008. Certain ordinary 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.




Page
          24




***Commitments
      and Contractual Obligations***




As
      of
      September 30, 2008, we had open foreign exchange forward contracts to purchase
      Israeli shekels with a total notional contract value of $279.0 million with
      settlement dates extending through August 2010.




We
      have
      entered into various agreements in connection with the Proposed Transaction
      which would, should the Proposed Transaction be completed, result in us taking
      on substantial indebtedness and paying additional substantial fees. As discussed
      above, NDS Finance Limited, a wholly owned subsidiary of ours, entered into
      (a)
      a Senior Facilities Agreement of up to $1.04 billion and (b) a Mezzanine
      Facility Agreement of up to $385 million. Additionally,
      we entered into the Conditional Derivative Instrument referred to above with
      a
      notional value of €367 million. These commitments and obligations are
      conditioned upon the completion of the Proposed Transaction.




Except
      for these matters, there has been no other material change to our commitments
      since June 30, 2008.




**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
      44% of our revenue was denominated in currencies other than the U.S. dollar,
      principally pounds sterling and euros, during the three-month period ended
      September 30, 2008. The U.S. dollar was weaker against the euro but stronger
      against the British pound sterling during the three-month period ended September
      30, 2008 compared to the three-month period ended September 30, 2007, as
      measured by the average exchange rates prevailing during each period. We
      estimate that movements in foreign exchange rates favorably impacted our total
      revenue for the three-month period ended September 30, 2008 by approximately
      $1.0 million, or 0.5%, compared to what would have been achieved had foreign
      exchange rates been consistent with those prevailing during the three-month
      period ended September 30, 2007.




Approximately
      75% 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-month period ended September 30, 2008. We estimate that
      fluctuations in foreign exchange rates increased our total expenses in the
      three-month period ended September 30, 2008 by approximately $4.6 million,
      or
      3%, compared to what would have been achieved had foreign exchange rates been
      consistent with those prevailing during the three-month period ended September
      30, 2007.




The
      net
      effect of the factors described above was to reduce our operating income by
      $3.5
      million in the three-month period ended September 30, 2008 compared to what
      would have been achieved had foreign exchange rates been consistent with those
      prevailing during the three-month period ended September 30, 2007.




As
      of
      September 30, 2008, approximately 81% of our cash was held in U.S. dollars,
      12%
      in pounds sterling and 4% in euros, with the remaining balance held in other
      currencies in which we incur operating expenses. 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. We recorded a loss of $4.6 million within operating expenses in
      the
      three-month period ended September 30, 2008 as a result of holding cash in
      currencies other than the U.S. dollar and a further loss of $9.1 million was
      recorded within other comprehensive income in the same period. Our total losses
      on holding cash in currencies other than the U.S. dollar in the three-month
      period ended September 30, 2008 was $13.7 million.




Certain
      of our assets and liabilities are held by certain of our subsidiary companies
      whose functional currency is not the U.S. dollar. As a result of retranslating
      those assets and liabilities into U.S. dollars, we incurred a loss, recorded
      in
      other comprehensive income, of $13.7 million in the three-month period ended
      September 30, 2008. This loss in equity comprised $9.1 million as a result
      of holding cash, as noted above, together with a further loss of $4.6 million
      relating to other assets and liabilities.




During
      the three-month period ended September 30, 2008, we commenced the use of
      derivative financial instruments designated as cash flow hedges to hedge our
      exposure to foreign currency exchange risks associated with the operating
      expenses of our Israeli operations. As of September 30, 2008, the notional
      amount of foreign exchange forward contracts with foreign currency risk was
      $279.0 million with settlement dates extending through August 2010. During
      the three-month period ended September 30, 2008, an unrealized gain of $17.0
      million was recorded within other comprehensive income ($12.2 million, net
      of
      tax), a realized gain of $0.3 million was included within operating expenses
      and
      no amount of the cash flow hedge was determined to be ineffective. The potential
      loss in fair value for such financial instruments of a 10% adverse change in
      quoted foreign currency exchange rates would be approximately $29.6 million.
      Subsequent to September 30, 2008, we entered into foreign exchange forward
      currency contracts to hedge the foreign exchange risks associated with the
      operating expenses of our Indian and Korean operations. We may use additional
      derivative financial instruments as a risk management tool in the
      future.




Page
          25




Additionally,
      we entered into the Conditional Derivative Instrument described above with
      a
      notional value of €367 million. While adverse changes in the forward euro-U.S.
      dollar spot rate resulted in an unrealized loss of approximately $11 million
      to
      record the instrument at fair value as of September 30, 2008, such loss would
      be
      offset by a corresponding increase in the U.S. dollar equivalent value of the
      expected proceeds from the euro-denominated debt.




Our
      cash
      deposits are held and derivative financial instruments are contracted with
      several international banks. The recent uncertainty in the global financial
      markets has increased the risk associated with these cash deposits and
      derivative financial instruments. We mitigate this risk by using several
      different banks, but the failure of any of those banks could have a material
      adverse effect on our financial position. As a consequence of using banks
      generally regarded to be of lower risk, we may accept lower rates of interest
      on
      our deposits and pay higher fees for other transactions.




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 based on total cash on deposit of approximately $700
      million.




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




**a)
      Disclosure Controls and Procedures**




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




**b)
      Internal Control over Financial Reporting**




There
      has
      been no change in the Company’s internal control over financial reporting (as
      such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange
      Act)
      during the Company’s first quarter of fiscal 2009 that has materially affected,
      or is reasonably likely to materially affect, the Company’s internal control
      over financial reporting.




Page
          26




**PART
      II – Other Information**




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




See
      Note
      10a 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 our 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 or if our customers otherwise purchase fewer smart
      cards or purchase smart cards on less favorable terms to
      us.***




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. Global economic
      conditions may have an impact on our customers’ subscriber numbers, with
      downturns in the economy potentially having a negative impact on such numbers.
      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.




Recently,
      certain of our customers have begun recycling set-top boxes and smart cards
      when
      a subscriber terminates its subscription by re-issuing the set-top box and
      smart
      card to a new subscriber. Such activity by our customers reduces demand for
      new
      smart cards and also reduces our incremental set-top box royalties. Should
      this
      activity become more widespread, it could materially adversely affect our
      revenues. In addition, the security of our smart cards has not been compromised
      in recent years. Accordingly, certain customers have delayed or reduced plans
      to
      complete card changeovers. This change in approach has been reflected in amended
      contract terms with certain of our customers and this has resulted in lower
      conditional access revenues from those customers in fiscal 2009, a trend which
      we expect will continue in future periods.




Page
          27




***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.




***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
          28




***We
      derive a significant portion of our revenues from a limited number of large
      customers. Our revenues 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 BSkyB, DIRECTV and SKY Italia. During the
      three-month period ended September 30, 2008, these three customers accounted
      directly and indirectly for approximately 52% of our total revenue. News
      Corporation, which holds 71.9% of our total and issued outstanding share
      capital, currently owns approximately 39% and 100% of BSkyB and SKY Italia,
      respectively. 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 (“GAAP”) are interpreted or applied to our business could have a
      significant effect on our financial results. Our accounting policies that
      recently have been or may in the future be affected by changes in the accounting
      rules include revenue recognition, accounting for income taxes and accounting
      for goodwill and other intangible assets.




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




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




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




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




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




Page
          29




***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 the international aspects of
      our
      operations could harm our business.***




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




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




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




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          30




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




A
      risk
      inherent in our international operations is the exposure to fluctuations in
      currency exchange rates. In the three-month period ended September 30, 2008,
      approximately 44% of our revenues and approximately 75% of our total expenses
      were denominated in currencies other than the U.S. dollar. Additionally, as
      of
      September 30, 2008, approximately 19% 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.




To
      partially mitigate the risks associated with fluctuations in the exchange rate
      of the Israeli shekel against the U.S. dollar, as at September 30, 2008 we
      have
      a derivative financial instrument in place to enable us to hedge the exchange
      rate risk associated with substantially all of our forecasted Israeli
      shekel-denominated cash operating expenses through August 2010. As of September
      30, 2008, the notional amount of foreign exchange forward contracts with foreign
      currency risk was $279.0 million with settlement dates extending through
      August 2010. The fair value of derivative financial instruments, measured by
      reference to quoted market exchange rates as of September 30, 2008 was $17.0
      million The potential loss in fair value for such financial instruments of
      a 10%
      adverse change in quoted foreign currency exchange rates would be approximately
      $29.6 million. Subsequent to September 30, 2008, we entered into foreign
      exchange forward currency contracts to hedge the foreign exchange risks
      associated with the operating expenses of our Indian operations. We may use
      additional derivative financial instruments as a risk management tool in the
      future.




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




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




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




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




We
      are
      controlled by News Corporation. As of September 30, 2008, News Corporation
      beneficially owned 71.9% of our total issued and outstanding share capital.
      Because News Corporation beneficially owns 100% of our 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 96.2% of our voting power. By reason
      of such ownership, unless it is excluded or recuses itself from the vote, News
      Corporation is able to control the composition of our entire Board of Directors,
      to influence our decisions to take or refrain from taking certain actions and
      to
      control the votes on 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
      advises News Corporation with respect to various technology
      matters.




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 three-month period ended September 30, 2008, approximately 34% of our total
      revenues were derived 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 NASDAQ 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 NASDAQ. 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
          31




***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 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.




***The
      proposed transaction with News Corporation and Permira may have an adverse
      impact on, or cause significant fluctuations in, the market price or liquidity
      of our ADSs.***




On
      August
      14, 2008, News Corporation, the Permira Newcos and we announced that we signed
      an implementation agreement relating to the Proposed Transaction. The Proposed
      Transaction would be effected by means of:




·
            Cancelling
                all of our outstanding Series A Ordinary Shares, including shares
                represented by ADSs traded on NASDAQ, for per-share consideration
                of $63
                in cash;




·
            Cancelling
                approximately 67% of our Series B Ordinary Shares held by News Corporation
                for consideration of $63 per share to be paid in a combination of
                approximately $1.5 billion in cash and a $242 million vendor note.
                News
                Corporation currently owns 71.9% of our equity and 96.2% of our voting
                power through its ownership of 100% of the outstanding Series B Ordinary
                Shares. News Corporation would retain ownership of the remaining
                approximately 33% of the Series B Ordinary Shares it currently holds,
                resulting in it owning 49% of us following the completion of the
                Proposed
                Transaction; and




·
            Issuing
                the Permira Newcos new Series B Ordinary Shares representing 51%
                of our
                then outstanding Series B Ordinary
                Shares.




If
      the
      Proposed Transaction is consummated, it will be funded by a mix of senior and
      mezzanine indebtedness incurred by us, an investment provided by the Permira
      Newcos and our cash on hand. Our commitments and obligations with respect to
      the
      indebtedness are contingent upon the consummation of the Proposed Transaction.




The
      consummation of the Proposed Transaction is conditioned upon the approval of
      the
      transaction by holders of the Series A Ordinary Shares, the approval of the
      High
      Court of Justice of England and Wales, the receipt of certain regulatory
      approvals, the receipt of funding described above and certain other customary
      closing conditions. The consummation of the Proposed Transaction is also
      conditioned upon the Proposed Transaction being consummated by February 25,
      2009, or such later date as agreed by the parties and approved by the High
      Court
      of Justice of England and Wales. There can be no assurance that the Proposed
      Transaction will be consummated. The Proposed Transaction, or the consummation
      or abandonment thereof, may have an adverse impact on, or cause significant
      fluctuations in, the market price or liquidity of our ADSs.


Page
          32


**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**




**2008
      Annual General Meeting of Shareholders**




We
      currently expect to hold our 2008 Annual General Meeting of Shareholders (the
      “2008 Annual Meeting”) on December 17, 2008. This meeting date represents a
      change of more than 30 days from the anniversary of our 2007 Annual General
      Meeting of Shareholders. Accordingly, the deadline for submitting shareholder
      proposals to be considered for inclusion in our proxy materials for the 2008
      Annual Meeting has changed. Any submission by a shareholder who wishes for
      a
      proposal to be considered for inclusion in our proxy materials for the 2008
      Annual Meeting pursuant to Rule 14a-8 of the Securities Exchange Act of 1934,
      as
      amended (the “Exchange Act”), must be received by us a reasonable time before we
      begin to print and mail our proxy materials. We have set the deadline for
      receipt of such proposals as the close of business on November 4, 2008.
      Proposals must be received by our Secretary at the principal executive offices
      at NDS Group plc, One Heathrow Boulevard, 286 Bath Road, West Drayton, Middlesex
      UB7 0DQ, England, and must otherwise comply with the requirements of Rule 14a-8
      in order to be considered for inclusion in our 2008 proxy statement and proxy.




In
      addition, in order for proposals of shareholders made outside the processes
      of
      Rule 14a-8 under the Exchange Act to be considered “timely” for purposes of Rule
      14a-4(c) under the Exchange Act, we must receive the proposal at our principal
      executive offices no later than November 25, 2008. This is without prejudice
      to
      shareholders’ rights under the U.K. Companies Act or under our Articles of
      Association to propose resolutions that may properly be considered at that
      meeting.




Page
          33




**Item
                6.**
            **Exhibits**2.1
            Implementation
                Agreement, by and among Nuclobel Lux 1 S.à r.l., Nuclobel Lux 2 S.à r.l.,
                NDS Group plc, NDS Finance Limited, News Corporation and NDS Holdco
                Inc.
                dated August 14, 2008 (Incorporated by reference to Exhibit 2.1 to
                the
                Current Report on Form 8-K filed by NDS Group plc with the Securities
                and
                Exchange Commission on August 20, 2008)10.1
            Senior
                Facilities Agreement, by and among NDS Finance Limited, J.P. Morgan
                plc,
                Morgan Stanley Bank International Limited, J.P. Morgan Europe Limited,
                JPMorgan Chase Bank, N.A., London Branch and J.P. Morgan Europe Limited,
                dated August 14, 2008 (Incorporated by reference to Exhibit 10.1
                to the
                Current Report on Form 8-K filed by NDS Group plc with the Securities
                and
                Exchange Commission on August 20, 2008)10.2
            Mezzanine
                Facility Agreement, by and among NDS Finance Limited, J.P. Morgan
                plc,
                Morgan Stanley Bank International Limited, J.P. Morgan Europe Limited,
                JPMorgan Chase Bank, N.A., London Branch and J.P. Morgan Europe Limited,
                dated August 14, 2008 (Incorporated by reference to Exhibit 10.2
                to the
                Current Report on Form 8-K filed by NDS Group plc with the Securities
                and
                Exchange Commission on August 20, 2008)12
            Computation
                of Ratio of Earnings to Fixed Charges*31.1
            Chairman
                and Chief Executive Officer Certification required by Rules 13a-14(a)
                and
                15d-14(a) of the Securities Exchange Act of 1934, as amended (the
                “Exchange Act”)*31.2
            Chief
                Financial Officer Certification required by Rules 13a-14(a) and 15d-14(a)
                of the Exchange Act*32
            Certification
                of Chairman and Chief Executive Officer and Chief Financial Officer
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002*




*
      Filed
      herewith.




Page
          34


**Signatures**




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




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




Date:  October
      30, 2008


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          35