**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**




**(Mark
      One)**




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




**For
      the quarterly period ended March 31, 2007**





**or**





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




**For
      the transition period from _____________**  **to
      _____________**





**Commission
      File Number: 0-30364**





**NDS
      Group plc**


(Exact
      name of registrant as specified in its charter)





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





**+44
      20 8476 8000**


(Registrant’s
      telephone number, including area code)





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


**Yes**  **x** **No**  **o**





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




**Large
                accelerated filer o**
            **Accelerated
                filer x**
            **Non-accelerated
                filer o**





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


**Yes**  **o** **No**  **x**




As
      of
      April 27, 2007, the following shares were outstanding: 15,566,695 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**




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













**PART
      I - Financial Information**




**Item
      1. Financial Statements**




**NDS
      Group plc**




**Unaudited
      Consolidated Statements of Operations**




**For
                the three months ended**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(in
                thousands, except per-share amounts)**Revenue:**Conditional
                access
            
            $
            101,655
            
            $
            89,458
            
            $
            292,686
            
            $
            260,222Integration,
                development & support
            
            
            7,338
            
            
            10,393
            
            
            38,433
            
            
            36,087License
                fees & royalties
            
            
            27,122
            
            
            18,994
            
            
            74,922
            
            
            70,501New
                technologies
            
            
            40,953
            
            
            29,193
            
            
            97,374
            
            
            73,099Other
            
            
            1,323
            
            
            1,166
            
            
            4,200
            
            
            5,993Total
                revenue
            
            
            178,391
            
            
            149,204
            
            
            507,615
            
            
            445,902**Cost
                of goods and services sold**(exclusive
                of items shown separately below)**:**Smart
                card costs
            
            
            (20,110
            )
            
            (21,617
            )
            
            (60,184
            )
            
            (66,324
            )Operations
                & support
            
            
            (44,356
            )
            
            (32,679
            )
            
            (119,351
            )
            
            (101,260
            )Royalties
            
            
            (4,816
            )
            
            (2,727
            )
            
            (11,912
            )
            
            (8,405
            )Other
            
            
            (1,291
            )
            
            (937
            )
            
            (2,479
            )
            
            (3,570
            )Total
                cost of goods and services sold
            
            
            (70,573
            )
            
            (57,960
            )
            
            (193,926
            )
            
            (179,559
            )**Gross
                margin**
            
            
            107,818
            
            
            91,244
            
            
            313,689
            
            
            266,343**Operating
                expenses:**Research
                & development
            
            
            (45,638
            )
            
            (36,608
            )
            
            (123,613
            )
            
            (103,053
            )Sales
                & marketing
            
            
            (10,912
            )
            
            (7,762
            )
            
            (28,203
            )
            
            (21,767
            )General
                & administration
            
            
            (12,284
            )
            
            (9,220
            )
            
            (35,972
            )
            
            (29,018
            )Amortization
                of other intangibles
            
            
            (3,202
            )
            
            (2,242
            )
            
            (8,129
            )
            
            (7,038
            )Total
                operating expenses
            
            
            (72,036
            )
            
            (55,832
            )
            
            (195,917
            )
            
            (160,876
            )**Operating
                income**
            
            
            35,782
            
            
            35,412
            
            
            117,772
            
            
            105,467**Other
                income:**Interest,
                net
            
            
            6,166
            
            
            4,067
            
            
            18,678
            
            
            10,451Income
                before income tax expense
            
            
            41,948
            
            
            39,479
            
            
            136,450
            
            
            115,918Income
                tax expense
            
            
            (12,724
            )
            
            (11,340
            )
            
            (41,847
            )
            
            (34,714
            )**Net
                income**
            
            $
            29,224
            
            $
            28,139
            
            $
            94,603
            
            $
            81,204**Net
                income per share:**Basic
                net income per share
            
            $
            0.51
            
            $
            0.50
            
            $
            1.66
            
            $
            1.45Diluted
                net income per share
            
            $
            0.50
            
            $
            0.49
            
            $
            1.63
            
            $
            1.41





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




Page
          1


**NDS
      Group plc**




**Consolidated
      Balance Sheets**




**As
                of**
            
            **As
                of****March
                31,**
            
            **June
                30,****2007**
            
            **2006****(Unaudited)**
            
            **(See
                Note 2)**(in
                thousands, except share amounts)**ASSETS****Current
                assets:**Cash
                and cash equivalents
            
            $
            521,512
            
            $
            320,636Short-term
                investments
            
            
            ─
            
            
            184,401Accounts
                receivable, net (inclusive of $103,165 and $74,295 due from related
                parties)
            
            
            145,588
            
            
            97,716Accrued
                income
            
            
            39,609
            
            
            37,050Income
                tax receivable
            
            
            218
            
            
            1,411Inventories,
                net
            
            
            52,040
            
            
            39,340Prepaid
                expenses
            
            
            19,311
            
            
            17,031Other
                current assets
            
            
            2,572
            
            
            3,650Total
                current assets
            
            
            780,850
            
            
            701,235Property,
                plant & equipment, net
            
            
            50,491
            
            
            46,239Goodwill
            
            
            124,148
            
            
            66,917Other
                intangibles, net
            
            
            65,934
            
            
            43,299Deferred
                tax assets
            
            
            10,054
            
            
            7,506Other
                receivables
            
            
            14,394
            
            
            6,681Other
                non-current assets
            
            
            30,170
            
            
            25,244**Total
                assets**
            
            $
            1,076,041
            
            $
            897,121**LIABILITIES
                AND SHAREHOLDERS’ EQUITY****Current
                liabilities:**Accounts
                payable (inclusive of $3,572 and $4,228 due to related
                parties)
            
            $
            24,278
            
            $
            26,966Deferred
                income
            
            
            66,740
            
            
            45,492Accrued
                payroll costs
            
            
            25,331
            
            
            26,647Accrued
                expenses
            
            
            26,720
            
            
            26,245Income
                tax liabilities
            
            
            22,279
            
            
            19,039Other
                current liabilities
            
            
            18,515
            
            
            16,762Total
                current liabilities
            
            
            183,863
            
            
            161,151Accrued
                expenses
            
            
            39,795
            
            
            33,747Deferred
                income
            
            
            159,839
            
            
            134,529Deferred
                tax liabilities
            
            
            4,038
            
            
            ─**Total
                liabilities**
            
            
            387,535
            
            
            329,427Commitments
                and contingencies**Shareholders’
                equity:**Series
                  A ordinary shares, par value $0.01 per share: 48,000,000 shares
                  authorized;
              15,493,996
                and 14,873,262 shares outstanding as ofMarch
                31, 2007and June 30, 2006, respectively
            
            
            155
            
            
            148Series
                B ordinary shares, par value $0.01 per share: 52,000,000 shares
                authorized;42,001,000
                shares outstanding as of March 31, 2007 and June 30, 2006,
                respectively
            
            
            420
            
            
            420Deferred
                shares, par value £1 per share: 42,000,002 shares
                authorizedand
                outstanding as
                of March 31, 2007 and June 30, 2006, respectively
            
            
            64,103
            
            
            64,103Additional
                paid-in capital
            
            
            554,088
            
            
            534,668Retained
                earnings (accumulated deficit)
            
            
            14,982
            
            
            (79,621
            )Other
                comprehensive income
            
            
            54,758
            
            
            47,976**Total
                shareholders’ equity**
            
            
            688,506
            
            
            567,694**Total
                liabilities and shareholders’ equity**
            
            $
            1,076,041
            
            $
            897,121





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




Page
          2


**NDS
      Group plc**




**Unaudited
      Consolidated Statements of Cash Flows**




**For
                the nine months ended****March
                31,****2007**
            
            **2006**(in
                thousands)**Operating
                activities:**Net
                income
            
            $
            94,603
            
            $
            81,204Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
            
            
            13,992
            
            
            12,088Amortization
                of other intangibles
            
            
            8,129
            
            
            7,038Stock
                option-based compensation
            
            
            6,256
            
            
            3,776Other
            
            
            546
            
            
            ─Change
                in operating assets and liabilities, net of acquisitions:Inventories
            
            
            (12,692
            )
            
            7,882Receivables
                and other assets
            
            
            (58,970
            )
            
            (45,137
            )Deferred
                income
            
            
            44,789
            
            
            37,905Accounts
                payable and other liabilities
            
            
            105
            
            
            6,432Net
                cash provided by operating activities
            
            
            96,758
            
            
            111,188**Investing
                activities:**Capital
                expenditure
            
            
            (16,191
            )
            
            (21,921
            )Business
                acquisitions, net of cash acquired
            
            
            (82,672
            )
            
            (3,118
            )Short-term
                investments, net
            
            
            184,401
            
            
            (101,035
            )Net
                cash generated by (used in) investing activities
            
            
            85,538
            
            
            (126,074
            )**Financing
                activities:**Issuance
                of shares (inclusive of realized excess tax benefits of $2,922 and
                $4,095)
            
            
            13,160
            
            
            20,348**Net
                increase in cash and cash equivalents**
            
            
            195,456
            
            
            5,462Cash
                and cash equivalents, beginning of period
            
            
            320,636
            
            
            339,791Exchange
                movements
            
            
            5,420
            
            
            (628
            )**Cash
                and cash equivalents, end of period**
            
            $
            521,512
            
            $
            344,625





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 and operations in several countries around the world. All the
      revenues, expenses, assets, liabilities and cash flows relate to the continuing
      operations of the Company.





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





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





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




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





These
      interim unaudited consolidated financial statements and notes thereto should
      be
      read in conjunction with the audited consolidated financial statements and
      notes
      thereto for the fiscal year ended June 30, 2006 included in the Company’s Annual
      Report on Form 10-K as filed with the Securities and Exchange Commission on
      September 1, 2006. Financial information as of June 30, 2006 has been
      derived from those audited consolidated financial statements.





These
      interim consolidated financial statements are unaudited and do not constitute
      U.K. statutory results as defined in Section 240 of the Companies Act 1985
      of
      Great Britain. U.K. statutory accounts for the fiscal year ended June 30, 2006,
      which include parent company financial statements prepared under U.K. generally
      accepted accounting practice and consolidated financial statements prepared
      under International Financial Reporting Standards as adopted by the European
      Union, and on which the auditors’ reports were unqualified, were approved by the
      Company’s shareholders at its Annual General Meeting of Shareholders held on
      October 30, 2006 and have been delivered to the Registrar of Companies for
      England and Wales.





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





The
      Company maintains a 52-53 week fiscal year ending on the Sunday nearest to
      each
      reporting date. As such, all references to March 31, 2007 and March 31, 2006
      relate to the three- or nine-month periods ended April 1, 2007 and April 2,
      2006, respectively. For convenience purposes, the Company continues to date
      its
      financial statements as of March 31.





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





*Recent
      accounting pronouncements*




In
      June
      2006, the Financial Accounting Standards Board (the “FASB”) issued
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
      interpretation of FAS 109, Accounting for Income Taxes,” (“FIN 48”), to create a
      single model to address accounting for uncertainty in tax positions. FIN 48
      clarifies the accounting for income taxes, by prescribing a minimum recognition
      threshold a tax position is required to meet before being recognized in the
      financial statements. FIN 48 also provides guidance on derecognition,
      measurement, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. The Company will adopt FIN 48 as of July
      1, 2007, as required. The cumulative effect of adopting FIN 48 will be recorded
      in retained earnings and other accounts as applicable. The Company has not
      determined the effect, if any, the adoption of FIN 48 will have on the Company’s
      financial position and results of operations.




Page
          4





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





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans ─ an amendment of FASB Statements
      No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). SFAS No. 158 requires an employer
      to recognize the overfunded or underfunded status of a defined benefit
      postretirement plan (other than a multiemployer plan) as an asset or liability
      in its statement of financial position and to recognize changes in that funded
      status in the year in which the changes occur through comprehensive income.
      SFAS
      No. 158 is effective for the Company as of the fiscal year ending June 30,
      2007.
      The adoption of SFAS No. 158 will not have a material impact on the Company’s
      results of operations and financial condition.





In
      June
      2006, the Emerging Issues Task Force (the “EITF”) of the FASB reached a
      consensus on Issue No. 06-3: “How Taxes Collected from Customers and Remitted to
      Governmental Authorities Should Be Presented in the Income Statement (That
      Is,
      Gross versus Net Presentation)” (“EITF 06-3”). The EITF determined that the
      scope of EITF 06-3 includes any tax assessed by a governmental authority that
      is
      imposed concurrently on a specific revenue-producing transaction between a
      seller and a customer, and may include, but is not limited to, sales, use,
      value
      added, and some excise taxes. The EITF also determined that the presentation
      of
      taxes on either a gross basis or a net basis within the scope of EITF 06-3
      is an
      accounting policy decision that should be disclosed. EITF 06-3 is effective
      for
      interim and annual financial statements beginning after December 15, 2006.
      It
      has been the Company’s policy to state revenue net of value added and similar
      taxes and the Company continues to do so.





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





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




The
      components of comprehensive income for the three- and nine-month periods ended
      March 31, 2007 and 2006 were as follows:





**For
                the three months ended**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(in
                thousands)Net
                income
            
            $
            29,224
            
            $
            28,139
            
            $
            94,603
            
            $
            81,204Foreign
                currency translation differences (no tax effect)
            
            
            984
            
            
            697
            
            
            6,782
            
            
            (1,731
            )Comprehensive
                income
            
            $
            30,208
            
            $
            28,836
            
            $
            101,385
            
            $
            79,473




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




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 outstanding stock options
      granted to employees. The dilutive effect of the potential shares to be issued
      upon exercise of those stock options has been calculated using the treasury
      stock method and as such, is a function of the average share price in each
      period. The Company’s Series A ordinary shares, par value $0.01 per share
      (“Series A Ordinary Shares”) and Series B ordinary shares, par value $0.01 per
      share (“Series B Ordinary Shares”) 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.




Page
          5


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**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Weighted
                average number of ordinary shares in issue
            
            
            57,344,449
            
            
            56,305,882
            
            
            57,091,493
            
            
            55,863,709Effect
                of dilutive stock options
            
            
            860,300
            
            
            1,438,071
            
            
            922,750
            
            
            1,750,084Denominator
                for dilutive net income per share
            
            
            58,204,749
            
            
            57,743,953
            
            
            58,014,243
            
            
            57,613,793




**Note
      5.**  **Acquisitions**




During
      the nine months ended March 31, 2007, the Company completed two acquisitions.
      The amount of goodwill and intangible assets resulting from these acquisitions
      was approximately $54.4 million and $30.4 million, respectively, and related
      to
      the fiscal 2007 transactions below. The amount that has been preliminarily
      allocated to goodwill is not being amortized. Where the allocation of the excess
      purchase price is not final, the amount allocated to goodwill is subject to
      changes upon completion of final valuations of certain assets and liabilities.
      A
      future reduction in goodwill for additional value to be assigned to identifiable
      finite-lived intangible assets or tangible assets could reduce future earnings
      as a result of additional amortization. For every $1 million reduction in
      goodwill for additional value to be assigned to identifiable finite-lived
      intangible assets or tangible assets, depreciation and amortization expense
      would increase by approximately $0.1 million per fiscal year, assuming an
      average useful life of ten years.





The
      acquisitions referred to below were all accounted for in accordance with SFAS
      No. 141, “Business Combinations.”





*Fiscal
      2007 transactions*




On
      December 31, 2006, the Company completed the acquisition of Jungo Limited
      (“Jungo”), a company based in Israel whose primary business is the development
      and supply of software for use in residential gateway devices. These devices
      act
      as the interface between the broadband network connection in the home and
      various devices that may be connected on a home network. The initial
      consideration paid in cash, including acquisition related costs, was $91.1
      million ($77.5 million, net of cash acquired). The excess purchase price over
      the fair value of the tangible net assets acquired including acquisition related
      costs was $82.1 million, of which $28.4 million has been preliminarily
      allocated to identifiable finite-lived intangible assets with the remaining
      $53.7 million preliminarily allocated to goodwill. This allocation is
      preliminary and may be adjusted when a detailed assessment and valuation of
      the
      separable assets and liabilities acquired is completed. Additional consideration
      of up to $17.0 million may be payable in cash, contingent upon Jungo
      achieving certain revenue and profitability targets in the year ending December
      31, 2007.





The
      following unaudited pro forma consolidated results of operations for the
      three-month period ended March 31, 2006 and the nine-month periods ended March
      31, 2007 and March 31, 2006 assume that the acquisition of Jungo was completed
      on July 1, 2005.





**For
                the three****months
                ended**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2006**
            
            **2007**
            
            **2006**(in
                thousands, except per-share amounts)Revenue
            
            $
            151,902
            
            $
            517,223
            
            $
            454,188Net
                income
            
            
            27,365
            
            
            95,331
            
            
            79,816Basic
                net income per share
            
            $
            0.49
            
            $
            1.67
            
            $
            1.43Diluted
                net income per share
            
            $
            0.47
            
            $
            1.64
            
            $
            1.39





Pro
      forma
      data may not be indicative of the results that would have been obtained had
      these events actually occurred at the beginning of the periods presented, nor
      does it intend to be a projection of future results.




Page
          6




On
      September 29, 2006, the Company acquired Interactive Television Entertainment
      ApS, a company based in Copenhagen, Denmark, which specializes in the
      development of video games published on multiple gaming platforms, for cash
      consideration, including costs, of $1.9 million. The Company also assumed debt
      of $1.3 million, which was repaid in early October 2006 and is regarded as
      part
      of the initial purchase consideration. The excess purchase price over the fair
      value of the tangible net assets acquired including acquisition related costs
      was $2.7 million, of which $2.0 million has been preliminarily allocated to
      identifiable finite-lived intangible assets with the remaining $0.7 million
      preliminarily allocated to goodwill. This allocation is preliminary and may
      be
      adjusted when a detailed assessment and valuation of the separable assets and
      liabilities acquired is completed.





*Fiscal
      2006 transaction*




On
      September 2, 2005, the Company acquired NT Media Limited (“NT Media”) for
      initial cash consideration and costs totaling $3.1 million, net of cash
      acquired. Further payments may be made under the terms of the acquisition
      agreement up to a maximum of approximately $4.7 million in cash over the period
      to fiscal 2009, contingent upon the business achieving certain targets through
      September 2, 2008. As of March 31, 2007, the Company has paid a total of
      $2.0 million in conditional consideration and accrued a further $1.0
      million.





**Note
      6.**  **Short-term
      investments**




The
      short-term investment balance at June 30, 2006 comprised cash deposits at banks
      with an original term of six months. These deposits matured during the
      nine-month period ended March 31, 2007.





**Note
      7.**  **Accounts
      receivable**




**As
                of**
            
            **As
                of****March
                31,**
            
            **June
                30,****2007**
            
            **2006**(in
                thousands)Gross
                amount due
            
            $
            146,069
            
            $
            98,840Less
                valuation reserves
            
            
            (481
            )
            
            (1,124
            )$
            145,588
            
            $
            97,716




**Note
      8.**  **Inventories**




**As
                of**
            
            **As
                of****March
                31,**
            
            **June
                30,****2007**
            
            **2006**(in
                thousands)Unprocessed
                smart cards and their components
            
            $
            49,460
            
            $
            37,579Other
                smart card inventory
            
            
            3,791
            
            
            2,731Inventory
                reserves
            
            
            (3,656
            )
            
            (2,511
            )49,595
            
            
            37,799Contract
                work-in-progress
            
            
            2,445
            
            
            1,541Total
                inventories
            
            $
            52,040
            
            $
            39,340





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





Page
          7


**Note
      9.**  **Deferred
      income**




**As
                of**
            
            **As
                of****March
                31,**
            
            **June
                30,****2007**
            
            **2006**(in
                thousands)Deferred
                security fees
            
            $
            165,660
            
            $
            134,129Advance
                receipts and other deferred income
            
            
            60,919
            
            
            45,892Total
                deferred income
            
            $
            226,579
            
            $
            180,021Included
                within current liabilities
            
            $
            66,740
            
            $
            45,492Included
                within non-current liabilities
            
            
            159,839
            
            
            134,529$
            226,579
            
            $
            180,021




**Note
      10.**  **Related
      party transactions**




The
      Company conducts business transactions with News Corporation and its
      subsidiaries and affiliates. These entities are considered to be related
      parties. 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. There can be no assurance, therefore, 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 requirements.





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




**a)
      Provision of technology and services**




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





Revenue
      recognized from such related parties was as follows:





**For
                the three months ended**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(in
                thousands)Revenue
                from related parties
            
            $
            127,119
            
            $
            114,233
            
            $
            381,981
            
            $
            343,632





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





**As
                of**
            
            **As
                of****March
                31,**
            
            **June
                30,****2007**
            
            **2006**(in
                thousands)Accounts
                receivable (net of reserves of $─ and $638)
            
            $
            103,165
            
            $
            74,295Accrued
                income
            
            
            28,254
            
            
            25,434Deferred
                income
            
            
            (185,761
            )
            
            (160,196
            )






Page
          8




**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 was as
      follows:





**For
                the three months ended**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(in
                thousands)Royalty
                expense payable to related party,included
                within cost of goods and services sold
            
            $
            1,362
            
            $
            225
            
            $
            2,497
            
            $
            1,609





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





**As
                of**
            
            **As
                of****March
                31,**
            
            **June
                30,****2007**
            
            **2006**(in
                thousands)Accrued
                expenses
            
            $
            3,247
            
            $
            750





**c)
      Administration and finance services**




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





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





**For
                the three months ended**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(in
                thousands)Administration
                fees charged to the Company by related parties
            
            $
            61
            
            $
            43
            
            $
            179
            
            $
            129





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:





**As
                of**
            
            **As
                of****March
                31,**
            
            **June
                30,****2007**
            
            **2006**(in
                thousands)Accounts
                payable
            
            $
            3,572
            
            $
            4,228





**d)
      Other**




The
      Company has a short-term loan facility of £30 million (approximately $59
      million) from News Corporation. The facility has no expiry date and no amounts
      were drawn down as of March 31, 2007 or June 30, 2006. The facility is
      considered to be adequate for the Company’s needs.




Page
          9





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
      $39 million). News Corporation has indemnified the Company against any
      liabilities that the Company may be required to pay under these
      cross-guarantees. Management has been informed by News Corporation that no
      amounts were owed to HSBC as of March 31, 2007 or June 30, 2006 that would
      be
      covered by these guarantees.





**Note
      11.**  **Contingencies
      and commitments**




**a)
      Litigation**




*Echostar
      Litigation*




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





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





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





*The
      International Electronic Technology Corp. Litigation*




On
      April
      18, 1997, International Electronic Technology Corp. (“IETC”) filed suit in the
      United States District Court for the Central District of California against
      the
      Company’s customers, Hughes, DIRECTV, Inc. and Thomson Consumer Electronics,
      Inc., alleging infringement of one U.S. patent and seeking unspecified damages
      and injunction.





Although
      not a party to this case, the Company has assumed the defense and agreed to
      indemnify the named defendants. On March 9, 2006, the district court granted
      defendants’ motion for summary judgment, finding that the defendants did not
      infringe IETC’s patent. The district court entered judgment for defendants on
      March 24, 2006. IETC filed an appeal to the United States Court of Appeals
      for
      the Federal Circuit. The parties completed all briefing on the appeal on October
      4, 2006.





On
      December 6, 2006, the Court of Appeals notified the parties that the appeal
      was
      defective because the order IETC appealed from was not final. The Court of
      Appeals directed IETC to obtain a final order from the district court by January
      2, 2007, or the appeal would be dismissed. IETC and defendants subsequently
      reached a settlement of the matter, which has now been finalized. The Court
      of
      Appeals dismissed the appeal, and the District Court has dismissed all claims
      with prejudice in view of the settlement. The terms of the settlement are
      confidential, but included a one-time payment that did not have a material
      impact on the financial position of the Company.




Page
          10





*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 federal 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. The Company believes that Sogecable’s claims are without merit and
      will continue to vigorously defend itself in this matter.





*Barry
      Thomas Litigation*




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




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





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





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





**b)
      Contingent consideration for business acquisitions**




Additional
      contingent consideration of up to $17.0 million may be payable to the former
      shareholders of Jungo, contingent upon Jungo achieving certain revenue and
      profitability targets in the year ending December 31, 2007. Additional
      contingent consideration of up to approximately $2.7 million (of which $1.0
      million had been accrued as of March 31, 2007) may be payable to the former
      shareholders of NT Media, contingent upon future revenues of NT Media for the
      period through September 2, 2008.





**c)
      Guarantees**




In
      the
      normal course of business, the Company provides indemnification agreements
      of
      varying scopes, including 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. The nature
      of these commitments has been considered in determining the revenues and costs
      recognized in these financial statements. Costs are accrued for known warranty
      and indemnification issues if a loss is probable and can be reasonably
      estimated. Historically, costs related to these warranties and indemnification
      agreements have not been significant, but because potential future costs are
      highly variable, the Company is unable to estimate the maximum potential impact
      of these guarantees on the Company’s future results of operations.





Page
          11





**d)
      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
      consolidated 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 consolidated financial
      statements would materially affect the Company’s financial
      position.





**Note
      12.**  **Equity-based
      compensation plans**




On
      October 30, 2006, the Company’s shareholders approved the NDS 2006 Long-Term
      Incentive Plan (the “Plan”). The Plan will terminate on October 30, 2016, unless
      terminated earlier pursuant to its terms. As of March 31, 2007, no grants had
      been made pursuant to the Plan. The Plan provides for awards of stock options
      to
      purchase Series A Ordinary Shares, restricted awards, conditional awards, stock
      appreciation rights or awards of Series A Ordinary Shares, the terms and
      conditions of which are described in the Plan. The maximum number of Series
      A
      Ordinary Shares that may be issued or delivered under the Plan is 10,000,000
      shares. The Plan will be administered by the Board or a committee appointed
      by
      the Board.





There
      will be no further stock options granted under two of the Company’s existing
      stock option plans: The NDS 1997 Executive Share Option Scheme or The NDS 1999
      Executive Share Option Scheme. However, further grants may be made under the
      NDS
      U.K. Approved Share Option Scheme, which will be treated as a sub-scheme of
      the
      Plan.





The
      following amounts have been recorded in the consolidated financial statements
      concerning the Company’s equity-based compensation plans:





**For
                the three months ended**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(in
                thousands, except stock option amounts)Number
                of stock options exercised
            
            
            294,656
            
            
            437,935
            
            
            620,734
            
            
            1,238,560Total
                intrinsic value of stock options exercised
            
            $
            9,278
            
            $
            14,415
            
            $
            19,525
            
            $
            34,806





Stock-based
      compensation cost, included within the consolidated statement of
      operations:





Operating
                expenses
            
            $
            1,878
            
            $
            2,064
            
            $
            6,256
            
            $
            3,776Tax
                benefit
            
            
            (325
            )
            
            (400
            )
            
            (965
            )
            
            (678
            )Net
                of tax amount
            
            $
            1,553
            
            $
            1,664
            
            $
            5,291
            
            $
            3,098Cash
                received from exercise of stock options
            
            $
            4,993
            
            $
            6,466
            
            $
            10,238
            
            $
            16,253Excess
                tax benefit from exercise of stock options
            
            $
            1,143
            
            $
            695
            
            $
            2,933
            
            $
            5,273





As
      of
      March 31, 2007, the total compensation cost related to non-vested stock option
      awards not yet recognized was approximately $19.8 million and the period
      over which it is expected to be recognized was 2.8 years. The Board may grant
      additional stock options or other equity-based compensation under the Plan,
      which would result in additional operating expenses being recorded in future
      periods.




Page
          12


**Note
      13.**  **Supplementary
      cash flow information**




**For
                the nine months ended****March
                31,****2007**
            
            **2006**(in
                thousands)**Cash
                receipts and payments:**Interest
                received in cash
            
            $
            20,110
            
            $
            9,155Interest
                paid in cash
            
            
            (263
            )
            
            ─Cash
                payments for income taxes
            
            
            (36,121
            )
            
            (13,077
            )Gross
                purchases of short-term investments
            
            
            (203,387
            )
            
            (101,035
            )Gross
                sales of short-term investments
            
            
            387,788
            
            
            ─**Supplemental
                information on businesses acquired:**Fair
                value of assets(1)
            
            $
            105,334
            
            $
            3,489Less:
                liabilities assumed(1)
            
            
            (11,042
            )
            
            (304
            )Less:
                cash acquired
            
            
            (13,577
            )
            
            (67
            )80,715
            
            
            3,118Deferred
                consideration paid for acquisitions
            
            
            1,957
            
            
            ─Net
                cash paid for business acquisitions
            
            $
            82,672
            
            $
            3,118







(1) Based on
      preliminary allocation of purchase price





**Note
      14.**  **Pension
      expense**




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





**For
                the three months ended**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(in
                thousands)Service
                cost
            
            $
            53
            
            $
            44
            
            $
            155
            
            $
            132Interest
                cost
            
            
            317
            
            
            241
            
            
            931
            
            
            727Expected
                return on plan assets
            
            
            (261
            )
            
            (203
            )
            
            (768
            )
            
            (613
            )Amortization
                of unrecognized net loss
            
            
            153
            
            
            143
            
            
            449
            
            
            433$
            262
            
            $
            225
            
            $
            767
            
            $
            679





During
      the nine months ended March 31, 2007 and 2006, the Company made discretionary
      contributions of $1.0 million and $0.9 million, respectively, to the defined
      benefit pension scheme.





Page
          13


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




***This
      document contains statements that constitute “forward-looking statements” within
      the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
      and Section 27A of the Securities Act of 1933, as amended. The words “expect,”
“estimate,” “anticipate,” “predict,” “believe” and similar expressions and
      variations thereof are intended to identify forward-looking statements. These
      statements appear in a number of places in this document and include statements
      regarding the intent, belief or current expectations of NDS Group plc, its
      directors or its officers with respect to, among other things, trends affecting
      NDS Group plc’s financial condition or results of operations. Unless otherwise
      indicated or unless the context requires otherwise, all reference herein to
      the
“Company,” “we,” “our” and “us” refers to the NDS Group plc. Readers of this
      document are cautioned that any such forward-looking statements are not
      guarantees of future performance and involve risks and uncertainties. Those
      risks and uncertainties are discussed under Item 1A. Risk Factors of Part II
      of
      this Quarterly Report on Form 10-Q, in the Company’s Annual Report on Form 10-K
      for the fiscal year ended June 30, 2006 as filed with the Securities and
      Exchange Commission (“SEC”) on September 1, 2006 (SEC file no. 0-30364), as
      well as the information set forth elsewhere in this Quarterly Report. The
      Company does not ordinarily make projections of its future operating results
      and
      undertakes no obligation (and expressly disclaims any obligation) to publicly
      update or revise any forward-looking statements, whether as a result of new
      information, future events or otherwise, except as required by law. You should
      carefully review other documents filed by the Company with the SEC. This section
      should be read in conjunction with the unaudited consolidated financial
      statements of the Company and related notes set forth elsewhere
      herein.***





**Introduction**




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





·
            ***Overview
                of our business ─***This section provides a general description of our business and
                developments that have occurred during fiscal 2007 that we believe
                are
                important in understanding the results of operations and financial
                condition or to disclose known future
                trends.





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





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





**Overview
      of our business**




We
      supply
      open end-to-end digital technology and services to digital pay-television
      platform operators and content providers. Our technologies include conditional
      access and microprocessor security, broadcast stream management, set-top box
      and
      residential gateway middleware, electronic program guides (“EPGs”), digital
      video recording (“DVR”) technologies and interactive infrastructure and
      applications. Middleware and DVR technologies are deployed on hardware devices,
      such as set-top boxes, PCs and other consumer electronics devices; we refer
      to
      these deployments as middleware clients and DVR clients. We provide technologies
      and services supporting standard definition and high definition televisions
      and
      a variety of industry standards. 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 who utilize a
      broadcast infrastructure to deliver video and data to multiple subscribers.
      In
      addition, we may sell interactive applications to content providers. Such
      customers usually do not operate a broadcast platform, but provide content
      for
      transmission over a platform operator’s network. The applications we sell to
      content providers make use of the functions and capabilities of the broadcast
      infrastructure.





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





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. We currently derive, and we expect to continue
      to
      derive, a significant portion of our revenues from a limited number of large
      customers. Our three largest customers are The DIRECTV Group, Inc. (“DIRECTV”),
      operating through various subsidiaries and affiliates in the United States
      and
      Latin America, British Sky Broadcasting Group plc (“BSkyB”), operating through
      various subsidiaries in the United Kingdom and Sky Italia S.r.l. (“Sky Italia”),
      operating in Italy. Together, these three customers contributed, directly and
      indirectly, approximately 70.4% of our revenues in the nine-month period ended
      March 31, 2007. We expect that a limited number of customers will continue
      to
      contribute a significant portion of our revenues.




Page
          14





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 TV Edition (developed by Microsoft
      Corporation) both to attract new customers and to retain our existing customers.
      In addition, some of the companies that currently operate in the software
      business, but that have not historically been active competitors of ours, may,
      through acquisitions or the development of their own resources, seek to enter
      and obtain significant market share in our current or planned business
      areas.





A
      significant portion of our revenues is dependent upon our customers’ subscriber
      base, the growth in their subscriber bases and the related quantities of set-top
      boxes deployed. Revenues can vary from period to period as our revenues reflect
      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 revenues over the
      term
      of any post-contract support period.





We
      consider that we operate as a single segment and our business is managed as
      such. 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.





**Other
      recent business developments**




On
      December 31, 2006, we completed the acquisition of Jungo Limited (“Jungo”).
      Jungo, which is based in Israel, primarily develops and supplies software for
      residential gateway devices under the product name OpenRG. The residential
      gateway device and the software contained in it act as the interface between
      the
      broadband network and the various consumer electronic devices that are attached
      in a home network. The residential gateway device plays an important role in
      controlling the quality and management of the individual services. Residential
      gateway devices have grown in sophistication and are increasingly deployed
      by
      telecom companies as the main service termination point in consumers’ premises
      for the delivery of a variety of services, including broadband data, video
      content over broadband (“IPTV”), voice over Internet protocol (“VoIP”)
      telephony, video telephony and convergent wireless/wireline telephony. Providing
      the underlying software for both the residential gateway device and the set-top
      box will allow us to develop integrated solutions for enhanced IPTV and
      broadband services. In addition, we expect that the collaboration between these
      two devices in the home network will allow platform operators to introduce
      new
      services, such as enabling the set-top box to access music, video and pictures
      stored on personal computers in the home network, archiving of digital content
      stored on a DVR and video conferencing via VoIP. The acquisition of Jungo did
      not have a material impact on our net income for either of the three- or
      nine-month periods ended March 31, 2007.





**Revenues**




We
      derive
      revenues from:





1)**
            *Fees
                for the supply of an initial system and subsequent additional
                functionality and maintenance services*.
                These fees are typically based on the amount of manpower required
                to
                customize, integrate and install the system components and subsequently
                to
                maintain those components. We refer to such fees as “integration,
                development and support revenues.”





2)
            *Fees
                from the sale of smart cards and the provision of security maintenance
                services.*These fees are typically based on the number of smart cards supplied
                and
                the number of subscribers and/or smart cards authorized for a particular
                platform. Our fees may be reduced if the security of the system is
                compromised. We refer to fees from the sales of smart cards and the
                provision of security maintenance services as “conditional access
                revenues.”





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 subscribers. For example, we may receive
                a share
                of incremental revenues 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.”




Page
          15




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 revenues from “established technologies” and revenues from
“new technologies.” We categorize as revenues from established technologies our
      revenue from conditional access, middleware and program guide technologies
      and
      fees from the customization and integration of those technologies into head-end
      systems and set-top boxes. Revenues from these technologies are allocated
      between the three different revenue streams identified above. We aggregate
      under
      our separate new technologies revenue stream all revenues that we derive from
      DVR technologies, technologies involving IPTV, interactive infrastructure and
      applications, and games and gaming. Revenues from Jungo are also included within
      new technologies. As our business develops, we will consider whether these
      groupings of revenue remain appropriate.





**Costs
      and expenses**




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





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





Personnel
      and facilities costs are allocated into four categories: operations; research
      and development; sales and marketing; and general and administration. We have
      employees and facilities in the United Kingdom, the United States, Israel,
      India, France, Denmark, Russia, 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.
      Operations costs were stated net of the movement in labor costs deferred in
      inventory as contract work-in-progress.





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





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





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





Page
          16


**Results
      of operations**




**Commentary
      on the three- and nine-month periods ended March 31, 2007**




**Revenue**




Revenue
      for the periods under review was as follows:




**For
                the three months ended****March
                31,****2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**(in
                thousands)Conditional
                access
            
            $
            101,655
            
            $
            89,458
            
            $
            12,197
            
            
            14
            %Integration,
                development & support
            
            
            7,338
            
            
            10,393
            
            
            (3,055
            )
            
            (29
            %)License
                fees & royalties
            
            
            27,122
            
            
            18,994
            
            
            8,128
            
            
            43
            %New
                technologies
            
            
            40,953
            
            
            29,193
            
            
            11,760
            
            
            40
            %Other
            
            
            1,323
            
            
            1,166
            
            
            157
            
            
            13
            %Total
                revenue
            
            $
            178,391
            
            $
            149,204
            
            $
            29,187
            
            
            20
            %





**For
                the nine months ended****March
                31,****2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**(in
                thousands)Conditional
                access
            
            $
            292,686
            
            $
            260,222
            
            $
            32,464
            
            
            12
            %Integration,
                development & support
            
            
            38,433
            
            
            36,087
            
            
            2,346
            
            
            7
            %License
                fees & royalties
            
            
            74,922
            
            
            70,501
            
            
            4,421
            
            
            6
            %New
                technologies
            
            
            97,374
            
            
            73,099
            
            
            24,275
            
            
            33
            %Other
            
            
            4,200
            
            
            5,993
            
            
            (1,793
            )
            
            (30
            %)Total
                revenue
            
            $
            507,615
            
            $
            445,902
            
            $
            61,713
            
            
            14
            %




The
      increase in conditional access revenues was principally due to higher security
      fees and, in the nine-month period ended March 31, 2007, a higher volume of
      smart cards delivered to customers. Higher security fees arise from increases
      in
      the number of authorized smart cards in use at our broadcast platform customers.
      In some instances, a portion of the security fee includes a requirement to
      replace a population of smart cards with a supply of “changeover cards,” which
      is considered a separate unit of accounting. In such instances, an amount of
      the
      security fee is deferred and recognized when the changeover cards are delivered.
      For the three- and nine-month periods ended March 31, 2007, the amount of
      revenue deferred for changeover cards was lower than the corresponding prior
      year periods, as a majority of our customers are postponing the timing of
      changeover from what we had originally estimated. Authorized smart card activity
      in each period was as follows:





**For
                the three months ended**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(in
                millions)Number
                of authorized cards, beginning of period
            
            
            69.9
            
            
            61.4
            
            
            65.0
            
            
            56.7Net
                additions
            
            
            3.0
            
            
            2.6
            
            
            7.9
            
            
            7.3Number
                of authorized cards, end of period
            
            
            72.9
            
            
            64.0
            
            
            72.9
            
            
            64.0





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





**For
                the three months ended**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(in
                millions)Number
                of smart cards delivered
            
            
            6.4
            
            
            6.8
            
            
            19.6
            
            
            18.4






Page
          17




The
      quantity of smart cards delivered in the three-month period ended March 31,
      2007
      decreased slightly as compared to the corresponding period in the fiscal year
      ended June 30, 2006. The number of smart cards delivered in the nine-month
      period ended March 31, 2007, however, increased as compared to the corresponding
      periods in the previous fiscal year, principally reflecting higher demand from
      customers in Asia and the United States and deliveries to new customers in
      Europe, China and India. The volume of smart cards supplied exceeded the
      increase in authorized smart cards in use due to a mixture of churn and by
      the
      build-up of inventory by platform operators.





Integration,
      development and support revenues decreased by 29% in the three-month period
      ended March 31, 2007 and increased by 7% in the nine-month period ended March
      31, 2007, compared to the corresponding periods of the previous fiscal year.
      The
      decrease in the three-month period ended March 31, 2007 was due to a higher
      level of deferred revenue as fewer projects met the Company’s revenue
      recognition criteria as compared to the corresponding period of the previous
      fiscal year. In the nine-month period ended March 31, 2007, more projects met
      the revenue recognition criteria as compared to the corresponding period of
      the
      previous fiscal year. The recognition of revenues from new customers and from
      the delivery of enhancements to several of our major customers is dependent
      on
      the timing of satisfaction of all our revenue recognition criteria and therefore
      this component of our revenues tends to fluctuate from period to period.





License
      fee and royalty revenues increased by 43% during the three-month period ended
      March 31, 2007, as compared to the corresponding period of the previous fiscal
      year, principally as a result of higher conditional access and program guide
      royalties. During the nine-month period ended March 31, 2007, license and
      royalty revenues increased by 6% as compared to the corresponding period of
      the
      previous fiscal year. This increase was also a result of higher conditional
      access and program guide royalties, but was substantially offset by a decrease
      in the number of MediaHighway middleware clients deployed during the nine-month
      period ended March 31, 2007 as compared to the same period in fiscal 2006.
      The
      table below sets forth the number of middleware clients deployed by our
      customers during the three- and nine-month periods ended March 31, 2007 and
      2006:





**For
                the three months ended**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(in
                millions)Number
                of middleware clients deployed,beginning
                of period
            
            
            52.2
            (1)
            
            34.1
            
            
            41.6
            
            
            20.4Acquisitions
            
            
            —
            
            
            —
            
            
            2.0
            (1)
            
            —Additions
            
            
            5.1
            
            
            4.3
            
            
            13.7
            
            
            18.0Number
                of middleware clients deployed,end
                of period
            
            
            57.3
            
            
            38.4
            
            
            57.3
            
            
            38.4







(1)
            Opening
                balance for the three months ended March 31, 2007 includes, and
                acquisitions relates to, 2.0 million OpenRG residential gateway middleware
                devices, which were developed and deployed by Jungo, that were recognized
                at the time of the acquisition of
                Jungo.




The
      increase in the volume of MediaHighway middleware clients deployed during the
      three-month period ended March 31, 2007, as compared with the same period in
      2006, was largely due to the deployment of new set-top boxes at our major
      customers. The decrease in additions during the nine-month period ended March
      31, 2007, as compared with the same period in 2006, was due to the fact that
      the
      volume of MediaHighway set-top boxes enabled during the period in 2006 was
      unusually high because DIRECTV commenced the initial download of our
      MediaHighway middleware and other of our related technologies to certain models
      of set-top boxes in use by their subscribers during that period.





Page
          18


The
      increase in revenues from new technologies of 40% and 33% in the three- and
      nine-month periods ended March 31, 2007, respectively, compared to the
      corresponding periods of the previous fiscal year, was due to higher revenues
      from games and gaming applications and from our DVR technologies. The latter
      was
      largely as a result of an increase in the cumulative number of DVR clients
      deployed during the period. The increase in the cumulative number of DVR clients
      deployed in each period was as follows:





**For
                the three months ended**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(in
                millions)Number
                of DVR clients deployed, beginning of period
            
            
            5.3
            
            
            2.0
            
            
            3.5
            
            
            1.4Additions
            
            
            1.1
            
            
            0.7
            
            
            2.9
            
            
            1.3Number
                of DVR clients deployed, end of period
            
            
            6.4
            
            
            2.7
            
            
            6.4
            
            
            2.7




In
      addition to the matters referred to above, comparisons of revenues for the
      three- and nine-month periods ended March 31, 2007 to the corresponding periods
      in the prior fiscal year were also affected by the relative weakness of the
      U.S.
      dollar over the periods. Approximately 49% of our revenues were denominated
      in
      currencies other than the U.S. dollar (principally pounds sterling and euros).
      We estimate that the weaker U.S. dollar has favorably impacted our total
      reported revenues for the nine-month period ended March 31, 2007 by
      approximately $19 million, or 4%, compared to the corresponding period of the
      prior fiscal year.





**Cost
      of goods and services sold and gross margin**




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





**For
                the three months ended****March
                31,****2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**(in
                thousands)Smart
                card costs
            
            $
            20,110
            
            $
            21,617
            
            $
            (1,507
            )
            
            (7
            %)Operations
                & support
            
            
            44,356
            
            
            32,679
            
            
            11,677
            
            
            36
            %Royalties
            
            
            4,816
            
            
            2,727
            
            
            2,089
            
            
            77
            %Other
            
            
            1,291
            
            
            937
            
            
            354
            
            
            38
            %Total
                cost of goods and services sold
            
            $
            70,573
            
            $
            57,960
            
            $
            12,613
            
            
            22
            %Gross
                margin
            
            $
            107,818
            
            $
            91,244
            
            $
            16,574
            
            
            18
            %Gross
                margin as a percentage of revenues
            
            
            60
            %
            
            61
            %
            
            (1
            %)
            
            **







** Not
      meaningful.





**For
                the nine months ended****March
                31,****2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**(in
                thousands)Smart
                card costs
            
            $
            60,184
            
            $
            66,324
            
            $
            (6,140
            )
            
            (9
            %)Operations
                & support
            
            
            119,351
            
            
            101,260
            
            
            18,091
            
            
            18
            %Royalties
            
            
            11,912
            
            
            8,405
            
            
            3,507
            
            
            42
            %Other
            
            
            2,479
            
            
            3,570
            
            
            (1,091
            )
            
            (31
            %)Total
                cost of goods and services sold
            
            $
            193,926
            
            $
            179,559
            
            $
            14,367
            
            
            8
            %Gross
                margin
            
            $
            313,689
            
            $
            266,343
            
            $
            47,346
            
            
            18
            %Gross
                margin as a percentage of revenues
            
            
            62
            %
            
            60
            %
            
            2
            %
            
            **





** Not
      meaningful.




Page
          19





We
      consider that gross margin, defined as revenues less costs and expenses
      associated with those revenues ( *i.e* .,
      cost
      of goods and services sold), 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 revenues. Cost of
      goods
      and services sold excludes amortization.





The
      decrease in smart card costs in the three- and nine-month periods ended March
      31, 2007, compared to the corresponding periods of the previous fiscal year,
      was
      due to the lower unit costs, offset in part by higher deliveries of smart cards
      during the nine-month period ended March 31, 2007.





Operations
      and support costs include employee and facilities costs related to smart card
      processing, customer support and development projects undertaken under customer
      contracts. The increase in operations and support costs in the three- and
      nine-month periods ended March 31, 2007, compared to the corresponding periods
      of the previous fiscal year, was principally due to an increase in the number
      of
      our employees working on development, integration and support activities for
      our
      customers and, to a lesser extent, wage, salary and benefit increases during
      the
      period. Operations costs in the three-month period ended March 31, 2007
      were adversely impacted in comparison to the corresponding period in the
      previous fiscal year by a net reduction in labor costs deferred in inventory
      as
      contract work in progress. The impact of this item in the nine-month period
      ended March 31, 2007 was not significant.





Royalty
      costs are amounts we pay to third parties for the use of their technology and
      are calculated based on revenues derived from certain technologies. The increase
      in royalty costs for the three- and nine-month periods ended March 31,
      2007, compared to the corresponding periods of the previous fiscal year, was
      primarily due to higher royalties paid to third parties in respect of
      conditional access and program guide revenues.





As
      a
      consequence of these factors, gross margin as a percentage of revenues was
      60%
      and 62% for the three- and nine-month periods ended March 31, 2007,
      respectively, compared to 61% and 60%, respectively, in the corresponding
      periods of the previous fiscal year.




**Operating
      expenses**




Operating
      expenses for the periods under review may be analyzed as follows:





**For
                the three months ended****March
                31,****2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**(in
                thousands)Research
                & development
            
            $
            45,638
            
            $
            36,608
            
            $
            9,030
            
            
            25
            %Sales
                & marketing
            
            
            10,912
            
            
            7,762
            
            
            3,150
            
            
            41
            %General
                & administration
            
            
            12,284
            
            
            9,220
            
            
            3,064
            
            
            33
            %Amortization
                of intangibles
            
            
            3,202
            
            
            2,242
            
            
            960
            
            
            43
            %Total
                operating expenses
            
            $
            72,036
            
            $
            55,832
            
            $
            16,204
            
            
            29
            %





**For
                the nine months ended****March
                31,****2007**
            
            **2006**
            
            **Change**
            
            **%
                Change**(in
                thousands)Research
                & development
            
            $
            123,613
            
            $
            103,053
            
            $
            20,560
            
            
            20
            %Sales
                & marketing
            
            
            28,203
            
            
            21,767
            
            
            6,436
            
            
            30
            %General
                & administration
            
            
            35,972
            
            
            29,018
            
            
            6,954
            
            
            24
            %Amortization
                of intangibles
            
            
            8,129
            
            
            7,038
            
            
            1,091
            
            
            16
            %Total
                operating expenses
            
            $
            195,917
            
            $
            160,876
            
            $
            35,041
            
            
            22
            %






Page
          20





Our
      main
      operating expenses are employee costs (including the cost of stock option
      awards), facilities costs, depreciation and travel costs. These costs have
      increased primarily due to the higher number of employees and the increase
      in
      facilities occupied by those employees. These costs also include the impact
      of
      investments made in new facilities and infrastructure during the latter part
      of
      fiscal 2006.





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





**For
                the three months ended**
            
            **For
                the nine months ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(in
                millions)Number
                of employees, beginning of period
            
            
            3,212
            
            
            2,725
            
            
            2,989
            
            
            2,508Net
                additions
            
            
            248
            
            
            182
            
            
            471
            (1)
            
            399Number
                of employees, end of period
            
            
            3,460
            
            
            2,907
            
            
            3,460
            
            
            2,907







(1) Includes
      136 employees of Jungo, acquired on December 31, 2006.





Higher
      employee numbers have contributed to higher operating expenses in the three-
      and
      nine-month periods ended March 31, 2007, compared to the corresponding periods
      in the previous fiscal year, primarily due to higher payroll, travel and
      facilities costs. Operating expenses in the three-month period ended March
      31,
      2007 also include the effect of the acquisition of Jungo on December 31,
      2006.





Research
      and development costs increased by 25% and 20% for the three- and nine-month
      periods ended March 31, 2007, respectively, compared to the corresponding
      periods of the previous fiscal year, principally as a result of higher employee
      headcount due to more research and development being performed. However, the
      increase during the nine-month period ended March 31, 2007 was partially offset
      by a $5.5 million grant from the French government as a consequence of our
      being engaged in certain eligible research projects. In the corresponding period
      of the previous fiscal year, we received an equivalent grant of $5.3 million.





Sales
      and
      marketing expenses increased by 41% and 30% in the three- and nine-month periods
      ended March 31, 2007, respectively, compared to the corresponding periods of
      the
      previous fiscal year, as a result of higher employee headcount, increased
      attendance at trade shows and a higher level of corporate communications
      activities.





General
      and administrative expenses increased by 33% and 24% in the three- and
      nine-month periods ended March 31, 2007, respectively, compared to the
      corresponding periods of the previous fiscal year, primarily due to higher
      stock
      option expense, higher legal expenses and business development costs, and higher
      facilities and infrastructure costs.





Amortization
      of finite-lived intangible assets increased by 43% and 16% in the three- and
      nine-month periods ended March 31, 2007, respectively, compared to the
      corresponding periods of the previous fiscal year principally due to the
      acquisition of Jungo.





In
      addition to the matters referred to above, comparisons of expenses for the
      three- and nine-month periods ended March 31, 2007 with the corresponding
      periods of the previous fiscal year were also affected by the relative weakness
      of the U.S. dollar. In the nine-month period ended March 31, 2007, approximately
      72% of our total expenses were denominated in currencies other than the U.S.
      dollar (principally pounds sterling, Israeli shekels and euros). We estimate
      that the weaker U.S. dollar has increased our total reported expenses in the
      nine-month period ended March 31, 2007 by approximately $20 million, or 5%,
      compared to the corresponding period of the previous fiscal year.





**Operating
      income and other items**




As
      a
      result of the factors outlined above, operating income was $35.8 million, or
      20%
      of revenue, for the three-month period ended March 31, 2007, compared to $35.4
      million, or 24% of revenue, for the corresponding period of the previous fiscal
      year. For the nine month period ended March 31, 2007, operating income was
      $117.8 million, or 23% of revenue, compared to $105.5 million, or 24% of
      revenue, for the corresponding period of the previous fiscal year.




Interest
      income earned on cash deposits was $6.2 million and $18.7 million in the three-
      and nine-month periods ended March 31, 2007, respectively, compared to $4.1
      million and $10.5 million, respectively, in the corresponding periods of the
      previous fiscal year. This was due to higher average cash balances and higher
      interest rates.




Page
          21





Our
      effective tax rate was 30% for the three-month period ended March 31, 2007,
      compared to 29% for the corresponding period of the previous fiscal year. For
      the nine-month period ended March 31, 2007, our effective tax rate was 31%,
      compared to 30% for the corresponding period of the previous fiscal year.
      Changes in our effective tax rates were primarily due to variations in the
      proportions of our taxable profits earned in the different jurisdictions in
      which we operate.





As
      a
      consequence of all these factors, net income for the three-month period ended
      March 31, 2007 was $29.2 million, or $0.51 per share ($0.50 per share on a
      diluted basis), compared to $28.1 million, or $0.50 per share ($0.49 per share
      on a diluted basis), for the corresponding period of the previous fiscal year.
      Net income for the nine-month period ended March 31, 2007 was
      $94.6 million, or $1.66 per share ($1.63 per share on a diluted basis),
      compared to $81.2 million, or $1.45 per share ($1.41 per share on a diluted
      basis), for the corresponding period of the previous fiscal
      year.





**Liquidity
      and capital resources**




**Current
      financial condition**




Our
      principal source of liquidity is internally generated funds. We also have access
      to the worldwide capital markets.





As
      of
      March 31, 2007, we had cash and cash equivalents totaling $521.5 million. Our
      accumulated cash is being held with the intention of using it for the future
      development of the business and there are currently no plans to pay any
      dividends to shareholders. We believe that we have sufficient working capital
      resources for our present requirements. Our internally generated funds are
      dependent on the continued profitability of our business. As of March 31, 2007,
      we had an unused credit facility to borrow up to £30 million (approximately
      $59 million) from a subsidiary of News Corporation. No amounts have been drawn
      under this facility.





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





**Sources
      and uses of cash**




Net
      cash
      provided by operating activities was as follows:




**For
                the nine months ended****March
                31,****2007**
            
            **2006**(in
                thousands)Net
                cash provided by operating activities
            
            $
            96,758
            
            $
            111,188





The
      decrease in net cash provided by operating activities in the nine-month period
      ended March 31, 2007, compared to the corresponding period of the previous
      fiscal year, reflects higher payments for the purchase of smart cards, higher
      payments for operating expenses and higher tax payments, offset in part by
      higher receipts from customers and higher interest receipts. The decrease is
      also attributable in part to timing of invoicing prior to the quarter end,
      which
      resulted in a higher receivable balance at March 31, 2007. Net cash provided
      by
      operating activities includes receipts under security maintenance contracts
      where we have assumed the liability to procure and supply changeover cards
      in
      future periods. We expect that these arrangements will result in higher cash
      payments for the purchase of smart cards in future periods.





**For
                the nine months ended****March
                31,****2007**
            
            **2006**(in
                thousands)Capital
                expenditure
            
            $
            (16,191
            )
            $
            (21,921
            )Business
                acquisitions, net of cash acquired
            
            
            (82,672
            )
            
            (3,118
            )Short-term
                investments, net
            
            
            184,401
            
            
            (101,035
            )Net
                cash generated by (used in) investing activities
            
            $
            85,538
            
            $
            (126,074
            )





The
      decrease in capital expenditure was principally a result of higher payments
      in
      the corresponding period of the previous fiscal year relating to the investment
      in new facilities in the United Kingdom, India and the United
      States.




Page
          22





The
      increase in payments for business acquisitions was primarily a result of the
      acquisition of Jungo.





During
      the nine-month period ended March 31, 2007, our short-term investments matured
      and we did not reinvest such funds as longer-term deposits because the
      differential in interest rates between longer- and shorter-term deposits was
      negligible.





Net
      cash
      generated by financing activities was as follows:




**For
                the nine months ended****March
                31,****2007**
            
            **2006**(in
                thousands)Issuance
                of shares
            
            $
            10,238
            
            $
            16,253Excess
                tax benefits realized on exercise of stock options
            
            
            2,922
            
            
            4,095Net
                cash generated by financing activities
            
            $
            13,160
            
            $
            20,348





During
      the nine-month period ended March 31, 2007, we issued 620,734 of our Series
      A
      ordinary shares, par value $0.01 per share (“Series A Ordinary Shares”), to
      employees upon the exercise of their stock options. This compares to 1,238,560
      Series A Ordinary Shares issued to employees upon the exercise of their stock
      options in the corresponding period of the previous fiscal year. Certain stock
      option exercises resulted in a tax benefit higher than the amounts recorded
      in
      the consolidated statement of operations. Such tax benefits are shown as a
      financing cash flow to the extent that they were realized.





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.




**Commitments
      and contractual obligations**




Under
      the
      terms of our agreement with the former shareholders of Jungo, we may pay
      additional consideration of up to $17.0 million, contingent upon Jungo achieving
      certain revenue and profitability targets in the year ending December 31, 2007.
      Aside from this matter, there has been no material change to our commitments
      since June 30, 2006.




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




Because
      our cash holdings are in excess of our immediate operating requirements, 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 $5
      million.





We
      are
      also exposed to changes in foreign exchange rates. We operate in international
      markets and have an operational presence in several countries. Accordingly,
      our
      costs and revenues are denominated in a mixture of U.S. dollars, Israeli
      shekels, pounds sterling and euros. During the nine-month period ended March
      31,
      2007, we amended the terms of employment with our employees in Israel such
      that
      their salaries and benefits are now denominated in Israeli shekels, rather
      than
      U.S. dollars as was previously the case. This change brought us in line with
      other companies operating in Israel, but increased our exposure to movements
      in
      the U.S. dollar - Israeli shekel exchange rate. In the nine-month period ended
      March 31, 2007, approximately 49% of our revenues were denominated in currencies
      other than the U.S. dollar (principally pounds sterling and euros). We estimate
      that the weaker U.S. dollar has favorably impacted our total reported revenues
      for the nine-month period ended March 31, 2007 by approximately $19 million,
      or
      4%, compared to the corresponding period of the prior fiscal year. However,
      in
      the same period, approximately 72% of our total expenses were denominated in
      currencies other than the U.S. dollar (principally pounds sterling, Israeli
      shekels and euros). We estimate that the weaker U.S. dollar has increased our
      total reported expenses in the nine-month period ended March 31, 2007 by
      approximately $20 million, or 5%, compared to the corresponding period of the
      previous fiscal year.





As
      of
      March 31, 2007, approximately 78% of our cash was held in U.S. dollars and
      10%
      in pounds sterling, with most of the balance being in euros. Our policy is
      to
      hold cash in U.S. dollar bank deposits and to hold cash in other currencies
      to
      the extent that our cash flow projections indicate that we have need for those
      other currencies. Where we require other currencies or identify a surplus of
      non-U.S. dollar cash balances, we make purchases or sales on the spot market.
      Therefore, our reported cash balances are subject to fluctuations in foreign
      exchange rates. As a result of fluctuations in foreign exchange rates, we
      experienced gains on cash holdings of $5.4 million in the nine-month period
      ended March 31, 2007, of which approximately $1.5 million was recorded within
      operating expenses, and the balance was recorded within other comprehensive
      income.




Page
          23





Historically,
      we have not entered into free-standing derivative contracts to hedge foreign
      exchange exposure arising from operating activities. We expect to review this
      policy from time to time as circumstances change. We had no derivative
      instruments outstanding as of March 31, 2007. Part of our cash holdings in
      currencies other than the U.S. Dollar serve to restrict the impact on changes
      in
      exchange rates on our operating income but introduce an element of exposure
      to
      our reported cash balances and net assets.





**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
      were not any changes in the Company’s internal control over financial reporting
      (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange
      Act) during the Company’s third quarter of fiscal 2007 that materially affected,
      or are reasonably likely to materially affect, the Company’s internal control
      over financial reporting.





Page
          24


**PART
      II - Other Information**




**Item
      1. Legal Proceedings**




See
      Note
      11a to the accompanying unaudited consolidated financial statements, which
      is
      incorporated herein by reference.




**Item
      1A. Risk Factors**




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





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




Our
      business and the market in which we operate are characterized by rapid
      commercial and technological change, evolving industry standards and frequent
      product enhancements. Many digital broadcasters are seeking more sophisticated
      software that will afford them greater flexibility in delivering content such
      as
      news, films and sports. They are also seeking to offer additional services,
      such
      as middleware, electronic program guides (EPGs), games, gaming and other
      interactive applications, digital video recorder (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 Internet protocol
      television (IPTV) technologies.**




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





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




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





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




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




Page
          25





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




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





**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 revenues from a limited number of large customers.
      Our three largest customers are DIRECTV, BSkyB and Sky Italia. During the
      nine-month period ended March 31, 2007, these three customers accounted directly
      and indirectly for approximately 70.4% of our total revenues. News Corporation,
      a 73.1% holder of our total and issued outstanding share capital, currently
      owns
      approximately 39%, 39% and 100% of DIRECTV, BSkyB and Sky Italia, respectively.
      On December 22, 2006, News Corporation announced that it entered into an
      agreement with Liberty Media Corporation, which, if consummated, would result
      in
      News Corporation no longer owning its shares in DIRECTV. The agreement received
      the requisite approval by the stockholders of News Corporation on April 3,
      2007
      but remains subject to regulatory approval. News Corporation has announced
      that
      it expects the transaction to be completed in the second half of the 2007
      calendar year. We have a number of contracts with DIRECTV, its subsidiaries
      and
      affiliates, covering the supply of conditional access, middleware and DVR
      technologies, which expire at various dates through 2010 and which contain
      various terms covering renewal and termination. We expect to continue to be
      dependent upon a limited number of customers for a significant portion of our
      revenues, 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 revenues could decline significantly
      and as a result, our business, operating results and financial condition could
      be materially adversely affected.




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          26





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





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




New
      accounting pronouncements or a change in how GAAP is interpreted or applied
      to
      our business could have a significant effect on our reported 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
      share-based compensation, accounting for income taxes and accounting for pension
      and other post-retirement plans.





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.





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.




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          27





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 revenues, customers and future sales.





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




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





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




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





The
      telecommunications, media, broadcast and cable television 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.





**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. Certain of our customers have contracts denominated
      in
      pounds sterling or in euros. During the nine-month period ended March 31, 2007,
      approximately 30% of our revenues were denominated in pounds sterling and a
      further 19% were denominated in euros. Some of our smart card costs and our
      operating expenses are denominated in pounds sterling, Israeli shekels and
      euros. During the nine-month period ended March 31, 2007, we estimate that
      approximately 32% of our total cost of sales and operating expenses were
      denominated in pounds sterling, 17% in euros, 17% in Israeli shekels and 6%
      in
      other currencies. As a result, we are exposed to fluctuations in exchange rates
      that may have a material adverse effect on our business, operating results
      and
      financial condition.





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




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          28





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




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





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




We
      are
      controlled by News Corporation. As of March 31, 2007, News Corporation
      beneficially owned approximately 73.1% of our total issued and outstanding
      share
      capital. Because News Corporation beneficially owns 100% of our Series B
      ordinary shares, par value $0.01 per share (“Series B Ordinary Shares”), which
      have ten votes per share (as opposed to our Series A Ordinary Shares, which
      have
      one vote per share), it controls approximately 96.4% of our voting power. By
      reason of such ownership, News Corporation is able to control the composition
      of
      our entire Board of Directors and to control the votes on all other matters
      submitted to a vote of our shareholders. Four of our seven current Directors
      have been appointed by News Corporation, including Dr. Abe Peled, our Chairman
      and Chief Executive Officer, who from time to time is involved in matters
      pertaining to News Corporation’s wider business interests.





Businesses
      in which News Corporation has an interest currently account for, and are
      expected to continue to account for, a significant portion of our revenues.
      During the nine-month period ended March 31, 2007, approximately 75% of our
      total revenues were derived directly from businesses in which News Corporation
      has an interest. Those businesses include our three largest customers. Although
      we believe the terms of our contracts with such related parties are no less
      favorable to us than those that we could obtain from unrelated third parties,
      we
      cannot assure you that this is the case.





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





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




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





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




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





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




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




Page
          29





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




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




Not
      applicable.





**Item
      3. Defaults Upon Senior Securities**




Not
      applicable.





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




Not
      applicable.





**Item
      5. Other Information**




Not
      applicable.





**Item
      6. Exhibits**




12
            Computation
                of Ratio of Earnings to Fixed Charges.31.1
            Chairman
                and Chief Executive Officer Certification required by Rules 13a-14
                and
                15d-14 under the Securities Exchange Act of 1934, as
                amended.31.2
            Chief
                Financial Officer Certification required by Rules 13a-14 and 15d-14
                under
                the Securities Exchange Act of 1934, as amended.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
                Sarbanes-Oxley Act of 2002.








Page
          30


**Signatures**




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


NDS
                GROUP PLC
              (Registrant)By:
            /s/ Alexander GershAlexander
              GershChief Financial OfficerDate:May
              1, 2007




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          31