This document contains statements that constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words "expect," "estimate," "anticipate," "predict," "believe" and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this document and include statements regarding the intent, belief or current expectations of NDS Group plc, its directors or its officers with respect to, among other things, trends affecting NDS Group plc's financial condition or results of operations. Unless otherwise indicated or unless the context requires otherwise, all reference herein to the "Company," "we," "our" and "us" refers to the NDS Group plc. Readers of this document are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Those risks and uncertainties are discussed under Item 1A. Risk Factors of Part II of this Quarterly Report on Form 10-Q, in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2008 as filed with the Securities and Exchange Commission ("SEC") on August 8, 2008 (SEC file no. 000-30364), as well as the information set forth elsewhere in this Quarterly Report. The Company does not ordinarily make projections of its future operating results and undertakes no obligation (and expressly disclaims any obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should carefully review other documents filed by the Company with the SEC. This section should be read in conjunction with the unaudited consolidated financial statements of the Company and related notes set forth elsewhere herein.

Introduction

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

· Overview of our business - This section provides a general description of our business and developments that have occurred to date during the fiscal year ending June 30, 2009 that we believe are important in understanding our results of operations and financial condition or to disclose known future trends.

· Results of operations - This section provides an analysis of our results of operations for the three-month periods ended September 30, 2008 and 2007. In addition, a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed.

· Liquidity and capital resources - This section provides an analysis of our cash flows for the three-month periods ended September 30, 2008 and 2007. It includes a discussion of the financial capacity available to fund our future commitments and obligations, as well as a discussion of other financing arrangements.

Overview of our Business

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

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

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

Our customers consist of a limited number of large digital pay-television platform operators that are introducing, marketing and promoting products and services that utilize our technology. During the three-month period ended September 30, 2008, our three largest customers were DIRECTV in the United States, BSkyB in the United Kingdom and SKY Italia in Italy. Together, these three customers contributed, directly and indirectly, approximately 52% of our revenue during the three-month period ended September 30, 2008. We expect that a limited number of customers will continue to contribute a significant portion of our revenue.

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

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

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

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

Recent Business Developments

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

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

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

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

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

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

Revenue

We derive revenue from:

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

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

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

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

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

Costs and expenses

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

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

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

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

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

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

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

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

Results of Operations

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

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

                                       Average exchange rate for the
                                             three months ended              Period end exchange rate as of
                                      September 30,      September 30,     September 30,          June 30,
                                          2008               2007               2008                2008

U.K. pound sterling / U.S. dollar             0.5281             0.4948             0.5435              0.5016
Euro / U.S. dollar                            0.6646             0.7276             0.6851              0.6350
Israeli shekel / U.S. dollar                  3.4829             4.1871             3.4241              3.3719
Indian rupee / U.S. dollar                   43.5840            40.3880            46.4800             42.7800

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

                                                                        Operating
(in thousands)                                               Revenue      income

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

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

                                                                      Operating
(in thousands)                                           Revenue       income

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


__________________

(2) Approximately 75% of our total expenses were denominated in currencies other than the U.S. dollar, principally pounds sterling, Israeli shekels, euros and Indian rupees, during the three-month period ended September 30, 2008.

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

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

Revenue

Revenue for the periods under review was as follows:

                                        For the three months ended
                                              September 30,
(in thousands)                            2008              2007          Change      % Change

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

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

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

                                                          For the three months ended
                                                                 September 30,
(in millions)                                               2008               2007

Number of devices protected by NDS conditional
access technology, beginning of period                           90.3               75.4
Net additions                                                     5.1                3.2
Number of devices protected by NDS conditional
access technology, end of period                                 95.4               78.6

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

For the three months ended September 30, (in millions) 2008 2007

Number of smart cards delivered 8.0 7.4

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

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

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

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

                                                          For the three months ended
                                                                 September 30,
(in millions)                                               2008               2007

Number of middleware clients deployed, beginning of
period                                                           92.5               61.8
Net additions                                                     6.2                8.1
Number of middleware clients deployed, end of period             98.7               69.9

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

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

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

                                                          For the three months ended
                                                                September 30,
(in millions)                                               2008               2007

Number of DVR clients deployed, beginning of period               13.1              7.3
Net additions                                                      1.4              1.5
Number of DVR clients deployed, end of period                     14.5              8.8
. . .