Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
Changes in DISH Network subscriber growth could have a material adverse affect on our digital set-top box sales. In particular, weaknesses in the economy and other factors adversely affecting DISH Network, such as the decision by AT&T to terminate its distribution agreement with DISH Network effective January 31, 2009, may have an adverse impact on us. According to DISH Network's Form 10-K for the year ended December 31, 2008 and Form 10-Q for the three months ended March 31, 2009, its relationship with AT&T accounted for approximately 17% and 5%, respectively, of DISH Network's gross subscriber additions. Furthermore, DISH Network has in recent quarters experienced declining and negative subscriber growth. To the extent that this trend continues or intensifies as a result of deteriorating economic conditions in the United States or otherwise, sales of our digital set-top boxes to DISH Network may decline. Because DISH Network's current digital set-top box inventory is at higher-than-historical levels, we may see fewer orders for digital set-top boxes from DISH Network in the near term.
The impact to us of declining DISH Network subscriber growth may be offset over the near term by an increase in sales to DISH Network resulting from the upgrade of DISH Network subscribers to advanced products such as high definition ("HD") receivers, digital video recorders ("DVRs") and HD DVRs, as well as by the upgrade of DISH Network digital set-top boxes to new technologies such as MPEG-4 digital compression technology or Slingbox placeshifting technology. However, there can be no assurance that any of these factors will mitigate declining subscriber growth at DISH Network. In addition, although we expect DISH Network to continue to purchase products and services from us, there can be no assurance that DISH Network will continue to purchase products and services from us in the future.
We may experience significant pressure on margins we earn on the sale of digital set-top boxes and other equipment, including on sales to DISH Network. This pressure may be due to current economic conditions, advancements in the technology and functionality of digital set-top boxes and other equipment. The margins we earn on sales are determined largely through periodic negotiations that could result in pricing reflecting, among other things, the digital set-top boxes and other equipment that best meet our customers' current sales and marketing priorities, the product and service alternatives available from other equipment suppliers, and our ability to respond to customer requirements and to differentiate ourselves from other equipment suppliers on bases other than pricing.
Our future success may also depend on the extent to which prospective customers that have been competitors of DISH Network are willing to purchase products and services from us. Many of these customers may continue to view us as a competitor as a result of common ownership and related management with DISH Network. If we do not develop relationships with new customers, we may not be able to expand our customer base and our ability to increase or even maintain our revenue will be impacted.
Additional Challenges for our "Digital Set-Top Box" Business. We believe that our best opportunities for developing potential new customers for our "Digital Set-Top Box" business over the near term lie in international markets, and we therefore expect our performance in international markets to be a significant factor in determining whether we will be able to generate revenue and income growth in future periods. However, there can be no assurance that we will be able to sustain or grow our international business. In particular, we have noticed an increase in new market entrants, primarily located in Asia, that offer low cost set-top boxes, including set-top boxes that are modeled after our products or products of our principal competitors. The entry of these new competitors may result in pricing pressure in international markets that we hope to enter. If market prices in international markets are substantially reduced by such new entrants, it may be difficult for us to make profitable sales in international markets.
Furthermore, if we do not continue to distinguish our products through distinctive, technologically advanced features and design, as well as continue to build and strengthen our brand recognition, our business could be harmed as we may not be able to effectively compete on price alone in both domestic and international markets against low cost competitors that are principally located in Asia. If we do not otherwise compete effectively, demand for our products could decline, our gross margins could decrease, we could lose market share, our revenues and earnings may decline and our growth prospects would be diminished. The current economic downturn and tightened credit markets may cause certain suppliers that we rely on to cease operations which, in turn, may cause us to suffer disruptions to our supply chain or incur higher production costs.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
Our ability to sustain or increase profitability will also depend in large part on our ability to control or reduce our costs of producing digital set-top boxes. The market for our digital set-top boxes, like other electronic products, has been characterized by regular reductions in selling prices and production costs. Therefore, we will likely be required to reduce production costs in order to maintain the margins we earn on digital set-top boxes and the profitability of our "Digital Set-Top Box" business.
"Satellite Services" Business
Our satellite services segment consists principally of transponder leasing provided primarily to DISH Network, and secondarily to government entities, internet service providers, broadcast news organizations and private enterprise customers. We began operating the "Satellite Services" business following the completion of the Spin-off using our owned and leased in-orbit satellites, multiple digital broadcast centers and other transmission assets. We are also pursuing expanding our business offerings by providing value added services such as telemetry, tracking and control services to third parties. However, there can be no assurance that we will be able to effectively compete against our competitors due to their significant resources and operating history. Dependence on DISH Network. We currently depend on DISH Network for a substantial portion of the revenue for our "Satellite Services" business. Therefore, our results of operations are and will for the foreseeable future be closely linked to the performance of DISH Network's satellite pay-TV business. While we expect to continue to provide satellite services to DISH Network for the foreseeable future, its satellite capacity requirements may change for a variety of reasons, including the launch of its own additional satellites. Any termination or reduction in the services we provide to DISH Network would increase excess capacity on our satellites and require that we aggressively pursue alternative sources of revenue for this business.
In addition, because the number of potential new customers for our "Satellite Services" business is small and may be limited by our relationship with DISH Network, our current customer concentration is likely to continue for the foreseeable future. Our future success may also depend on the extent to which prospective customers that have been competitors of DISH Network are willing to purchase services from us. Many of these customers may continue to view us as a competitor given the common ownership and management team we continue to share with DISH Network.
Additional Challenges for our "Satellite Services" Business. Our ability to expand revenues in the "Satellite Services" business will likely require that we displace incumbent suppliers that generally have well established business models and often benefit from long term contracts with customers. As a result, in order to grow our "Satellite Services" business we may need to develop or otherwise acquire access to new satellite-delivered services so that we may offer customers differentiated services. However, there can be no assurance that we would be able to develop successful alternative services or the sales and marketing expertise necessary to sell these services profitably. Adverse Economic Conditions
Our ability to grow or maintain our business may be adversely affected by weakening global and domestic economic conditions, including wavering consumer confidence and constraints on discretionary purchasing, unemployment, tight credit markets, declines in global and domestic stock markets, falling home prices and other factors that may adversely affect the markets in which we operate. Our ability to increase our income or to generate additional revenues will depend in part on our ability to organically grow our business, identify and successfully exploit opportunities to acquire other businesses or technologies, and enter into strategic partnerships. These activities may require significant additional capital that may not be available on terms that would be attractive to us or at all. In particular, current dislocations in the credit markets, which have significantly impacted the availability and cost of financing, specifically in the leveraged finance markets, may significantly constrain our ability to obtain financing to support our growth initiatives. These developments in the credit markets may increase our cost of financing and impair our liquidity position. In addition, these developments may cause us to defer or abandon business strategies and transactions that we would otherwise pursue if financing were available on acceptable terms.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
Furthermore, unfavorable events in the economy, including a continuation or further deterioration in the credit and equity markets could cause consumer demand for pay-TV services and consequently sales of our digital set-top boxes to DISH Network, Bell TV and other international customers to decline materially because consumers may delay purchasing decisions or reduce or reallocate their discretionary spending.
Future Capital Sources
We primarily rely on our existing cash and marketable investment securities balances, as well as cash flow generated through operations to fund our investment needs. Since we currently depend on DISH Network for a substantial portion of our revenue, our cash flow from operations depend heavily on their needs for equipment and services. As a result, there can be no assurances that we will always have positive cash flows from operations and should our cash flows turn negative, our existing cash and marketable investment securities balances may be reduced. If these events were to occur, it may become necessary for us to seek financing, and such financing may not be available to us. Furthermore, the current state of credit markets would make such financing even more difficult to obtain on acceptable terms or at all. Other Risks
Our profitability is also affected by costs associated with our efforts to expand our sales, marketing, product development and general and administrative capabilities in all of our businesses, as well as other expenses that we incur as a separate publicly-traded company. These costs are associated with, among other things, financial reporting, information technology, complying with federal securities laws (including compliance with the Sarbanes-Oxley Act of 2002), tax administration and human resources related functions. As we expand internationally, we may also incur additional costs to conform our digital set-top boxes to comply with local laws or local specifications and to ship our digital set-top boxes to our international customers.
EXPLANATION OF KEY METRICS AND OTHER ITEMS Equipment revenue - DISH Network. "Equipment revenue - DISH Network" primarily includes sales of digital set-top boxes and related components to DISH Network, including Slingboxes and related hardware products.
Equipment revenue - other. "Equipment revenue - other" primarily includes sales of digital set-top boxes and related components to Bell TV and other international customers, including sales of Slingboxes and related hardware products.
Services and other revenue - DISH Network. "Services and other revenue - DISH Network" primarily includes revenue associated with satellite and transponder leasing, satellite uplinking/downlinking, signal processing, conditional access management, telemetry, tracking and control, professional services, facilities rental revenue and other services provided to DISH Network.
Services and other revenue - other. "Services and other revenue - other" primarily includes revenue associated with satellite and transponder leasing, satellite uplinking/downlinking and other services provided to customers other than DISH Network.
Cost of sales - equipment. "Cost of sales - equipment" principally includes costs associated with digital set-top boxes and related components sold to DISH Network, Bell TV and other international customers, including costs associated with Slingboxes and related hardware products.
Cost of sales - services and other. "Cost of sales - services and other" principally includes costs associated with satellite and transponder leasing, satellite uplinking/downlinking, signal processing, conditional access management, telemetry, tracking and control, professional services, facilities rental revenue, and other services.
Research and development expenses. "Research and development expenses" consist primarily of costs associated with the design and development of our digital set-top boxes, Slingboxes and related components, including among other things, salaries and consulting fees.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
Selling, general and administrative expenses. "Selling, general and administrative expenses" consists primarily of selling and marketing costs and employee-related costs associated with administrative services (i.e., information systems, human resources and other services), including non-cash, stock-based compensation expense. It also includes professional fees (i.e., legal, information systems and accounting services) and other items associated with facilities and administration provided by DISH Network and other third parties.
Impairments of goodwill, indefinite-lived and long-lived assets. "Impairments of goodwill, indefinite-lived and long-lived assets" consists primarily of impairments of goodwill, FCC authorizations and satellites.
Interest income. "Interest income" consists primarily of interest earned on our cash, cash equivalents and marketable investment securities, including accretion on debt securities.
Interest expense. "Interest expense" primarily includes interest expense associated with our capital lease obligations.
Unrealized and realized gains (losses) on marketable investment securities and other investments. "Unrealized and realized gains (losses) on marketable investment securities and other investments" consists primarily of gains and losses realized on the sale or exchange of investments and "other-than-temporary" impairments of marketable and other investment securities.
Unrealized gains (losses) on investments accounted for at fair value, net. "Unrealized gains (losses) on investments accounted for at fair value, net" consists of unrealized gains and losses from changes in fair value of marketable and other strategic investments accounted for at fair value.
Other, net. The main component of "Other, net" is primarily equity in earnings and losses of our affiliates.
Earnings before interest, taxes, depreciation and amortization ("EBITDA"). EBITDA is defined as "Net income (loss)" plus "Interest expense" net of "Interest income," "Income taxes" and "Depreciation and amortization." This "non-GAAP measure" is reconciled to net income (loss) in our discussion of "Results of Operations" below.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -
       Continued
RESULTS OF OPERATIONS
Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31,
2008.

                                                  For the Three Months
                                                    Ended March 31,                       Variance
                                                 2009              2008            Amount             %
                                                                     (In thousands)
Statements of Operations Data
Revenue:
Equipment revenue - DISH Network              $   320,319        $ 371,694        $ (51,375 )         (13.8 )
Equipment revenue - other                          56,911           74,822          (17,911 )         (23.9 )
Services and other revenue - DISH
Network                                            91,885           92,470             (585 )          (0.6 )
Services and other revenue - other                 10,432           15,585           (5,153 )         (33.1 )

Total revenue                                     479,547          554,571          (75,024 )         (13.5 )


Costs and Expenses:
Cost of sales - equipment                         327,017          382,425          (55,408 )         (14.5 )
% of Total equipment revenue                         86.7 %           85.6 %
Cost of sales - services and other                 52,784           52,516              268             0.5
% of Total services and other revenue                51.6 %           48.6 %
Research and development expenses                  10,970           10,587              383             3.6
% of Total revenue                                    2.3 %            1.9 %
Selling, general and administrative
expenses                                           29,175           34,412           (5,237 )         (15.2 )
% of Total revenue                                    6.1 %            6.2 %
Depreciation and amortization                      61,949           60,970              979             1.6
Impairments of goodwill,
indefinite-lived and long-lived assets                  -           12,799          (12,799 )        (100.0 )

Total costs and expenses                          481,895          553,709          (71,814 )         (13.0 )


Operating income (loss)                            (2,348 )            862           (3,210 )            NM


Other Income (Expense):
Interest income                                     9,289           21,369          (12,080 )         (56.5 )
Interest expense, net of amounts
capitalized                                        (7,286 )         (8,283 )            997            12.0
Unrealized and realized gains
(losses) on marketable investment
securities and other investments                    1,323           (1,043 )          2,366              NM
Unrealized gains (losses) on investments
accounted for at fair value, net                    6,887                -            6,887              NM
Other, net                                         (2,585 )         (2,242 )           (343 )         (15.3 )

Total other income (expense)                        7,628            9,801           (2,173 )         (22.2 )


Income (loss) before income taxes                   5,280           10,663           (5,383 )         (50.5 )
Income tax (provision) benefit, net                (5,925 )         (4,962 )           (963 )         (19.4 )
Effective tax rate                                  112.2 %           46.5 %

Net income (loss)                             $      (645 )      $   5,701        $  (6,346 )        (111.3 )


Other Data:
EBITDA                                        $    65,226        $  58,547        $   6,679            11.4

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
Equipment revenue - DISH Network. "Equipment revenue - DISH Network" totaled $320 million during the three months ended March 31, 2009, a decrease of $51 million or 13.8% compared to the same period in 2008. This change resulted primarily from an 11% decrease in unit sales of set-top boxes and a 13% decline in average revenue per unit sold. The change in average revenue per unit was associated with a change in the mix of receivers sold and a reduction in costs for set-top boxes that we sell for a fixed margin.
In the near term, we expect DISH Network to remain the primary customer of our "Digital Set-Top Box" business and the primary source of our total revenue. Pursuant to the commercial agreements we entered into with DISH Network, we are obligated to sell digital set-top boxes to DISH Network at cost plus a fixed margin through January 1, 2011, although DISH Network has no obligation to purchase digital set-top boxes from us during or after this period. Because DISH Network's current set-top box inventory is at higher-than-historical levels, we may see fewer orders for digital set-top boxes from DISH Network in the near term. In addition, if DISH Network's subscriber growth continues to decline, it may have a material adverse effect on our financial position and results of operations.
Equipment revenue - other. "Equipment revenue - other" totaled $57 million during the three months ended March 31, 2009, a decrease of $18 million or 23.9% compared to the same period in 2008. This change resulted primarily from a 75% decrease in hardware sales to international customers other than Bell TV, partially offset by a 6% increase in sales to Bell TV. While unit sales to Bell TV increased versus the same quarter in 2008, the average revenue per unit decreased due to a change in mix of equipment and as a result of a February 6, 2009 amendment to our agreement with Bell TV that reduced certain prices to Bell TV in exchange, among other things, for Bell TV making us their exclusive provider for certain set-top boxes. Our sales to international customers other than Bell TV were adversely impacted by low cost competitors that are principally located in Asia. . . .