As broadband services such as high-definition TV (“HDTV”), media-on-demand, and voice-over- IP (“VoIP”) increase continuously, there is a demand to provide even higher bandwidth for both upstream and downstream transmissions. As the leading provider of complete broadband access solutions, Aztech is progressing towards developing GPON products for the deployment of FTTH via passive optical networks. A passive optical network is a point-to-multipoint, fiber to the premises network architecture in which unpowered optical splitters are used to enable a single optical fiber to serve multiple premises, typically 32-128. With FTTH, users can finally tap up to 10 times faster Internet speeds, higher bandwidth capacity up to 1Gbps and better reliability to address Triple-Play services needs. Michael Mun, Aztech CEO & Chairman comments, “Leveraging on our long history and proven experience as a leading ADSL2/2+ broadband equipment manufacturer, Aztech now sets its sights on providing users with the next generation 1Gbps range of products. Focusing on countries that have adopted fibre optics networks, we will be working closely with end-to-end systems providers whose business is in the installation for end-users.– Aztech Systems Ltd (“Aztech”) kicks off its participation at CommunicAsia 2008 with its latest progression into Fiber-To-The-Home (“FTTH”) residential gateway market. Showcasing for the 1st time is the new Aztech GPON100E Ethernet Gigabit Bridge, a cost-effective and ultra-fast GPON ONT (“Optical Network Terminal”) for residential/office installation and ideal for delivering bandwidth intensive Triple Play services.

The Company is now taking on 2 new businesses instead of one they originally intended. This will certainly demand considerable management resources to ensure it takes off smoothly. Hopefully it is not at the expense of their core business.

These new businesses are in areas, as far as I know, the mgmt has no pror experience. So, I think the learning curve is going to be very steep and hopefully not too costly.

Az has committed $18.4m capital investment (tugs and barges) into a business that is currently worth $23m.

I am just trying to highlight the potential concerns and certainly will not be so optimistic as to forecast $25m profit for the next 2 years. I will wait and see how they do in the first $23m order before deciding any investment commitment. 

Well, I wish its as simple as you say. You don't seem to have considered some practical details.

1. In the announcement of this new business, the first order is worth S$23m and the buyer will decide to award further orders upon satisfactory fulfillment of  this order....so the S$250m order is not a confirmed order....only S$23m is confirmed. So, the way I see it, Az has invested S$18.4m  in capital asset for a S$23m order. It is therefore vital they secure the remaining orders.

2. There will be a learning curve and start up cost in ramping up a new business.

3. With the accelerating costs of building material, has Az locked in the price of these material from suppliers. Does their contract with the buyer provide for price adjustments should cost of material increase?

4. Now that Az is going to handle their own transportation and logistics, how are they managing the escalating fuel cost? There will also be learning curve and start up costs associated with this aspect of the business.

The above is not exhaustive....I am not trying to run down Az....but just trying to highlight the potential risks involved. 

I think it would be more prudent to assess the viability of this business in 2Q 08 results...when this business comes on stream.