Chinese e-commerce giant Alibaba Group Holding Ltd. is all set to acquire ZTE Corp.’s software business in an effort to boost its cloud computing arm, Alibaba Cloud.

People familiar with the matter told Bloomberg that the two companies have been involved in talks for “months,” and said a deal is close to being done. Alibaba will likely pay around $294 million to take over the unit, the people said. However, one analyst told SiliconANGLE a deal seems unlikely.

ZTE’s software unit, known as ZTEsoft, mainly sells telecommunications software such as business support systems and operational support systems for mobile networks. More recently it has branched out into employee management software and smart city and transport projects. It also provides software support to other telecommunications operators.

Bloomberg said Alibaba wants to buy ZTEsoft in order to help its cloud better compete with rivals such as Amazon Web Services Inc. and Microsoft Corp.’s Azure as it branches out of China and into international markets. Alicloud is currently well behind its rivals, according to Gartner Inc.’s most recent Magic Quadrant for cloud infrastructure-as-a-service, but has the “potential to become an alternative to the global hyperscale cloud providers in select regions over time.” It is also Alibaba’s biggest growth business, with more than 874,000 paying customers, according to the company’s most recent earnings report in March.

If Alibaba does acquire ZTEsoft, it would also gain access to the software company’s global client base, giving Alibaba Cloud a foot in the door with those customers.

As for ZTE, it could probably use the money from any sale to help offset the recent $892 million fine it incurred for violating U.S. trade sanctions on Iran. The company also needs cash to help fund its research into 5G networks, where it’s looking to establish a lead over rival companies like Nokia Oyj and Huawei Technologies Co. Ltd.

Although these factors perhaps point in favor of a deal, Holger Mueller, vice president and principal analyst at Constellation Research Inc., said he would be surprised if it actually went ahead, because he sees little merit in it for either company. He pointed out that although ZTE probably needs the cash, its software unit hosts several billing OSS and BSS solutions that he thinks it can’t afford to get rid of.

“There might be a purchase,” Mueller said. “But if so, Alibaba will have to continue to support customers for a while, or else ZTEsoft will move its products to AliCloud. So there’s a few synergy points, but I see no immediate value.”

Earlier this week, Alibaba did confirm another significant investment, announcing its investing $1 billion to boost its stake in Lazada Group, an e-commerce company that has a big presence in Southeast Asian markets. Alibaba said it had increased its stake in Lazada from 51 to 83 percent in a deal that values it at about $3.15 billion.

Image: courtesy of Alibaba.com