Amazon's Lab126 expands in Silicon Valley

SAN FRANCISCO (Reuters) - Amazon.com Inc's (AMZN.O) Lab126 research and design center has leased big new office space in the heart of Silicon Valley, the latest sign that the world's largest Internet retailer is stepping up competition with gadget leader Apple Inc (AAPL.O).

Lab126, which designed Amazon's ground-breaking Kindle e-reader and works on the company's Kindle Fire tablets, recently leased more than 500,000 square feet of space in Moffett Towers, an office complex in Sunnyvale, California.

A lease that size could hold more than 2,500 employees, according to the Oakland Tribune, which reported the move on Wednesday.

Lab126 had just over 500 employees listed on the LinkedIn (LNKD.N) professional network in September 2011, when Amazon launched its first tablet, the 7-inch Kindle Fire. That has grown to 937 as of Sept 20, including 850 in the San Francisco Bay Area, according to LinkedIn.

"Lab 126 continues to expand and we look forward to its growth in the Bay Area," an Amazon spokeswoman said on Thursday. She declined to comment further.

Amazon has applied for a permit to develop the interior of one building in the Moffett Tower complex so far, according to Connie Verceles, economic development manager for the City of Sunnyvale.

"It's great for Sunnyvale," she added. "Amazon will join a great roster of other Valley tech firms that are already here."

Yahoo! Inc's (YHOO.O) corporate headquarters is down the street from where Lab126 will be based. Microsoft (MSFT.O), Hewlett-Packard (HPQ.N), NetApp (NTAP.O) and Juniper Networks (JNPR.N) also have offices nearby, she noted.

Apple, which is based in Cupertino, another Silicon Valley town, recently moved into some office buildings in Sunnyvale too, Verceles said.

Gregg Zehr, a former hardware developer from Apple and Palm, heads Lab126, which is currently based a short drive from Apple's headquarters in Cupertino.

It is not clear whether Lab126 is re-locating completely from Cupertino to Sunnyvale, or adding extra space.

However, Lab126's expansion suggests Amazon is stepping up efforts to design more mobile devices, increasing competition with Apple, the maker of the iPhone and iPad.

"If you can bump up staffing 40 or 50 percent, the question is what's it for?" said Scott Tilghman, an analyst at Caris & Company. "Part of it could be tied to on-going evolution of the Kindle line of devices."

(Reporting By Alistair Barr; editing by Gunna Dickson)