Nathan Myrhvold, the chief technology officer of Microsoft, has decided to spend more time digging for dinosaurs rather than return to the software company.

Mr Myrhvold said yesterday that he would not be returning to Microsoft once his year-long sabbatical comes to an end in July. His departure, although widely expected, comes as the company is finding it increasingly hard to retain staff in the wake of its legal difficulties and increased competition from internet start-ups.

Bob Young, the chief executive of Red Hat, a rival company that promotes Linux, the main competitor to Windows, said yesterday that, for the first time, a "huge number of junior Microsofties" were leaving the firm.

Mr Young indicated that such defections were having a more immediate effect on the company than the long-running anti-monopoly battle with the US government. "It was one of the things that used to intimidate me in the early days. All the best guys, who didn't really like Microsoft, went to work for them anyway because it was full of interesting people and they were guaranteed to make lots of money."

Microsoft moved to stem the defections last week when it issued more share options. Shares in Microsoft have fallen more than 40% since January.

Mr Myrhvold, who joined Microsoft in 1986, has made a fortune at the company. He is expected to continue to act as a close adviser to Bill Gates, the co-founder and chief software architect of Microsoft.

Next week, Microsoft is expected to ask for further hearings to discuss the justice department's demands that the company be broken into two.