The proposed break-up of Microsoft to end its operating systems monopoly has led to the largest 24-hour drop in its stock value for 13 years.

Concerns that the break-up will hit Microsoft's earnings potential prompted investors to dump shares in the software giant in midday trading. The monopoly remedy will be confirmed early this week, and reports say the US government is expected to push for a break-up of the company.

Off-loaded By the close of the market yesterday, Microsoft's shares traded at $66.63, a drop of more than 15 per cent from the previous day. Microsoft's was the most actively traded issue, with more than 156 million shares changing hands before trading closed. By that time, investment firm SG Cowen had downgraded the software maker from "strong buy" to "buy", while the Goldman Sachs Group had dropped Microsoft from its "recommended" list to "market outperform."

Microsoft's woes sent the Nasdaq into a slide, with most of the major PC manufacturers, including Compaq Computer, Dell Computer, Gateway 2000 and Hewlett-Packard, seeing their share value drop by between three and five points. The Nasdaq 100 dipped 4.3 per cent.

The US Department of Justice (DOJ) and 19 US states have until Friday to announce how they propose to punish Microsoft. But, details of the proposal surfaced yesterday as a result of leaks over the weekend to various media by unidentified sources.

Restrictions Under the proposal, the Office package of business productivity software, including Word and Excel, would be spun-off into a separate business, and Microsoft would be subject to restrictions on its conduct until the divestiture, a story in the Wall Street Journal said.

Microsoft would also be forced to split off the Windows operating system business from the rest of the company, unidentified sources told the Journal and the Washington Post. The operating system company would be permitted to include browser software, but the Office business would also have rights to Microsoft's Internet Explorer Web browser, the reports said.

The proposal might also recommend a third company that would get the browser and the Microsoft Network (MSN), Microsoft's ISP (Internet service provider) and Web portal, the Post said. However, the Wall Street Journal quoted sources as saying the government is unlikely to recommend a break-up into three entities because it would create "enormous inefficiencies and possibly fragment the Windows standard to the detriment of consumers".

Justice Department spokeswoman Gina Talamona was not available for comment yesterday.

US District Judge Thomas Penfield Jackson’s schedule requires Microsoft to file its response by May 10, and the government to file a response to Microsoft's brief by May 17. A final hearing is scheduled to take place May 24.