The Wall Street Journal is reporting that while Windows 7 operating system has fattened the company's earnings and boosted personal-computer sales at retailers like Best Buy. But it hasn't increased the profits of PC giants Hewlett-Packard and Dell.

Consumers purchased more than 90 million new PCs during the holiday quarter, when Microsoft released Windows 7, up 22% from a year earlier, PC revenue grew at just a single-digit rate, the Journal reports. Laptop prices posted a record year-over-year drop, falling 23 per cent to an average of $581 last quarter from a year ago.

Dell Vice President Alex Gruzen said in October, the PC market would no longer be a "race to the bottom" in terms of prices but it is turning out that once Windows was released tight-fisted consumers meant retailers flogged PCs at deep discounts over the holiday quarter. Dell, which tried to resist cutting its prices, has already seen slower sales growth as low-cost competitor Acer has stepped up.

Prices are likely to continue to go lower Acer told the Journal. HP has been leaning on suppliers to drop prices so that it can keep final prices low. Meanwhile Microsoft is coining it in. Last week it reported a 60 per cent jump in quarterly earnings, largely because of Windows 7 sales. Intel, which supplies chips to PC makers, last month reported a 28 per cent jump in revenue and a tenfold increase in profit from a year earlier thanks to strong chip sales. Best Buy also did well.

The problem appears to be that Windows 7 is probably only a consumer product at the moment and that is a market that wants cheap PCs still.