Hewlett-Packard on Tuesday reported declines in its third-quarter 2009 revenue and profits, but said it expected full-year revenue and earnings to reach the midpoint of previously announced expectations.

HP's hardware business, including its server, storage, PC and printer sales, took a hit during the quarter, but increased services business from its acquisition last year of EDS helped stem the loss.

Investors were initially pleased with the results, pushing HP's shares to up nearly 2 percent by the end of the trading day to $43.96 per share. However, shares fell in after-hours trading, hitting just over $43.00 per share two hours after the close.

For its third quarter, ended July 31, HP reported revenue of $27.5 billion, down about 2 percent compared to the $28.0 billion it reported during last year's third quarter.

The company reported earnings of $2.2 billion, down 14 percent compared to its earnings of $2.5 billion for the same period. Earnings per share were 67 cents, compared to last year's 80 cents.

HP's business stabilized in the third quarter of 2009, with revenue and earnings exceeding expectations, said Mark Hurd, HP chairman and CEO.

"I'm pleased with our business in a tough economic environment," Hurd said.

Business is booming in China, is stable in the U.S. and needs improvement in Europe, Hurd said.

HP's total third-quarter services revenue was $8.5 billion, up 93 percent from last year, thanks to its acquisition of EDS in 2008. The services business showed a profit of $1.3 billion. HP said its integration of EDS into the HP services business was ahead of plan.

HP reported a year-over-year drop in its enterprise storage and server business of 23 percent to $3.7 billion. This included a drop in industry standard server revenue of 21 percent, a drop in business critical server revenue of 30 percent, a drop in storage revenue of 21 percent, and a drop in blade server revenue of 14 percent.

HP's software revenue for the quarter was $847 million, down 22 percent from last year. This included a drop in business technology optimization software revenue of 22 percent, HP said.

Revenue from personal systems sales was $8.4 billion, down 18 percent from last year, despite a 2 percent increase in total systems shipped, HP said. Notebook PC shipments rose 19 percent while revenue fell 10 percent. Desktop PC shipments fell 13 percent and revenue fell 26 percent. This led to a total consumer client revenue drop of 13 percent compared to a total commercial client revenue drop of 22 percent last year.

HP's Imaging and Printing Group revenue was $5.7 billion, down 20 percent from last year. The drop was led by a dip in printer hardware shipments of 23 percent, including a 41 percent drop in color LaserJet shipments and a drop in printer-based multifunction printer shipments of 38 percent. However, HP said, part of the drop in LaserJet sales was attributed to a shift in customer purchases to HP's OfficeJet line of products. HP also reported a drop in supplies revenue of 13 percent compared to last year.

HP's financial services revenue fell 1 percent from last year to $607 million, despite a 12 percent increase in financing volume and a 6 percent increase in net portfolio assets.

Looking forward, HP expects its full-year 2009 revenue and earnings to be at the midpoint of the expectations it offered in May, which included a revenue drop of 4 percent to 5 percent from 2008, and full-year earnings per share of between $3.02 and $3.16.