NEW YORK (CNN/Money) - Hewlett-Packard Co. Tuesday reported higher sales and a profit for the latest quarter, but results for the No. 2 maker of personal computers missed forecasts on Wall Street.

Palo Alto, Calif.-based HP posted a net profit of $297 million, or 10 cents a share, for its fiscal third quarter ended July 31, compared with a $2 billion net loss a year earlier. Excluding restructuring charges and other one-time items, HP earned 23 cents a share, compared with a profit of 14 cents a year ago.

Sales rose to $17.4 billion from $16.5 billion. Analysts had predicted the company would earn 26 cents a share excluding one-time items on sales of $17.5 billion, according to First Call, which tracks Wall Street forecasts.

HP (HPQ: down $0.02 to $22.11, Research, Estimates) stock tumbled 10.9 percent to $19.70 in after-hours trading, according to Instinet, after ending little changed during regular trading.

All in all, it was a disappointing quarter for HP, especially since hopes were rising that its much maligned merger with Compaq was starting to pay benefits. The stock had gained more than 30 percent since its last quarterly report in May.

Operating losses widened in its unit that sells data storage, servers and software to big businesses. The division posted a $70 million operating loss in the third quarter, following a $7 million loss in the second quarter. Wide expectations were that the division would continue to gain momentum and would at the very least break even, if not post a small operating profit. That didn't happen.

Still, HP Chairman and CEO Carly Fiorina stressed during the company's conference call that this business would be profitable in the fiscal fourth quarter. Based on the worse-than-expected loss in the third quarter, that might be a tough promise to fulfill.

"There is a lot to fix in that division," said Pierr Johnson, a technology analyst with John Hancock funds.

HP's desktop, notebook and handheld business swung to a loss after posting two consecutive quarterly profits. The division reported an operating loss of $56 million.

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"The third quarter is always tough, but we still should have done better," Fiorina said. She added that the PC and handheld business would return to profitability in the fourth quarter, blaming in part the company's own aggressive price cuts on PCs for lower margins.

Hancock's Johnson said that the continued success of Dell (DELL: down $0.39 to $32.82, Research, Estimates), which reported another record quarter of revenue last week, is another big reason for HP's weakness in the PC area, particularly in the desktop market.

Margins in HP's largest and most profitable business, printing and imaging, slipped in the third quarter as well. The printing and imaging business reported an operating profit of $739 million on $5.2 billion in sales, for an operating margin of 14.1 percent. In HP's second quarter, margins in this business were 16.6 percent.

Fiorina said higher expenses, particularly in research and development, were the reason behind the lower profit margins. To that end, HP unveiled more than 150 new products last week, many of which were in the printing and imaging division.

About the only bright spot was HP's services division, which has won some big outsourcing contracts in recent months. Revenue in the division rose 1.7 percent from the second quarter (the only business to report a sequential sales increase) and operating profit rose 12 percent.

The company also gave sales and earnings guidance for the fiscal fourth quarter that was roughly in line with analysts' estimates. HP said it expected sales of $18.8 billion-to-$19.1 billion and earnings, excluding charges, to be in a range of 34 cents-to-36 cents a share. The First Call consensus estimates are for revenue of $19 billion and earnings per share of 36 cents.

Fiorina said that these estimates do not factor in an economic pickup, particularly in corporate technology spending. She added that it appears that the U.S. economy has stabilized but that Europe, which accounted for 37 percent of sales in the quarter, remains a problem spot.