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Tickers in this Article: ORCL, CRM, RHT, IBM, SAP, VMW, CTXS
Normally, there is a trade-off in technology stocks - the bigger the company, the less impressive the growth. In those cases, investors tend to look to the larger companies as more secure and more conservative plays on basic tech spending trends, while the smaller, riskier names post the exciting growth.

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Somebody forgot to send that memo to Oracle (Nasdaq:ORCL). Oracle often gets criticism for being too aggressive with deals (and paying too much), and not sharing enough cash with shareholders, but the Oracle formula seems to be working quite well right now.

A Very Good Fiscal Third Quarter
It is hard to find much to fault in Oracle's third quarter. Revenue jumped 36% from the year ago level and ticked up 1% on a sequential basis. Growth was led by a very strong result in license revenue, up 29% (11% sequentially) on strong growth in both apps and database. Hardware and services were not so impressive, though, and both declined.

Like other growth software companies, Oracle did not impress so much on the operating leverage side of things. Non-GAAP operating income rose 35% and margins slipped a bit relative to expectations. Absent a lower tax rate working in the company's favor, the bottom-line beat was not as impressive as the top line performance.

Looking for Leverage
Oracle's issues with operating leverage are hardly unique. Salesforce.com (NYSE:CRM) and Red Hat (NYSE:RHT) have demonstrated similar issues in their most recent quarters. The fact that it is not an uncommon issue takes some of the heat off of any specific company, but eventually, it will call into question the multiples investors are willing to pay for the sector. At least in the case of Oracle, though, there are other factors at work including the inclusion of the hardware business and higher R&D spending.

Repeating the Model in Cloud?
Oracle built its name by dominating the corporate database market and has replicated that to some extent in enterprise software (though IBM (NYSE:IBM) and SAP (NYSE:SAP) likely would object to that characterization). Now, Oracle is taking on virtualization, cloud computing and software as a service. And while names like Salesforce.com, VMware (NYSE:VMW) and Citrix (Nasdaq:CTXS) are doing well today, Oracle has multi-decade experience in fending off fast-growing smaller rivals and Oracle's current growth rate is nothing that requires any apologies from the company.

The Bottom Line
Oracle management deserves a lot of credit for avoiding the malaise that seems to be so common today among the big tech names of the 1980s and '90s. The biggest question for Oracle is just how much operating leverage is left in the system. If the company has maxed out its leverage, the stock is still cheap enough to own but it just isn't quite as interesting as other names. If Oracle management can unlock the secrets to even better cash flow generation, though, this is a stock that could still appeal to even the most aggressive of growth investors. (For related reading, also take a look at Is Cloud Computing An Investable Trend?)

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