Pilots have a term for a deadly situation where conventional options only make things worse - adding power, raising the nose - all drive the airplane in to the ground. They call this "coffin corner."
Many commodity chip makers currently find themselves in this situation. Pricing pressure, demand, and even technolgy advances have conspired to make them unprofitable - at best.
The most visible battleground is in memory chips where technolgy has allowed the supply to more than double in the last 12 months without an increase in the number of wafers run through the process tools. This, when added to the decline in demand and pressure to drop prices has led to bankruptcy - Qimonda, and boat loads of red ink for other makers. Samsung always seems to Marshall on, balancing their unprofitable segemnts against their profitable ones. Micron, on the other hand seems to have to go to the well every few years for some form of bail-out (partnerships, loans, partner-stakeholders, etc). Despite the stiff-upper-lip attitude displayed on the earnings call, such might have to be the case soon.
Having been in the semi business for some 20 years, I can say that the indicator of a true cyclic upturn is a rapid decline in device pricing (as OEMs are able to get leverage by placing large orders) not stabilizing or increasing prices. The good news is that stabilized or increased prices indicate an inflection point where inventory issues have calmed (neither building or burning) and demand is served by wafer start levels with little buffer.
So, the buffers (distributors, CMs, etc) are likely at their bottom. When the trend turns up from the inflection point, business levels build here first as buffers are again required to meet increasing forecasts.
I hold no position in any companies mentioned.