Probably a little of both. First, there's currently an oversupply of LCD panels so that reduces one of the major manufacturing costs. Secondly, competition. The desktop computer market has become largely commoditized. You can find new machines for under $400 these days. The Dells and HP/Compaqs of the world are able to make a profit only by selling large quantities of machines.
At the same time, the laptop market was still fairly high-margin and it was becoming popular for non-business buyers. So a lot of manufacturers jumped on the laptop bandwagon. But, frankly, there's not much difference between low-end laptops (in fact, they're all probably made by the same handful of OEMs and rebadged). So the only way to attract customers to your product is for you to sell it for a few dollars less than your competition. Rinse and repeat.