Apple Computer is expected to unveil a long-anticipated upgrade to the Mac operating system on Tuesday. Mac OS X version 10.1 is considered by many analysts, Mac users and software developers to be the most important operating system upgrade that Apple will release this year. The new version will be available from Mac dealers and Apple's own retail stores at no cost for existing OS X owners. Everyone else will pay $129 (about £90). Some dealers said Monday that Apple told them they could not begin offering free 10.1 upgrade CDs until 12:01 am on Saturday. Others said they expect to begin offering the operating system sooner than that. The CDs will be available only for systems that already have Mac OS X 10.0-10.04 installed. "We have announced that Mac OS version 10.1 will be available this month, and we are still on track to do that," Apple spokeswoman Natalie Sequeira said Monday. While Sequeira could not say when the operating system would appear on new Macs, she said upgrade CDs and full $129 box versions would be available at the same time. Mac OS X is expected to be the focus of Apple Vice President Phil Schiller's keynote speech Tuesday at the Seybold print and Web publishing conference in San Francisco. Apple has said that it wouldn't unveil new hardware at Seybold, and dealer sources said reports of an updated PowerBook G4 announcement are likely false. Apple chief executive Steve Jobs had been scheduled to make a keynote speech this week at Apple Expo Paris. However, that show was cancelled amid security concerns after the 11 September terrorist attacks on the Pentagon and World Trade Center. Jobs is still slated to appear at Seybold "via satellite", although a live appearance would not be a shock. Analysts and dealers praised the Cupertino, California-based company for offering the upgrade CDs for free at Apple stores and other Mac retailers. Apple had earlier said it would charge about $20 shipping for the CDs, which apparently is still the case for anyone ordering the upgrade directly from Apple. "That is a smart move," Guernsey Research analyst Chris LeTocq said of the free upgrades at stores. Mac dealers are "going to love them for it. You want the free upgrade to go to the stores. It's going to drive people into the stores, and that is a great way to go." NPD Intelect analyst Stephen Baker agreed. "It's a great public relations move," he said. "The people who bought Mac OS X or a new system in the last six months, these are some of their best customers. It's very important Apple takes care of them." In the past week, Mac OS X 10.1 has gotten big boosts from two of Apple's largest software developers, signalling that the drought of major applications may have ended. Adobe Systems on Monday introduced the OS X version of InDesign, its page layout program. Adobe said in July that InDesign would be the first application to be optimised for OS X, followed by Illustrator. Adobe has not given a time frame for Photoshop, which may not be updated for OS X until sometime next year. And Microsoft is preparing to release a second--and likely final--test version of Office X for the Mac. The company last week said it would ship the new version sometime in November. Starting Tuesday morning, Microsoft will offer a beta version of Word X--part of the new Office suite--as a free download from the company's Web site. The Word X Test Drive, as Microsoft calls it, offers many but not all the features available in the full product coming sometime in November. The Test Drive will run only on Mac OS X 10.1. Privately, software developers complained that stability problems with Mac OS X 10 had hampered their ability to move applications to the new operating system. Both InDesign and Office X require Mac OS X 10.1. Other issues also hurt early adoption of OS X, such as slow performance and missing features--among them DVD playback and recording. "I've been using OS X ever since the public beta. And even though it's maturing rapidly, I've seen the initial enthusiasm of the first release mature into a reluctant acknowledgement that much work remains to be done," said David Randall, a Mac user and computer animator in Knoxville, Tennessee. "The upcoming release of 10.1 must address these issues if the OS X campaign is to be successful." Don Mayer, chief executive of Mac dealer Small Dog Electronics in Waitsfield, Vermont, said there were "very few early adopters using it as their base operating system, simply because it just wasn't ready. Now with 10.1, it is ready." In fact, Mayer is so sure of the upgrade that Small Dog Electronics is going to take its "proprietary accounting system and make it OS X native. This was really key for us moving our whole operation to OS X, and that will happen before the end of the year." Still, Apple is releasing this important upgrade at a potentially difficult juncture--with Microsoft's Windows XP juggernaut looming and analysts expressing concerns that fourth-quarter computer sales could be worse than forecast. "The upcoming release of Windows XP only increases the pressure," Randall said. "10.1 has to shine and shine brightly, or momentum will be lost." But Mayer discounted any concern that white noise from the Windows XP marketing blitz--which cranked up in volume with the release of XP-based PCs on Monday--would hurt Mac OS X 10.1 sales. "Frankly, we're not selling" to Windows users, he said. "The Mac faithful are still going to be the Mac faithful, and our job and Apple's job is to increase market share from the 5 or 6 percent we have now. Every couple of percentage points means thousands of sales of Mac computers." But analysts warn that fourth-quarter computer sales could be dismal at best. IDC had forecast that fourth-quarter shipments of desktops and notebooks in the United States would decline 14 percent year over year. "But all those numbers are subject to revision based on the Sept. 11 incidents," IDC analyst Roger Kay said. "It will definitely be lower." Mayer dismissed concerns about fourth-quarter sales. "There's going to be a lot of people wanting to move to OS X," he said. "What that means for a reseller like us is there's going to be a lot of people who want to upgrade to a faster machine to take advantage of all the features. I think there are going to be some enormous sales opportunities." LeTocq said that Mac OS X 10.1 could, in fact, be a lifeline for Apple at a time when computer sales are expected to decline even more than expected. "It's going to get people into stores and generate traffic," he said. "That's got to affect sales." Even if computer sales do fall off for every manufacturer in the fourth quarter, Randall asserted that "OS X will contribute significantly both to Apple's visibility and to their bottom line. Since profit margins on software are traditionally much larger than on hardware, I would think the release of 10.1 is appropriately timed." News.com's Ian Fried contributed to this report. See the Operating Systems News Section for the latest headlines on Linux, Windows and other operating systems. See the Software News Section for full coverage. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the ZDNet news forums. Let the editors know what you think in the Mailroom. And read other letters.