Federer, ranked No. 2 in the world, can still advance in the tournament, which features two four-player round-robin schedules before the top two in each group qualify for the semifinals. He also lost his first match in the 2007 Masters Cup before winning the title.
Federer took the first set Monday but Gilles Simon rallied for a 4-6, 6-4, 6-3 win. The match was tighter than the final score but Federer only managed to break Simon's serve once over the last two sets. Federer had nearly as many double faults -- two -- as aces -- three -- in the match.
The other Red Group match Monday said Andy Murray defeated Andy Roddick 6-4, 1-6, 6-1. Murray faced just four break points -- all in the second set -- in the win. He fired nine aces at Roddick, who managed three aces of his own.
Tuesday's Gold Group schedule pairs first-day winners Novak Djokovic and Nikolay Davydenko against each other, with the winner likely qualifying for the semifinals. The other match has Juan Marin del Potro playing Jo-Wilfried Tsonga.