Edberg, the former world No 1, will have the time off because he has no chance of making the year-ending tournament in Frankfurt, Germany, which pits the world's top eight players against each other.
Edberg was philosophical about his defeat, saying he would soon forget about it. "I'm going to have some losses here and there," he said. "I'm going to have my good weeks."
The winner of six Grand Slam tournaments insists he will retire if he feels he can no longer win one of the majors, but acknowledges that bigger and stronger players make it harder all the time. "I used to be one of the big guys on the Tour. Now I'm somewhere in the middle," said the 6ft 2in Swede.
Philippoussis, 18, who lost to Edberg in the Australian Open in January, said that Edberg was still playing the same delicate serve and volley game, but the problem was that "tennis is getting a lot faster and more powerful.
"Maybe today Stefan didn't play as well or I didn't let him into the match," said Philippoussis, ranked 60th in the world in his first full year on the Tour.
"Everybody can play well when you're having a good day," Edberg said. "If you can play well when you're having a bad day, then you're a good player."
Meanwhile, Britain's Jeremy Bates slumped to a second-round defeat, despite winning the opening set against the sixth seed, Todd Martin. Bates twice broke his American opponent's serve in taking the first set 6-3. But Martin mixed serve and volley with well-placed passing shots to take the match 3-6, 6-4, 6-4.
Martin will now face Sweden's Henrik Holm, who overcame the No 12 seed, Mark Woodforde, of Australia, 4-6, 6-1, 7-6.
Steffi Graf, the Wimbledon champion, is still hoping to compete in next week's Brighton tournament - despite widespread reports that she has withdrawn because of back trouble. Graf, who shares the world No 1 ranking with Monica Seles, has been nursing a chronic back complaint for several months, and has not played since winning the US Open early last month.
But George Hendon, promoter of the Brighton event, said yesterday: "Reports that Steffi has withdrawn are completely unfounded. She wants to play because she has always enjoyed the Brighton tournament.
"Steffi had a rigorous workout in Germany today and may not decide until tomorrow whether she can play. She is probably waiting to see if their is any reaction after her practice session. If her back holds up she will definitely play, but until we hear from her, there is no point in speculating on the matter," Hendon said yesterday.
If Graf does drop out, it will be a tremendous blow to the tournament, which is being staged for the 18th and last time this year. The event is without a sponsor and was hoping for big crowds to watch the German player in action.
This year, despite her back problem, she has won three of the four Grand Slam titles - the French Open, Wimbledon and the US Open - and has lost only one match, to the South African Amanda Coetzer, at the Canadian Open in August. But she bounced straight back to win the US Open, beating the newly returned Seles in the final.
More recently, she has been upset by her father, Peter - who is also her manager - being arrested and taken into custody in Germany for allegedly failing to report around pounds 22m of her earnings. Graf herself had to endure lengthy questioning from the German tax authorities last week.
Results, Sporting Digest, page 31