While Nadal's fitness on hard courts had been in some doubt on his return to the ATP circuit after seven months out with a knee injury, it was Federer's troublesome back that proved the most significant factor as he was totally outplayed.
The four-times Indian Wells champion continually struggled to hold serve, was broken four times and made a slew of backhand errors against an opponent who moved well and controlled most of the rallies with deeper and more accurate groundstrokes.
"I was hanging in there in the first set so you always believe that with a good return game and I dug myself out of a couple of tough service games, that I could do it, you know," Federer said after losing to Nadal for a 19th time.
"The longer the match went on, I realised I had to change up my game. I played differently than I was hoping to be able to. Obviously he got more comfortable as the match went on, as well.
"Things became difficult. Obviously once I was down a set I knew it was going to be difficult. It (the back niggle) is obviously a small issue, and that doesn't work against guys like Rafa."
Federer, who had beaten claycourt specialist Nadal 6-3 6-4 in last year's Indian Wells semi-final when they last met, said he had not been surprised by the Spaniard's fluent movement about the court on Thursday.
"He's not going to come back if he's not well," the 31-year-old Swiss said. "He's not going to come back half broken. I expected him to tear through the clay. I expected him to be tough here, which he shows to be."
Spanish left-hander Nadal won two ATP titles after reaching three finals on the clay courts of South America on a highly impressive return to the circuit last month.
"No question, he's a bit careful at times, you know, his movement," added Federer. "That's totally normal. He hasn't played for some time on hard court. I don't know if it's careful or if it's just getting used to it again.
"But we're talking about slow clay courts. He can return from way back in the court. It's not like on a hard court where you have to react super fast. And even that would be no problem for him, otherwise he wouldn't have come back on tour."
Federer is still seeking his first ATP title of the year after producing contrasting form in his first four tournaments.
After reaching the Australian Open semi-finals, where he lost to Andy Murray, Federer was beaten by Julien Benneteau in the Rotterdam quarter-finals before squandering three match points in a semi-final defeat by Tomas Berdych in Dubai.
Following his quarter-final exit from Indian Wells, Federer plans to return to his native Switzerland to map out his playing schedule going forward.
"I'll go back for the next few days and weeks and sort of consider what's next," said the Swiss, who will skip next week's ATP Masters 1000 event in Miami. "Normally I'd like to practise real hard and rest up and recover from this week.
"It's been a really difficult week for me, so I'm happy to have played a decent tournament. Overall under the circumstances I'm happy. I'll probably maintain my schedule, but you never know."
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