Most of the high-power, low-speed, direct-driven permanent magnet synchronous generators for wind energy applications apply a cooling solution where the stator core is divided into a number of substacks. Cooling air is blown through the stator through radial cooling channels formed between the adjacent stator substacks. The use of the stator substacks has an effect on the equivalent length of the generator, and thus, if neglected, leads to an incorrect no-load voltage and synchronous inductance calculation. In this paper, the design issues related to the thermal and electromagnetic design of permanent magnet synchronous machines are highlighted. The analysis starts with a preliminary electromagnetic design. Then, the allowable number and width of cooling ducts are calculated based on the maximum allowable temperatures and fluid flow speed with a thermal resistance network model. The effect of cooling ducts on the no-load voltage and synchronous inductances of the machine are discussed in detail. The calculated no-load voltage and synchronous inductances are used in the analytical performance evaluation. It is shown that the cross-saturation of the synchronous inductances must be taken into account in order to get realistic results.